On January 27, 2025, US Securities and Exchange Commission Commissioner Hester Peirce gave the keynote address at the Northwestern Securities Regulation Institute in which she offered her personal views on how public companies and, to some extent, the SEC in working with public companies might move away from “importing politics and contentious social issues” into corporate and disclosure matters and how we might return to materiality as the cornerstone of disclosure. To that end, in her remarks, she offered a few suggestions:
Refocus on the limited mission of public companies and of the SEC. Commissioner Peirce takes the view that public companies have a singular focus–building corporate value for shareholders, precluding companies from diverting time and resources to matters that do not contribute to the company’s long-term value—such as the “ever-growing, never-satisfied set of stakeholders that brazenly grasp at company resources to do something other than maximize the value of the company.” She describes the SEC’s mission as focused on investor protection by ensuring investors have the disclosures they need in order to make their decisions.
Return to materiality as the guidepost for disclosure requirements. Commissioner Peirce points to a number of examples of disclosure requirements that have been prompted by the interests of particular constituencies but may not have met a materiality standard. For example, in her remarks, she cites conflict minerals disclosure, pay ratios, the now-stayed climate disclosure rules, and expanded human capital disclosure. She advocates that: “The best course is for all of us to retreat to a place where materiality from the perspective of the reasonable investor is the sine qua non for disclosures. In this retreat, there is no shame. Materiality-based disclosure is one of the foundational strengths of the American securities regulatory regime.”
Asset managers should focus on the exercise of their fiduciary duty. The Commissioner noted that fiduciary duty to the fund should be an asset manager’s guiding principle when deciding how or whether to exercise a vote. In this regard, Commissioner Peirce objected to the requirement that investment companies make public how they vote on proxies relating to portfolio securities like “environment or climate” or “human rights or human capital/workforce.” She notes that this exposes voting to scrutiny by third parties in ways that may interfere with the exercise of the manager’s fiduciary duty.
Addressing the shareholder proposal process. Commissioner Peirce notes that the rise in environmental and social proposals imposes significant monetary and opportunity costs on companies, diverting management and board attention away from their primary goal of maximizing corporate value. As a potential solution, she suggests reexamining Rule 14a-8 to ensure that a proponent has some meaningful economic stake or investment interest in a company.
Refrain from using enforcement actions to override managerial decision-making. Commissioner Peirce expressed concerns regarding a trend toward enforcement actions in which the Commission has taken an aggressively broad interpretation of Exchange Act Section 13(b)(2)(B)’s internal accounting controls provision and other instances in which the Commission has used Rule 13a-15(a), which requires companies to have “disclosure controls and procedures” in enforcement actions. In these cases, the Commission has, in effect, used internal control and disclosure controls requirements to extend its authority and to address the internal corporate policies of the subject companies in ways that may be inconsistent with the largely disclosure-based mandates of the Commission.
Provide guidance to companies. Commissioner Peirce emphasized the importance of early and frequent communication during the registration statement review process and encourages more and renewed dynamic, interactive engagement by the staff with public companies, their lawyers, and accountants to address complex questions about new and existing rules.
Read Commissioner Peirce’s full remarks.