[Federal Register Volume 85, Number 196 (Thursday, October 8, 2020)]
[Rules and Regulations]
[Pages 63726-63761]
[FR Doc No: 2020-19182]

Vol. 85

Thursday,

No. 196

October 8, 2020

Part III

Securities and Exchange Commission

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17 CFR 229, 239, and 240

Modernization of Regulation S-K Items 101, 103, and 105; Final Rule

Federal Register / Vol. 85 , No. 196 / Thursday, October 8, 2020 /
Rules and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR 229, 239, and 240

[Release Nos. 33-10825; 34-89670; File No. S7-11-19]
RIN 3235-AL78

Modernization of Regulation S-K Items 101, 103, and 105

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting amendments to modernize the description of business, legal
proceedings, and risk factor disclosures that registrants are required
to make pursuant to Regulation S-K. These disclosure items have not
undergone significant revisions in over 30 years. The amendments update
these rules to account for developments since their adoption or last
revision, to improve disclosure for investors, and to simplify
compliance for registrants. Specifically, the amendments are intended
to improve the readability of disclosure documents, as well as
discourage repetition and the disclosure of information that is not
material.

DATES: The final rules are effective on November 9, 2020.

FOR FURTHER INFORMATION CONTACT: Sean Harrison, Office of Rulemaking,
at<PHONE_NUMBER>, in the Division of Corporation Finance, U.S.
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549.

SUPPLEMENTARY INFORMATION: The Commission is amending

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          Commission reference                 CFR citation (17 CFR)
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Regulation S-K:.........................  Sec.   229.10 et seq.
    Item 101............................  Sec.   229.101.
    Item 103............................  Sec.   229.103.
    Item 105............................  Sec.   229.105.
Securities Act of 1933 (Securities Act):
 \1\
    Form S-4............................  Sec.   239.25.
Securities Exchange Act of 1934
 (Exchange Act): \2\
    Schedule 14A........................  Sec.   240.14a-101.
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Table of Contents
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    \1\ 15 U.S.C. 77a et seq.
    \2\ 15 U.S.C. 78a et seq.
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I. Introduction and Background
II. Discussion of the Amendments
    A. General Development of Business (Item 101(a))
    1. Elimination of the Five-Year and the Three-Year Disclosure
Timeframes
    a. Proposed Amendments
    b. Comments on the Proposed Amendments
    c. Final Amendments
    2. Updated Disclosure in Subsequent Filings
    a. Proposed Amendments
    b. Comments on the Proposed Amendment
    c. Final Amendment
    3. Disclosure About Business Strategy
    a. Proposed Amendments
    b. Comments on the Proposed Amendment
    c. Final Amendments
    B. Narrative Description of Business (Item 101(c))
    1. Revenue-Generating Activities, Products and/or Services, and
Any Dependence on Revenue-Generating Activities, Key Products,
Services, Product Families, or Customers, Including Governmental
Customers
    a. Proposed Amendments and Comments
    b. Final Amendments
    2. Status of Development Efforts for New or Enhanced Products,
Trends in Market Demand, and Competitive Conditions
    a. Proposed Amendments and Comments
    b. Final Amendments
    3. Resources Material to a Registrant's Business
    a. Raw Materials
    (ii) Comments on the Proposed Amendments
    (iii) Final Amendments
    b. The Duration and Effect of All Patents, Trademarks, Licenses,
Franchises, and Concessions Held
    (i) Proposed Amendments
    (ii) Comments on the Proposed Amendments
    (iii) Final Amendment
    4. A Description of Any Material Portion of the Business That
May Be Subject to Renegotiation of Profits or Termination of
Contracts or Subcontracts at the Election of the Government
    a. Proposed Amendment and Comments
    b. Final Amendment
    5. The Extent to Which the Business Is or May Be Seasonal
    a. Proposed Amendment and Comments
    b. Final Amendment
    6. Compliance With Material Government Regulations, Including
Environmental Regulations
    a. Proposed Amendment
    b. Comments on the Proposed Amendment
    c. Final Amendment
    7. Human Capital Disclosure
    a. Proposed Amendment
    b. Comments on the Proposed Amendment
    c. Final Amendment
    C. Legal Proceedings (Item 103)
    1. Expressly Provide for the Use of Hyperlinks or Cross-
References To Avoid Repetitive Disclosure
    a. Proposed Amendment
    b. Comments on the Proposed Amendment
    c. Final Amendment
    2. Updated Disclosure Threshold for Environmental Proceedings in
Which the Government Is a Party
    a. Proposed Amendments
    c. Final Amendment
    D. Risk Factors (Item 105)
    1. Summary Risk Factor Disclosure if the Risk Factor Section
Exceeds 15 Pages
    a. Proposed Amendment
    b. Comments on the Proposed Amendment
    c. Final Amendment
    2. Replace the Requirement To Disclose the ``Most Significant''
Factors With the ``Material'' Factors
    a. Proposed Amendment
    b. Comments on the Proposed Amendment
    c. Final Amendment
    3. Require Registrants To Organize Risk Factors Under Relevant
Headings
    a. Proposed Amendment
    b. Comments on the Proposed Amendment
    c. Final Amendment
III. Other Matters
IV. Economic Analysis
    A. Baseline and Affected Parties
    B. Potential Costs and Benefits
    C. Anticipated Effects on Efficiency, Competition, and Capital
Formation
    D. Alternatives
V. Paperwork Reduction Act
    A. Summary of the Collections of Information
    B. Summary of Comment Letters
    C. Summary of the Impact on Collections of Information
    D. Burden and Cost Estimates of the Amendments
VI. Regulatory Flexibility Act Certification
VII. Statutory Authority

