This past week, the Securities and Exchange Commission (SEC) published its 41st annual Small Business Forum report, an effort to help guide the Commission on important issues facing small businesses and access to capital in the USA. While the SEC focuses most of its attention on larger firms, frequently public entities, SMEs remain a key and vital aspect of the economy. SMEs account for “2 out of every 3 jobs added in the past 25 years,” according to the Small Business Administration, yet frequently policymakers provide too little attention to this important element driving economic growth and prosperity. The Forum provides a point of engagement for smaller, underrepresented firms and the SEC leadership – to learn and engage and perhaps improve the regulatory environment for SMEs.
As in year’s prior, the SEC’s Annual Business Forum provides policy recommendations derived from Forum participants. In this year’s report, recommendations are followed by a response from the Commission.
The report, available below, highlights participants’ policy suggestions, some of which have been heard in the past. Items like democratizing the definition of an accredited investor by empowering a larger segment of the population to gain access to Reg D private securities offerings has been supported before, yet there is little chance the Commission will change the rule to level the playing field to what is perhaps the most robust market in the US.
A request to consider the burden on SMEs caused by new ESG proposals for additional disclosure requirements, most recently climate risk reporting, will most likely be ignored.
Other items are pushed to the side by stating they require Congressional action to move the regulatory barrier.
Perhaps the best appraisal of the Forum and its accompanying report came from SEC Commissioner Hester Peirce, who stated:
“Heightening the importance of this year’s Forum is the Commission’s current posture of, at best, indifference, and at times, hostility to facilitating capital formation. As it happens, today is the tenth anniversary of President Obama signing into law the Jumpstart Our Business Startups (JOBS) Act. That bipartisan legislation required the SEC to write rules lessening the burdens on small companies seeking to raise capital. Some of the Act’s provisions were things we could have done on our own. Congress and the President got fed up waiting for the Commission to take small business capital formation seriously.
In line with the Commission’s more general indifference to small business capital formation, the Commission has responded to policy recommendations made by past Forums in a non-committal and uninspired way. The Commission’s response to ideas raised last year as potential game-changers was no different. For example, last year, the Forum recommended “[e]stablish[ing] a micro-offering exemption with minimal disclosure requirements,” and the Commission responded by noting that the Commission had already considered and rejected such an idea, but that the Commission would “continue to consider” the recommendation. Worthwhile policy recommendations to “[r]evise Regulation Crowdfunding to remove the GAAP financial statement requirement for businesses seeking to raise a small amount” and to “[p]rovide state preemption for secondary transactions for shares issued under Regulation A and Regulation Crowdfunding” received similar responses.”
There is more.
While the mission of the Forum is admirable and holds great merit, the reality tends to be mired in politics and differing perspectives. The Office of the Advocate for Small Business Capital Formation, a relatively new entity that recently lost its first Advocate, Martha Legg Miller, who did a stellar job of supporting smaller firms, is in transition as it seeks out a new Advocate. A new Advocate may bring renewed energy to the role but don’t expect additional support from the Commission until there is a change in perspective at the top, so at best – years away.