The SEC is preparing rules which would require greater disclosures from private companies, especially “unicorns” valued at $1 billion or more, according to the Wall Street Journal.
Commissioner Allison Lee made it clear the rules are targeted at the largest private companies, stating “when they’re big firms, they can have a huge impact on thousands of people’s lives with absolutely no visibility for investors, employees and their unions, regulators, or the public.” Commissioner Lee noted she is not interested in extending disclosure requirements to small- and medium-sized private firms. In an appearance on CNBC, SEC Chairman Gary Gensler stated that the disclosure push will also apply to funds that invest in private companies, such as private equity.
The SEC’s concerns seem primarily driven by climate and human capital related disclosures but would likely extend to areas such as financial performance and executive compensation. With climate and human capital disclosure regulations in the works, the Commission has recognized the disparity in existing disclosure requirements between publicly traded and privately held companies, and is likely conscious of the fact that new disclosure mandates may encourage some companies to stay private.
To that end, the SEC could look at different methods to tally a company’s number of shareholders to encourage private companies to join public markets. Currently, exceeding a certain threshold of shareholders triggers disclosure requirements.
Opposition materializing: Industry groups and a diverse set of companies from sectors such as tech and energy have expressed concern that the rules will stifle investment and innovation. Legislators have encouraged the SEC to reduce the disclosure burden on public companies to make public markets more attractive, rather than forcing private companies into the existing disclosure regime.
Outlook: It is not just the SEC that is concerned about the opacity of private companies. BlackRock’s CEO Larry Fink expressed concerns that efforts to reduce carbon emissions cannot fall exclusively on public companies, noting that disclosure disparities present opportunities for companies to hide or greenwash carbon emissions.