I. Introduction and Background

    On August 8, 2019, the Commission proposed amendments to modernize
the description of business (Item 101), legal proceedings (Item 103),
and risk factor (Item 105) disclosure requirements in Regulation S-
K.\3\ The proposals were intended to improve these disclosures

for investors and to simplify compliance for registrants.\4\
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    \3\ See Modernization of Regulation S-K Items 101, 103, and 105,
Release No. 33-10668 (Aug. 8, 2019) [84 FR 44358 (Aug. 23, 2019)]
(``Proposing Release'').
    \4\ The proposals were also consistent with and further promoted
the objectives of the Fixing America's Surface Transportation Act
(``FAST Act''). See Public Law 114-94, 129 Stat. 1312 (Dec. 4, 2015)
(requiring, among other things, that the SEC conduct a study, issue
a report, and issue a proposed rule on the modernization and
simplification of Regulation S-K).
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    Pursuant to Section 108 of the Jumpstart Our Business Startups Act
(``JOBS Act''),\5\ the Commission staff prepared the Report on Review
of Disclosure Requirements in Regulation S-K (``S-K Study''),\6\ which
recommended that the Commission conduct a comprehensive evaluation of
its disclosure requirements. Based on the S-K Study's recommendation,
the staff initiated an evaluation of the information our rules require
registrants to disclose, how this information is presented, where this
information is disclosed, and how we can better leverage technology as
part of these efforts (collectively, the ``Disclosure Effectiveness
Initiative'').\7\ The overall objective of the Disclosure Effectiveness
Initiative was to improve our disclosure regime for both investors and
registrants.
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    \5\ Public Law 112-106, Sec. 108, 126 Stat. 306 (2012). Section
108 of the JOBS Act required the Commission to conduct a review of
Regulation S-K to determine how such requirements can be updated to
modernize and simplify the registration process for emerging growth
companies.
    \6\ See Report on Review of Disclosure Requirements in
Regulation S-K (Dec. 2013), available at https://www.sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf (``S-K
Study'').
    \7\ See SEC Spotlight on Disclosure Effectiveness, available at
https://www.sec.gov/spotlight/disclosure-effectiveness.shtml.
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    In connection with the S-K Study and the launch of the Disclosure
Effectiveness Initiative, the Commission staff invited public input on
how to improve registrant disclosures.\8\ In a separate Concept Release
issued in 2016,\9\ the Commission staff revisited the business and
financial disclosure requirements in Regulation S-K and requested
public comment on whether these requirements provide the information
that investors need to make informed investment and voting decisions,
and whether any of our rules have become outdated or unnecessary.
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    \8\ To facilitate public input on the Disclosure Effectiveness
Initiative, the Commission invited members of the public to submit
comments. See Request for Public Comment, available at http://www.sec.gov/spotlight/disclosure-effectiveness.shtml. Public
comments received in response to that request for comment are
available on our website. See Comments on Disclosure Effectiveness,
available at https://www.sec.gov/comments/disclosure-effectiveness/disclosureeffectiveness.shtml.
    \9\ See Business and Financial Disclosure Required by Regulation
S-K, Release No. 33-10064 (Apr. 13, 2016) [81 FR 23915 (Apr. 22,
2016)] (``Concept Release'').
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    In developing the proposed amendments to Items 101, 103, and 105 of
Regulation S-K, we considered input from comment letters we received in
response to these disclosure modernization efforts. We also took into
account the staff's experience with Regulation S-K arising from the
Division of Corporation Finance's disclosure review program and changes
in the regulatory and business landscape since the adoption of
Regulation S-K. As a recent example, in response to the COVID-19
pandemic, the Division of Corporation Finance closely monitored
registrants' disclosure about how COVID-19 affected their financial
condition and results of operations. Division staff observed that our
principles-based disclosure requirements generally elicited detailed
discussions of the impact of COVID-19 on registrants' liquidity
position, operational constraints, funding sources, supply chain and
distribution challenges, the health and safety of workers and
customers, and other registrant- and sector-specific matters.\10\
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    \10\ See Division of Corporation Finance CF Disclosure Guidance:
Topic No. 9A (June 23, 2020) (encouraging companies to evaluate the
current and expected impact of COVID-19 through the eyes of
management and to proactively revise and update disclosures,
including MD&A, as facts and circumstances change), available at
https://www.sec.gov/corpfin/covid-19-disclosure-considerations.
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    We also considered the many changes that have occurred in our
capital markets and the domestic and global economy in the more than 30
years since the adoption of these disclosure requirements, including
changes in the mix of businesses that participate in our public
markets, changes in the way businesses operate, changes in technology
(in particular technology that facilitates the provision of, and access
to, information), and other changes that have occurred simply with the
passage of time. Many of the amendments reflect our long-standing
commitment to a principles-based, registrant-specific approach to
disclosure. Our disclosure requirements, while prescriptive in some
respects, are rooted in materiality and facilitate an understanding of
a registrant's business, financial condition and prospects through the
lens through which management and the board of directors manage and
assess the performance of the registrant. We believe that modernizing
Items 101, 103, and 105 will result in improved disclosure, tailored to
reflect registrants' particular circumstances, and reduce disclosure
costs and burdens.
    In response to the proposed amendments, we received numerous
comment letters, which we discuss in context below.\11\ In general,
commenters supported some or all of the proposed amendments, although
many suggested modifications to, and expansions of, the proposals. In
some cases, commenters opposed one or more of the proposed amendments,
or aspects of them. After considering all of the public comments
received, we are adopting the amendments substantially as proposed with
certain modifications. The table below briefly summarizes the final
amendments: \12\
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    \11\ The public comments we received are available at https://www.sec.gov/comments/s7-11-19/s71119.htm. Unless otherwise
indicated, the comment letters cited herein are those received in
response to the Proposing Release.
    \12\ The final amendments to Items 101 and 103 will affect only
domestic registrants and ``foreign private issuers'' that have
elected to file on domestic forms subject to Regulation S-K
disclosure requirements. Regulation S-K does not apply to foreign
private issuers unless a form reserved for foreign private issuers
(such as Securities Act Form F-1, F-3, or F-4) specifically refers
to Regulation S-K. Form 20-F is the combined registration statement
and annual report form used by foreign private issuers under the
Exchange Act. It also sets forth certain disclosure requirements for
registration statements filed by foreign private issuers under the
Securities Act. Instead of Items 101 and 103, the foreign private
issuer forms refer to Part I, Item 4 and Item 8.A.7., respectively,
of Form 20-F. In contrast, the amendment to Item 105 will affect
both domestic and foreign registrants because Forms F-1, F-3, and F-
4, like their domestic counterparts, all refer to that Item. See,
e.g., Item 3 of Form F-1. A foreign private issuer is any foreign
issuer other than a foreign government, except for an issuer that
(1) has more than 50% of its outstanding voting securities held of
record by U.S. residents; and (2) any of the following: (i) A
majority of its officers and directors are citizens or residents of
the United States; (ii) more than 50% of its assets are located in
the United States; or (iii) its business is principally administered
in the United States. See Securities Act Rule 405 [17 CFR 230.405]
and Exchange Act Rule 3b-4(c) [CFR 240.3b-4(c)].

