Yesterday the final meeting of the Securities and Exchange Commission’s Advisory Committee on Small and Emerging Companies (ACSEC) took place in Washington, DC. ACSEC, launched in 2011, will now transition over to the Small Business Capital Formation Advisory Committee – an entity with a similar role as ACSEC but with additional statutory authority. The new Committee is part of the “Advocate for Small Business Capital Formation” that was created by legislation signed into law at the end of 2016. The SEC announced a nationwide search of this new Advocate as it seeks an individual with the skill set to represent the most important element of the US economy.
The thought process behind the creation of a new office at the SEC to represent small business is the fact too frequently regulations are written with the largest corporations in mind. Many small businesses are ill equipped to manage these regulations that are inappropriate for smaller firms. Regulations that are not “right sized” level an added cost on smaller firms that are inevitably born by society.
Chair Clayton’s comments are republished below.
Chairman Jay Clayton
Sept. 13, 2017
Good morning everyone, and thank you, Steve [Graham] and Sara [Hanks]. I would also like to extend a warm welcome to J.W. [Verret], who was recently appointed to the Committee.
As Sara and Steve noted, the two-year term of this Committee expires on September 24th. I want to extend my sincere appreciation to all of you for your dedication and service. Your recommendations have been, and will continue to be, helpful as we work to facilitate the ability of small and emerging companies to raise capital. In my short time here, I have already come to appreciate the insights and expertise that this Committee brings to bear.
Transition to New Small Business Capital Formation Advisory Committee
This Committee’s work has long been recognized and appreciated so much so that Congress recently codified the Committee into the Exchange Act. I am pleased to announce that the Commission is moving forward on establishing this permanent successor committee, which will be named the Small Business Capital Formation Advisory Committee. I am thankful – and you and others that have served on this Committee should be proud – that thoughtful dialogue and recommendations that are focused on small and emerging companies will continue with the new advisory committee.
Along those same lines, the Commission is taking steps to stand up the new Office of the Advocate for Small Business Capital Formation. Of note, we recently published a nationwide job posting for the new Advocate position, and I look forward to getting the new Advocate on board in the near future.
As we turn to today’s agenda, it is clear that this Committee is not slowing down. You are exploring two important topics that impact small and emerging companies, and I look forward to hearing your views. This morning you will discuss the auditor attestation report under Section 404(b) of the Sarbanes-Oxley Act. In June 2016, the Commission proposed amendments that would increase the financial thresholds for the “smaller reporting company” definition and thereby expand the number of companies that could qualify to provide scaled disclosures. The Commission received a number of thoughtful public comments on the proposal, and I look forward to hearing your discussion and, as always, any data and experiences you can share.
This afternoon will include a discussion of potential updates to modernize Securities Act Rule 701, which is an exemption from registration for securities issued by non-reporting companies pursuant to certain compensatory arrangements – in essence, a rule that makes it less burdensome to compensate employees with equity. The Commission last adopted substantive amendments to this rule in 1999. Since that time, many companies have chosen to stay private longer and at higher valuations. In light of these developments and recent legislative efforts related to the rule, I am interested to hear whether this Committee believes Rule 701 continues to appropriately serve both the needs of employee-investors, who receive compensatory awards pursuant to this exemption, and the needs of non-reporting companies.
I also look forward to reading the Committee’s final report that you are discussing today. As the Commission explores ways to improve the attractiveness of being a publicly listed company while maintaining important investor protections, your recommendations will continue to be instrumental.
Thank you again for your service on this valuable Committee. I hope you enjoy a productive day.