“Minnesota’s Corporate Edge: Leading Through Change with SEC Insights” Key Takeaways

In October, Fredrikson partnered with the Minnesota Business Partnership and the Minnesota Chapters of the National Association of Corporate Directors and Women Corporate Directors to host a fireside chat with Commissioner Mark Uyeda of the Securities and Exchange Commission (SEC) and a panel of distinguished Minnesota-based general counsels:

• Louis Lambert, Senior VP, General Counsel, and Corporate Secretary of APi Group Corporation
• Bill McDonald, Executive VP, Chief Legal and Compliance Officer, and Corporate Secretary of Dayforce, Inc.
• Karla Robertson, Executive VP, Chief Sustainability Officer, General Counsel, and Corporate Secretary of Pentair plc

This article synthesizes insights shared during the event, which provided public company leaders and their advisors with practical advice on regulatory compliance and governance in an increasingly complex environment.

1. The SEC’s Role in Fostering Efficient Markets

A theme of the event was that the SEC continues to play an essential role in ensuring that markets operate efficiently and with adequate information, and that our markets benefit from a principles-based disclosure regime that is based on traditional concepts of financial materiality. However, SEC rules that were adopted during the outgoing administration, such as those relating to cybersecurity oversight and climate risks, require line-item disclosure regardless of whether management views the topic as material to the company’s results of operations or financial condition.

Commissioner Uyeda reiterated his perspective, which he has made public through various statements and speeches, that the SEC’s existing principles-based disclosure regime already requires companies to discuss material risks and material known trends and uncertainties. For example, a company that faces a material supply chain constraint should consider whether disclosure is required, even in the absence of a specific line item that calls for disclosure about the supply chain. In Commissioner Uyeda’s view, requiring disclosure about certain topics even if immaterial creates challenges for current and aspiring public companies, and does not provide the type of information that investors need to make decisions about buying, selling or voting securities.

With that backdrop, the commissioner acknowledged a growing perception that the SEC’s regulatory approach has become overburdensome for public companies. In his view, this creates inefficiencies and reduces investment opportunities for retail investors. He highlighted his beliefs that markets, not regulators, should determine the quality of securities offerings and investment opportunities.

The commissioner also pointed to the frequency of split votes among the five SEC commissioners as a signal of the politicization of the agency, a trend he views as harmful. Bipartisan cooperation, he argued, is crucial for rulemaking that supports rather than stifles market competitiveness. Additionally, we may see a shift in the SEC’s regulatory agenda and overall posture in the next administration.

2. Recent SEC Enforcement Issues

Commissioner Uyeda noted company concerns about “regulation by enforcement,” which arise when interpretive questions are addressed through enforcement actions rather than clearly articulated rules or guidance. Companies are particularly likely to face compliance questions when rules are based on theoretical or academic principles rather than practical, real-world applications.

The commissioner also cautioned against reading too much into the SEC’s disbandment of its Environmental, Social and Governance (ESG) taskforce. He cited a recent enforcement action relating to recyclability claims as an illustration of disclosure scrutiny for ESG-related claims, explaining that it is difficult for a company to argue that information provided in an SEC filing is not material, even if the company added the disclosure voluntarily rather than in response to a line-item requirement. Accordingly, the company may face heightened risk of liability for material misstatements or omissions. Companies should ensure they have appropriate backup to support public statements, especially if the information is included in an SEC filing.

3. The Importance of Disclosure Controls and Procedures

Commissioner Uyeda also warned of a recent trend in SEC enforcement, where disclosure controls and procedures are increasingly used as an “enforcement hook” for non-financial disclosures, like cybersecurity, stock buybacks, and employee relations, and observed that it can be challenging to implement disclosure controls and procedures for immaterial information that may be required under recently adopted SEC disclosure rules.

Disclosure controls and procedures are often viewed as a technical compliance matter. They are required to be designed to ensure that information required to be disclosed is recorded, processed, summarized and reported within the time periods required by Commission rules and forms. This includes controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to the company’s management as appropriate to allow timely decisions about required disclosure. However, recent enforcement actions suggest that companies not only need to ensure their disclosures are accurate, but that the internal systems to support those disclosures are also well-functioning. In this environment, companies must pay close attention to whether internal corporate records align with external disclosures and ensure that disclosure controls are robust, documented and consistently applied. Both financial and non-financial information must be routed to appropriate personnel in order to make timely disclosure decisions.

The general counsels panel remarked that the enforcement environment, as well as emerging disclosure requirements on cybersecurity and other non-financial topics, increase the importance of inter-departmental information sharing, which requires intentional effort and clear communication. Internal disclosure committees and frameworks often support communication and understanding of compliance, governance and disclosure, as well as sub-certification processes. In lieu of or in addition to a disclosure committee, companies encourage employees throughout the organization to raise questions and elevate potential issues. The presence, composition and responsibilities of disclosure committees (and sub-committees) depend on company size, organizational complexity, corporate culture and other circumstances.

4. Capital Raising: Balancing Regulation and Accessibility

Another critical topic was the future of capital formation in both public and private markets. Commissioner Uyeda highlighted the fact that fewer public companies exist today, limiting investor choice. He expressed concerns about the increasing view of IPOs as liquidity events for venture capitalists rather than true capital-raising opportunities. He also acknowledged that analyst coverage and the presence of a strong secondary trading market affect whether it is beneficial to be a publicly traded company and suggested that this should be an area of greater focus.

Regarding private offerings, Commissioner Uyeda shared his perspective that Regulation D thresholds could be modernized to allow greater access to private investment opportunities outside of high cost of living areas. He emphasized finding a balance between regulation and accessibility in order to support greater market participation.

5. The SEC’s Impact on Smaller Companies

Both Commissioner Uyeda and the panel highlighted concerns about the disproportionate impact of SEC regulations on smaller companies. The Commissioner pointed out that smaller companies often lack the resources to keep pace with rapid regulatory changes, yet they are still held to the same standards as larger firms.

The panel emphasized the importance of prioritization and focus, noting that smaller teams must concentrate on the most critical regulatory issues rather than being distracted by every new rule or update.

6. Practical Insights from General Counsels

The Minnesota-based general counsels offered practical advice for companies navigating the SEC’s regulatory framework. A few highlights included:

• Cross-functional cooperation is essential for elevating rulemaking items to the board level and ensuring a unified message across departments, particularly when dealing with SEC filings, investor communications and sustainability reporting.
• Consistency in messaging was another key theme. Inconsistent disclosures across departments or with external communications can muddy the waters, increasing the risk of enforcement action. Companies must develop disciplined processes for reviewing external communications and coordinating between departments.
• Proactive engagement with the board is necessary. Some boards prefer real-time updates on key emerging regulatory developments. Counsel must ensure that the board is well-informed without overwhelming directors with excessive information between meetings.

Conclusion: Leading Through Regulatory Change

The SEC’s role in maintaining market integrity and transparency is crucial for public companies and investors alike. However, the complexity of SEC regulations and the recent enforcement environment have created significant challenges. For CEOs, independent directors, general counsels and outside advisors, the insights shared by Commissioner Uyeda and local leaders provide valuable guidance on how to navigate risks and opportunities during a shifting regulatory environment. Understanding the SEC’s role and staying ahead of potential changes will be key to ensuring continued success in both public and private markets.

Remarks by Commissioner Uyeda were made in his official capacity as a commissioner of the Securities and Exchange Commission, and not on behalf of the Commission, his fellow commissioners or the staff. Remarks by Messrs. Lambert and McDonald and Ms. Robertson were made on their own behalf and do not necessarily reflect those of their company or colleagues.