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                               Summary of existing  Summary of the final
     Regulation S-K item        item requirements        amendments
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Item 101(a).................  Requires a            Revises Item 101(a)
                               description of the    to:
                               general development   Be largely
                               of the business of    principles-based,
                               the registrant        requiring
                               during the past       disclosure of
                               five years, or such   information
                               shorter period as     material to an
                               the registrant may    understanding of
                               have been engaged     the general
                               in business.          development of the
                                                     business, and
                                                     eliminating the
                                                     previously
                                                     prescribed five-
                                                     year timeframe.
                                                    Revises Item 101(h)
                                                     to:
                                                     Eliminate
                                                     the three-year
                                                     timeframe with
                                                     respect to smaller
                                                     reporting
                                                     companies.
                                                    Revises Items 101(a)
                                                     and (h) to clarify
                                                     that:

                                                     Registrants, in
                                                     filings made after
                                                     a registrant's
                                                     initial filing, may
                                                     provide an update
                                                     of the general
                                                     development of the
                                                     business rather
                                                     than a full
                                                     discussion. The
                                                     update must
                                                     disclose all of the
                                                     material
                                                     developments that
                                                     have occurred since
                                                     the registrant's
                                                     most recent filing
                                                     containing a full
                                                     discussion of the
                                                     general development
                                                     of its business,
                                                     and incorporate by
                                                     reference that
                                                     prior discussion.
Item 101(c).................  Requires a narrative  Revises Item 101(c)
                               description of the    to:
                               business done and     Clarify and
                               intended to be done   expand the
                               by the registrant     principles-based
                               and its               approach of Item
                               subsidiaries,         101(c), with a non-
                               focusing upon the     exclusive list of
                               registrant's          disclosure topic
                               dominant segment or   examples (drawn in
                               each reportable       part from the
                               segment about which   topics currently
                               financial             contained in Item
                               information is        101(c));
                               presented in its      Include, as
                               financial             a disclosure topic,
                               statements. To the    a description of
                               extent material to    the registrant's
                               an understanding of   human capital
                               the registrant's      resources to the
                               business taken as a   extent such
                               whole, the            disclosures would
                               description of each   be material to an
                               such segment must     understanding of
                               include disclosure    the registrant's
                               of several specific   business; and
                               matters.
                                                     Refocus the
                                                     regulatory
                                                     compliance
                                                     disclosure
                                                     requirement by
                                                     including as a
                                                     topic all material
                                                     government
                                                     regulations, not
                                                     just environmental
                                                     laws.
Item 103....................  Requires disclosure   Revises Item 103 to:
                               of any material       Expressly
                               pending legal         state that the
                               proceedings           required
                               including the name    information may be
                               of the court or       provided by
                               agency in which the   hyperlink or cross-
                               proceedings are       reference to legal
                               pending, the date     proceedings
                               instituted, the       disclosure located
                               principal parties     elsewhere in the
                               thereto, a            document to avoid
                               description of the    duplicative
                               factual basis         disclosure; and
                               alleged to underlie   Implements
                               the proceeding and    a modified
                               the relief sought.    disclosure
                               Similar information   threshold that
                               is to be included     increases the
                               for any such          existing
                               proceedings known     quantitative
                               to be contemplated    threshold for
                               by governmental       disclosure of
                               authorities.          environmental
                              Contains a threshold   proceedings to
                               for disclosure        which the
                               based on a            government is a
                               specified dollar      party from $100,000
                               amount ($100,000)     to $300,000, but
                               for proceedings       that also affords a
                               related to Federal,   registrant the
                               State, or local       flexibility to
                               environmental         select a different
                               protection laws.      threshold that it
                                                     determines is
                                                     reasonably designed
                                                     to result in
                                                     disclosure of
                                                     material
                                                     environmental
                                                     proceedings,
                                                     provided that the
                                                     threshold does not
                                                     exceed the lesser
                                                     of $1 million or
                                                     one percent of the
                                                     current assets of
                                                     the registrant and
                                                     its subsidiaries on
                                                     a consolidated
                                                     basis.
Item 105....................  Requires disclosure   Revises Item 105 to:
                               of the most           Require
                               significant factors   summary risk factor
                               that make an          disclosure of no
                               investment in the     more than two pages
                               registrant or         if the risk factor
                               offering              section exceeds 15
                               speculative or        pages;
                               risky and specifies   Refine the
                               that the discussion   principles-based
                               should be concise,    approach of Item
                               organized             105 by requiring
                               logically, and        disclosure of
                               furnished in plain    ``material'' risk
                               English. The Item     factors; and
                               also states that      Require
                               registrants should    risk factors to be
                               set forth each risk   organized under
                               factor under a        relevant headings
                               subcaption that       in addition to the
                               adequately            subcaptions
                               describes the risk.   currently required,
                               Additionally, Item    with any risk
                               105 directs           factors that may
                               registrants to        generally apply to
                               explain how each      an investment in
                               risk affects the      securities
                               registrant or the     disclosed at the
                               securities being      end of the risk
                               offered and           factor section
                               discourages           under a separate
                               disclosure of risks   caption.
                               that could apply to
                               any registrant.
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    We discuss our revisions with respect to the proposed amendments in
more detail below.

