Saturday, September 24, 2022
Senators Reed, Warren, and Cortez Masto recently introduced a bill to expand Section 12(g) of the Exchange Act. The bill, as I understand it, would require that private companies with WKSI-level private valuation, or $5 bill in revenue plus 5,000 employees, would become reporting companies.
I couldn't find announcements from the sponsoring senators about the purpose of the bill, but there is this floor statement from Sen. Reed:
[T]hese companies have incredible influence over our society and way of life. ... It should be alarming when private companies can become extremely large and influential in our economy and raise unlimited amounts of capital from an unlimited number of investors, while circumventing the basic disclosure and governance requirements that Congress sought to apply...
I wrote a whole article on how securities disclosures are nominally intended for investors, but they are used by other audiences, and the distortive effects of attempting to hijack the securities disclosure system for the benefit of stakeholders. My point is not that stakeholders don't deserve disclosure - far from it! - but instead that we should openly create a stakeholder disclosure system rather than continue to filter stakeholder-oriented disclosures through the SEC.
This bill ... illustrates the problem.
Section 12(g) disclosures are currently tied to the number of investors a firm has, on the theory that when investors are sufficiently dispersed, they need mandatory disclosure. This bill, by contrast, would require disclosure based solely on size, even, I take it, if a firm has only a handful of investors. I think size is a great trigger for disclosure - it's what I recommended in my paper! - but it only makes sense if your audience is stakeholders. And though Sen. Reed's full floor statement does nod to investor needs, his interest in protecting stakeholders seems to be the real motivator here. But the mindset that somehow only investors are entitled to holistic disclosure forced him and his co-sponsors to try to filter still more stakeholder-disclosure through a securities disclosure system that is not designed for their needs.