II. Discussion of the Amendments

A. General Development of Business (Item 101(a))

    Item 101(a) of Regulation S-K currently requires a description of
the general development of the business of the registrant during the
past five years, or such shorter period as the registrant may have been
engaged in business. In describing the general development of the
business, Item 101(a)(1) requires disclosure of the following:
     The year in which the registrant was organized and its
form of organization;
     The nature and results of any bankruptcy, receivership or
similar proceedings with respect to the registrant or any of its
significant subsidiaries;
     The nature and results of any other material
reclassification, merger or consolidation of the registrant or any of
its significant subsidiaries;
     The acquisition or disposition of any material amount of
assets otherwise than in the ordinary course of business; and
     Any material changes in the mode of conducting the
business.
    The Concept Release solicited input on whether the disclosure
provided under this Item continues to be useful

and how this Item might be improved.\13\ A number of commenters on the
Concept Release recommended eliminating or streamlining the
requirements in Item 101(a).\14\ Several of these commenters
recommended limiting Item 101(a) disclosure to material
developments,\15\ and a few commenters supported executive summaries
and layering techniques for the business section.\16\
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    \13\ See Concept Release, supra note 9, at 23932.
    \14\ See Proposing Release, supra note 3, at 44361.
    \15\ See id.
    \16\ See id.
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    In light of this feedback, we proposed to amend Item 101(a)(1) to
make it more principles-based and to provide registrants more
flexibility to tailor disclosures to their unique circumstances. We
discuss the proposals and our revisions with respect to the final
amendments below.
1. Elimination of the Five-Year and the Three-Year Disclosure
Timeframes
a. Proposed Amendments
    Item 101(a) requires a description of the general development of
the registrant's business during the past five years, or such shorter
period as the registrant may have engaged in business. Item 101(a) also
requires information to be disclosed for earlier periods if material to
an understanding of the general development of the business. A
requirement to provide a brief outline of the general development of
the business for the preceding five years was included in the earliest
form requirements for registration statements and annual reports.\17\
The first version of Regulation S-K, adopted in 1977, included a
requirement to describe the development of the registrant's business
during the prior five years, or such shorter period as the registrant
may have been in business.\18\
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    \17\ See, e.g., Item 6 of Form A-2 adopted in 1935, which
required registrants to outline briefly ``the general development of
the business for the preceding five years.'' See Release No. 33-276
(Jan. 14, 1935) [not published in the Federal Register].
Additionally, Item 5 of Form A-1, adopted in 1933, required
registrants to briefly describe the length of time the registrant
had been engaged in its business. See Release No. 33-5 (July 6,
1933) [not published in the Federal Register]. See also S-K Study,
supra note 6 at 32, n. 88.
    \18\ See Adoption of Disclosure Regulation and Amendments of
Disclosure Forms and Rules, Release No. 33-5893 (Dec. 23, 1977) [42
FR 65554 (Dec. 30, 1977)].
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    Item 101(h) sets forth alternative disclosure standards for smaller
reporting companies that allow these registrants to, among other
things, provide a less detailed description of the registrant's
business than is required under Item 101(a).\19\ In addition, Item
101(h) requires a description of three years rather than five years of
development of a smaller reporting company's business.
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    \19\ The term ``smaller reporting company'' is defined in 17 CFR
230.405 and 17 CFR 240.12b-2 as an issuer that is not an investment
company, an asset-backed issuer (as defined in 17 CFR 229.1101), or
a majority-owned subsidiary of a parent that is not a smaller
reporting company and that had a public float of less than $250
million; or had annual revenues of less than $100 million, and
either no public float, or a public float of less than $700 million.
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    We proposed to amend Item 101(a) to eliminate the five-year
disclosure timeframe and to apply a materiality standard to all of a
registrant's disclosure of the general development of its business. In
addition, we proposed a corresponding amendment to Item 101(h) to
eliminate the three-year disclosure timeframe applicable to smaller
reporting companies.\20\
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    \20\ The proposed amendment to Item 101(h), however, retained
the requirement that if a smaller reporting company has not been in
business for three years, it must provide the same information for
its predecessors if there are any.
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b. Comments on the Proposed Amendments
    A number of commenters expressed general support for eliminating
the five-year disclosure timeframe.\21\ Several commenters stated that
a prescribed disclosure timeframe does not elicit the most relevant
disclosure.\22\ One of these commenters stated that the one-size-fits-
all, fixed time period under the current rule may discourage
registrants from providing relevant disclosure relating to periods
outside of the five-year timeframe or result in an inadequate
discussion of meaningful recent developments.\23\
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    \21\ See, e.g., letters from International Bancshares
Corporation (``IBC''), California Lawyers Association (``CLA''),
Ernst & Young LLP (``E&Y''), Edison Electric Institute and American
Gas Association Accounting Advisory Council (``EEI and AGA''),
Society for Corporate Governance (``Society''), British Columbia
Investment Management Corporation (``BCI''), Davis Polk & Wardwell
(``DP&W''), Nareit, U.S. Chamber of Commerce's Center for Capital
Markets Competitiveness (``CCMC''), FedEx Corporation (``FedEx''),
and General Motors Company (``GM'').
    \22\ See, e.g., letters from GM, Society, EEI and AGA, CLA, and
IBC.
    \23\ See letter from GM.
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    Several commenters opposed eliminating the five-year disclosure
timeframe.\24\ One of these commenters stated that the proposal
complicates an area where there are no existing reporting problems.\25\
Another commenter stated that the current five-year timeframe is
appropriate because it corresponds with other financial reporting
requirements in Regulation S-K that have similar five-year disclosure
timeframes, such as the selected financial data required by Item
301.\26\ A different commenter stated that, without a prescribed
timeframe, some registrants might consider it necessary to include
information from decades past, which could significantly increase the
amount of disclosure with minimal added value to users.\27\ This
commenter recommended that we retain the five-year timeframe and
emphasize that only material developments be disclosed.
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    \24\ See, e.g., letters from Financial Executives International
(``FEI''), CFA Institute, and California Public Employees'
Retirement System (``CalPERS'').
    \25\ See letter from CalPERS (stating that under the proposal, a
registrant could choose to disclose a bankruptcy for only two years
rather than for five years as required under the current timeframe).
    \26\ See letter from CFA Institute. Item 301 of Regulation S-K
[17 CFR 229.301] requires registrants to furnish selected financial
data in comparative tabular form for each of the registrant's last
five fiscal years and any additional fiscal years necessary to keep
the information from being misleading. We have recently proposed
amendments to eliminate this requirement. See infra note 32 and
accompanying text.
    \27\ See letter from FEI.
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    We received a few comments on the proposed elimination of the
three-year timeframe in Item 101(h).\28\ One commenter supported
eliminating the three-year timeframe.\29\ This commenter stated that
investors are generally better able to make informed investment
decisions when the disclosure requirements provide a basis for
comparison, but noted that smaller reporting companies are by their
nature much less comparable to other companies. Another commenter
indicated that the Commission should retain the current requirement to
provide business development disclosure for predecessors, if any, of
the smaller reporting company if the smaller reporting company has not
been in business for three years.\30\
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    \28\ See, e.g., letters from CLA and CFA Institute.
    \29\ See letter from CLA.
    \30\ See letter from CFA Institute.
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c. Final Amendments
    After considering the comments, we are adopting the amendments to
Item 101(a) and Item 101(h) as proposed, but with a minor change to the
rule text of Item 101(h) for clarity. The amendment to Item 101(a) will
focus registrants on information material to an understanding of the
development of their business, irrespective of a specific timeframe.
Similarly, the amendment to Item 101(h) will eliminate the provision
that requires smaller reporting companies to describe the development
of their business during the last three years, and will direct smaller
reporting companies, in describing the development of their business,
to provide information for the period of

time that is material to an understanding of the general development of
the business.
    While we have considered commenter concerns about eliminating a
fixed timeframe for the description of a registrant's business, we
continue to believe that the current timeframes of five years and three
years, respectively, may not always elicit the most relevant
disclosure. With respect to one commenter's belief that the five-year
time period should be retained because it corresponds to other
disclosure requirements, we do not think that elimination of the
specified period will result in the loss of an important correlation
with other disclosure requirements.\31\ We believe the final amendments
will improve disclosure by affording registrants additional flexibility
to tailor their disclosure and provide information material to an
understanding of their business. Some registrants may prefer to
describe the development of their business over a longer period in
order to provide the information that may be material to an investment
or voting decision, while others may conclude that the material aspects
of their business development can be described over a shorter
timeframe. Moreover, we believe the benefits of more tailored and
effective disclosure in this context would justify any corresponding
loss in comparability.
---------------------------------------------------------------------------

    \31\ As noted above, the Commission recently proposed to
eliminate Item 301 of Regulation S-K, which requires disclosure of
five years of selected financial data, because the information
required by that item is largely duplicative of other requirements.
See Commission Guidance on Management's Discussion and Analysis,
Selected Financial Data, and Supplementary Financial Information,
Release No. 33-10750 (Jan. 30, 2020) [85 FR 12068 (Feb. 28, 2020)]
(``MD&A Release'').
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2. Updated Disclosure in Subsequent Filings
a. Proposed Amendments
    Currently, registrants are required to provide disclosure regarding
the general development of the business in certain registration
statements and annual reports. For filings made after a registrant's
initial filing, we proposed to amend Item 101(a)(2) and Item 101(h) to
permit a registrant to provide only an update of its business
development disclosure with a focus on material developments, if any,
in the reporting period. In addition, the proposed amendments would
require a registrant that is using this provision to incorporate by
reference a discussion of the general development of the registrant's
business that, together with the update, would contain the full
discussion. The registrant would be required to incorporate the prior
discussion by reference using one active hyperlink to the registrant's
most recent filing containing that discussion.\32\ Under this approach,
a reader would have access to a full discussion by reviewing the
updated business development disclosure and the disclosure from the
previous filing that is incorporated by reference. Alternatively, a
registrant could elect to provide a complete discussion of its business
development, including any material updates, in which case, it would
not need to incorporate by reference business development disclosure
from a previous filing.
---------------------------------------------------------------------------

    \32\ Pursuant to Securities Act Rule 411 [17 CFR 230.411] and
Exchange Act Rule 12b-23 [17 CFR 240.12b-23], registrants must, in
most cases, include an active hyperlink to information incorporated
by reference.
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b. Comments on the Proposed Amendment
    A number of commenters generally supported permitting the use of
incorporation by reference, and hyperlinking to the most recently filed
full discussion of the general development of the registrant's
business.\33\ One of these commenters stated that this would result in
a more organized and efficient picture of the registrant's business for
the investing public.\34\ Some of these commenters, while supportive of
the proposal, did not support mandating the proposed method to present
updated Item 101(a)(1) disclosure, as this method might not always be
useful to investors.\35\ These commenters stated that when registrants
have frequent material updates (e.g., multiple significant
acquisitions), including the full disclosure of the general development
of the business in each filing (or every few filings) may be the most
effective way to provide appropriate information to investors in a
format that is easy for them to understand.
---------------------------------------------------------------------------

    \33\ See, e.g., letters from Council of Institutional Investors
(``CII''), Jeff LaBerge (``LaBerge''), E&Y, FEI, William F. Dunker
(``Dunker''), BCI, DP&W, CCMC, Nareit, and FedEx.
    \34\ See letter from Dunker.
    \35\ See letter from EEI and AGA.
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    A number of commenters opposed the proposal to allow registrants to
provide an update of material developments during the reporting period
and require a hyperlink to the full discussion of the general
development of the registrant's business disclosure, because they
stated that this approach could lead to a disjointed narrative that
would not be user-friendly.\36\ One commenter stated the approach would
not reduce burdens on registrants as the prior period disclosure has
already been prepared.\37\ Several other commenters expressed concern
that the term ``reporting period'' limited the period of time over
which a registrant could provide an update about material
developments.\38\
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    \36\ See, e.g., letters from Chevron Corporation (``Chevron''),
CLA, GM, CFA Institute, New York City Bar Association (``NYC Bar
Association''), and International Corporate Governance Network
(``ICGN'').
    \37\ See letter from GM.
    \38\ See, e.g., letters from CLA, E&Y and CalPERS.
---------------------------------------------------------------------------

    We also received comments recommending that the proposal should not
mandate the use of a single hyperlink reference.\39\ These commenters
stated that if there are multiple updates in more than one reporting
period, registrants should be allowed to incorporate by reference and
hyperlink to all relevant filings to provide a full discussion of the
general development of the business.
---------------------------------------------------------------------------

    \39\ See letter from EEI and AGA.
---------------------------------------------------------------------------

c. Final Amendment
    After considering the comments, we are adopting the amendments to
Item 101(a)(2) and Item 101(h) substantially as proposed, but with
clarifications.\40\ Under the final amendments, for filings subsequent
to its initial registration statement, a registrant may provide an
update of the general development of its business disclosing all of the
material developments that have occurred, if any, since the most recent
full discussion of the general development of its business disclosed in
a previously filed registration statement or report. If a registrant
chooses this approach, it must incorporate by reference the most recent
full discussion of the general development of the registrant's
business. Moreover, under the final amendments, registrants are only
permitted to incorporate the full discussion of the general development
of its business from a single previously filed document. If a
registrant does not choose this approach, it must provide a complete
discussion of its business development, including any material updates
in each filing. In this regard, the approach that we are adopting is
more restrictive than existing incorporation by reference requirements
that, subject to certain limits, allow registrants to provide
disclosure by incorporating by

reference some or all of it from more than one previously filed
document.\41\
---------------------------------------------------------------------------

    \40\ We are also adopting corresponding amendments to Item
101(h) to permit a smaller reporting company, for filings other than
initial registration statements, to provide an update to the general
development of the business disclosure, instead of a full
discussion, that complies with Item 101(a), including the hyperlink
option.
    \41\ Securities Act Rule 411(e) and Exchange Act 12b-23(e),
however, provide that information must not be incorporated by
reference in any case where such incorporation would render the
disclosure incomplete, unclear, or confusing, such as incorporating
by reference from a second document if that second document
incorporates information pertinent to such disclosure by reference
to a third document. We remind registrants that, consequently, a
filing that includes an update and incorporates by reference the
more complete Item 101(a) discussion could not be incorporated by
reference into a subsequent filing, such as a Form S-3 or Form S-4.
---------------------------------------------------------------------------

    In response to the concerns expressed by some commenters that the
proposal should not be mandatory,\42\ we have added language to the
final amendment to clarify that the revision to Item 101(a)(2) provides
an optional method for updating general business development disclosure
using incorporation by reference to one document. In addition, based on
comments received expressing concerns that the term ``reporting
period'' limited the period of time over which a registrant could
provide an update about material developments,\43\ the final amendments
clarify that registrants using the update option must disclose all of
the material developments that have occurred since the most recent full
discussion of the general development of its business disclosed in a
previously filed registration statement or report.
---------------------------------------------------------------------------

    \42\ See, e.g., letters from EEI and AGA.
    \43\ See, e.g., letters from CLA, E&Y and CalPERS.
---------------------------------------------------------------------------

    As we noted in the Proposing Release, the repetition of Item 101(a)
disclosure in successive filings may obscure important developments in
a registrant's business. To the extent that registrants present and
update their Item 101(a) disclosure under this method, we believe that
the final amendments will help focus investor attention on material
developments in a registrant's business.
3. Disclosure About Business Strategy
a. Proposed Amendments
    We proposed amending the existing prescribed disclosure topics in
Item 101(a)(1) to make them more principles-based. The proposed
amendments would replace the list of prescribed disclosure topics with
a non-exclusive list of the types of information that a registrant may
need to disclose. The proposed amendments would also clarify that
disclosure of a topic would be required only to the extent such
information is material to an understanding of the general development
of a registrant's business. As proposed, amended Item 101(a)(1) no
longer would include disclosure of the year that the registrant was
organized and its form of organization, or disclosure of any material
changes in the mode of conducting the registrant's business in its list
of disclosure topics. Nevertheless, such disclosure would continue to
be required if material to an understanding of the general development
of the registrant's business. In addition, we also proposed to include
a new disclosure topic that would require, if material to an
understanding of the general development of the business, disclosure of
transactions and events that affect or may affect the company's
operations, including material changes to a registrant's previously
disclosed business strategy. We noted that such disclosure may be
material to investors and many registrants currently include it in
their initial registration statements.
b. Comments on the Proposed Amendment
    Many commenters expressed general support for moving to a more
principles-based approach to disclosure about the development of a
registrant's business.\44\ Several commenters stated that a more
principles-based approach would reduce the disclosure of immaterial
information and give registrants the flexibility to focus on
information that is material and unique to the registrant.\45\ Several
commenters, however, opposed the more principles-based approach under
the proposals.\46\
---------------------------------------------------------------------------

    \44\ See, e.g., letters from CII, Nasdaq, LaBerge, EEI and AGA,
Society, BCI, Dunker, DP&W, Nareit, CCMC, FedEx, FEI, and the Humane
Society of the United States (``Humane Society'').
    \45\ See, e.g., letters from Society, Nasdaq, Dunker, DP&W, and
FEI.
    \46\ See, e.g., letters from Public Citizen, AFL-CIO (principle-
based approach would increase the reliance on the subjective
judgment of management), Better Markets, Domini Impact Investments
LLC (``Domini'') (principles-based approach could reduce the
usefulness of corporate disclosures for investors), Principles for
Responsible Investment (``PRI''), Breckinridge Capital Advisors
(``Breckinridge''), ICGN, and letters from individuals and entities
using Letter Type A.
---------------------------------------------------------------------------

    A number of commenters expressed support for including ``material
changes to a registrant's previously disclosed business strategy'' as a
non-exclusive disclosure example.\47\ One commenter viewed the
strategic orientation of a company as material to investors and
suggested that changes to it should be disclosed to investors on a
continuing basis.\48\ Several other commenters stated that disclosure
of a registrant's business strategy, not just changes to previously
disclosed business strategy, should be required for all
registrants.\49\ Another commenter expressed concern that limiting the
requirement to disclose only material changes in business strategy
would reduce the amount of business strategy information that companies
are currently providing annually to their investors.\50\ This commenter
recommended that the Commission require annual disclosure of a
company's business strategy. Another commenter who expressed support
for requiring disclosure of material changes to a previously disclosed
business strategy stated that the rules should not mandate disclosure
of business strategy because it could cause some registrants to
disclose competitive or sensitive forward-looking information.\51\ To
help mitigate this risk, this commenter recommended that a safe harbor
provision be added to the amendment.
---------------------------------------------------------------------------

    \47\ See, e.g., letters from CII, BCI, CCMC, FedEx, American
Federation of Labor and Congress of Industrial Organizations (``AFL-
CIO''), FEI, CFA Institute, and CalPERS.
    \48\ See letter from BCI.
    \49\ See, e.g., letters from AFL-CIO and CFA Institute. See also
letter from CalPERS (suggesting that the rule should make ``clear
that material changes in business strategy would not have to be
disclosed prospectively'').
    \50\ See letter from AFL-CIO.
    \51\ See letter from FEI.
---------------------------------------------------------------------------

    Several commenters opposed including transactions and events that
affect or may affect the company's operations and material changes to a
registrant's previously disclosed business strategy as non-exclusive
disclosure topics.\52\ Some of these commenters stated that disclosure
of material changes to a registrant's previously disclosed business
strategy is unnecessary and duplicative because disclosure regarding
changes in business strategy would already be reflected in the
MD&A.\53\ Other commenters stated that to the extent any change would
constitute a known trend or uncertainty likely to cause the most recent
financial results not to be indicative of future results, Item 303 of
Regulation S-K already requires such disclosure.\54\ Some commenters
that opposed this disclosure topic also stated that the disclosure
standard in the proposed amendment was different from the disclosure
standard under the MD&A requirements, which provides for disclosure of
information that a registrant ``reasonably expects will have a material
favorable or unfavorable impact on net sales or revenues or income from
continuing operations.'' \55\ These commenters recommended that, if the
proposed amendment were

adopted, the amendment should be revised to harmonize its standard with
the MD&A disclosure standard.
---------------------------------------------------------------------------

    \52\ See, e.g., letters from UnitedHealth Group Incorporated
(``UnitedHealth Group''), Dunker, Society, DP&W, Chevron, and GM.
    \53\ See, e.g., letters from UnitedHealth Group, Society, DP&W,
Chevron, and GM.
    \54\ See, e.g., letters from DP&W, Chevron, and GM.
    \55\ See, e.g., letters from Society and GM.
---------------------------------------------------------------------------

    Another commenter noted that, absent a definition of the term
``business strategy,'' it would be difficult for registrants to
determine whether disclosure is warranted.\56\ Another commenter stated
that there is a broad range in the interpretation of what ``strategy''
means and that the amendment would not result in disclosures that would
enable investors to make meaningful comparisons among companies, even
among companies within the same industry.\57\
---------------------------------------------------------------------------

    \56\ See letter from CLA.
    \57\ See letter from Chevron.
---------------------------------------------------------------------------

    Several commenters expressed concern that the proposal would
require registrants to disclose sensitive proprietary or business
information regarding a registrant's business strategy.\58\ One of
these commenters recommended that, if adopted, the Commission should
clarify that disclosure of proprietary or competitively sensitive
information is not required.\59\
---------------------------------------------------------------------------

    \58\ See, e.g., letters from UnitedHealth Group, Dunker,
Society, DP&W, and GM.
    \59\ See letter from GM.
---------------------------------------------------------------------------

    Several commenters stated that the proposal could result in
disparate treatment between registrants that provide disclosure of
their business strategy and therefore would be required to disclose any
material changes to their strategy, and registrants that have not
previously provided disclosure of their business strategy.\60\ One of
these commenters stated that a requirement to provide disclosure of any
material change in business strategy could become a deterrent to
companies considering conducting an initial public offering.\61\
---------------------------------------------------------------------------

    \60\ See, e.g., letters from UnitedHealth Group, Dunker, and
Society.
    \61\ See letter from Society.
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting the amendments to Item 101(a)(1) largely as
proposed, but with several modifications in response to comments
received. As proposed, the final amendments retain the existing
disclosure topics addressing the results of any bankruptcy,
receivership, or similar proceedings; the nature and results of any
other material reclassification, merger, or consolidation of the
registrant or any of its significant subsidiaries; and the acquisition
or disposition of any material amount of assets otherwise than in the
ordinary course of business.\62\
---------------------------------------------------------------------------

    \62\ The language of the disclosure topic regarding the results
of any bankruptcy, receivership or similar proceedings differs
slightly from the proposal by calling for disclosure of the ``nature
and effects of any material bankruptcy, receivership, or any similar
proceeding with respect to the registrant or any of its significant
subsidiaries.'' The proposed rule text did not include the
italicized language. Because the introductory text to Item 101(a)(1)
indicates that the disclosure should be provided with respect to the
registrant and its subsidiaries, we are making it explicit that Item
101(a)(1)(ii) disclosure should be provided with respect to
registrants and their significant subsidiaries.
---------------------------------------------------------------------------

    We are revising the disclosure topic regarding transactions and
events that affect or may affect the company's operations, including
material changes to a registrant's previously disclosed business
strategy, to eliminate the requirement to disclose transactions and
events that affect or may affect the company's operations. We were
persuaded by the commenter who stated that this disclosure would be
required under Item 303 of Regulation S-K.\63\ We agree that the
proposed disclosure requirement could result in repetitive disclosures,
which would be contrary to one of our objectives in amending Item
101(a). However, we are adopting as a disclosure topic material changes
to a registrant's previously disclosed business strategy. While some
commenters indicated that the proposal could result in disparate
treatment between registrants that currently provide disclosure of
their business strategy and those that do not,\64\ we believe that once
a registrant has disclosed its business strategy, it is appropriate for
it to discuss changes to that strategy, to the extent material to an
understanding of the development of the registrant's business. As noted
by one commenter, many registrants currently tailor their responses
under existing Item 101(a) to provide disclosure regarding their
business strategy, although this disclosure is not specifically
required.\65\ The final amendments build on these practices. We
emphasize, however, that the principles-based approach of the final
amendments will provide registrants with the flexibility to determine
the appropriate level of detail for these disclosures and should
mitigate any disincentives the amendments create for registrants to
disclose their business strategy. We are also not adopting a definition
of the term ``business strategy,'' as suggested by one commenter,\66\
to provide registrants with the flexibility to tailor their disclosures
according to their facts and circumstances.
---------------------------------------------------------------------------

    \63\ See letter from Chevron.
    \64\ See, e.g., letters from UnitedHealth Group, Dunker, and
Society.
    \65\ See letter from AFL-CIO.
    \66\ See letter from CLA.
---------------------------------------------------------------------------

    We are not adding a requirement to disclose a company's business
strategy annually, contrary to the suggestion of a commenter.\67\ Given
that the final amendments are intended to make Item 101(a) more
principles-based and require disclosure only to the extent material to
an understanding of a registrant's business, we believe that requiring
annual disclosure of a company's business strategy would be
inconsistent with these goals.
---------------------------------------------------------------------------

    \67\ See letter from AFL-CIO.
---------------------------------------------------------------------------

    In addition, we are not adopting a safe harbor to address the
concern of disclosing competitive or sensitive forward-looking
information, as recommended by one commenter. We believe the
principles-based nature of the final amendments to Item 101(a)(1) will
provide registrants with considerable flexibility to tailor their
disclosures to avoid disclosing competitively harmful information while
still providing material information to investors. In addition, the
amendments do not alter the application of existing statutory safe
harbor provisions of the Private Securities Litigation Reform Act
(``PSLRA'') that would be available for forward-looking statements made
by registrants.\68\ We therefore do not believe a new safe harbor is
necessary.
---------------------------------------------------------------------------

    \68\ [thinsp]See Section 27A of the Securities Act [15 U.S.C.
77z-2 (b)] and Section 21E of the Exchange Act [15 U.S.C. 78u-5(b)].
---------------------------------------------------------------------------

B. Narrative Description of Business (Item 101(c))

    Item 101(c) requires a narrative description of the business done
and intended to be done by the registrant and its subsidiaries,
focusing upon the registrant's dominant segment or each reportable
segment about which financial information is presented in the financial
statements. To the extent material to an understanding of the
registrant's business taken as a whole, the description of each such
segment must include ten specific items listed in Item 101(c) (see
Items (1)-(10) in the list below). Item 101(c) specifies two other
items that must be discussed with respect to the registrant's business
in general (see Items (11)-(12) in the list below), although, where
material, the registrant must also identify the segments to which those
matters are significant. Item 101(c) requires disclosure of: \69\
---------------------------------------------------------------------------

    \69\ Item 101(c)(1) [17 CFR 229.101(c)(1)] specifies that, to
the extent material to an understanding of the registrant's business
taken as a whole, the description of each segment must include the
information specified in paragraphs (c)(i) through (x). Information
in paragraphs (c)(xi) through (xiii) is required to be discussed for
the registrant's business in general and, when material, the
segments to which these matters are significant also must be
identified.

---------------------------------------------------------------------------

    (1) Principal products produced and services rendered;
    (2) New products or segments;
    (3) Sources and availability of raw materials;
    (4) Intellectual property;
    (5) Seasonality of the business;
    (6) Working capital practices;
    (7) Dependence on certain customers;
    (8) Dollar amount of backlog orders believed to be firm;
    (9) Business subject to renegotiation or termination of government
contracts;
    (10) Competitive conditions;
    (11) The material effects of compliance with environmental laws;
and
    (12) Number of persons employed.\70\
---------------------------------------------------------------------------

    \70\ The Commission removed and reserved Item 101(c)(1)(xi),
which required disclosure of company- and customer-sponsored
research and development activities, largely because U.S. GAAP
requires similar, but broader, disclosure. See Disclosure Update and
Simplification Final Rule, Release No. 33-10532 (Aug. 17, 2018) [83
FR 50148 (Oct. 4, 2018) (``DUSTR Adopting Release''). Thus, there
currently are twelve enumerated disclosure items under Item 101(c).
---------------------------------------------------------------------------

    Many of the enumerated disclosure requirements in Item 101(c) were
adopted in 1973.\71\ As businesses, markets, and technology have
changed since that time, some of the prescribed disclosure topics in
Item 101(c) are not relevant to all registrants, and these disclosure
requirements may elicit disclosure that is not material to a particular
registrant. In the S-K Study, the staff recommended a review of these
requirements in light of changes that have occurred in the way
businesses operate.\72\ In addition, the Concept Release invited
comment on whether Item 101(c) continues to provide useful information
to investors and how the Item's requirements may be improved.\73\
---------------------------------------------------------------------------

    \71\ See New Ventures, Meaningful Disclosure, Release No. 33-
5395 (June 1, 1973) [38 FR 17202 (June 29, 1973)].
    \72\ See S-K Study, supra note 6, at 99-100.
    \73\ See Concept Release, supra note 9.
---------------------------------------------------------------------------

    To facilitate application of our principles-based revisions to Item
101, we proposed to amend Item 101(c) to be more clearly principles-
based by replacing the current list of specific items with a non-
exclusive list of disclosure topic examples.\74\ In developing the
proposal, we took into account the comments received on the Concept
Release. For example, a number of commenters on the Concept Release
stated that working capital practices might be better addressed in
MD&A.\75\ Under the proposed amendments to Item 101(c), the revised
rule would not explicitly reference the disclosure requirements under
Item 101(c)(1)(vi) regarding disclosure of working capital practices,
Item 101(c)(1)(ii) requirement regarding disclosure about new segments,
or the Item 101(c)(1)(viii) dollar amount of backlog orders believed to
be firm. Nevertheless, under the proposed principles-based approach,
registrants would have to provide disclosure about these topics, as
well as any other topics regarding their business, if they are material
to an understanding of the business and not otherwise disclosed. For
example, if supply chain finance arrangements used by a registrant are
a significant part of its working capital practices, they may be
material to understanding the nature of its commercial relationships.
While MD&A disclosures on the topic are more focused on the potential
material impact of such arrangements on the registrant's periodic cash
flows and financial condition, the proposed principles-based approach
would call for additional disclosure if material to an understanding of
those commercial relationships. We discuss the proposals and our
revisions with respect to the final amendments below.\76\
---------------------------------------------------------------------------

    \74\ We did not propose to amend the disclosure requirements for
smaller reporting companies in Item 101(h)(1) through (6). We
believe that this approach will continue to permit smaller reporting
companies to provide a less detailed description of their business,
consistent with the current scaled disclosure requirements for these
companies.
    \75\ See Proposing Release, supra note 3, at 44364.
    \76\ Consistent with the proposal, the final amendments to Item
101(c) no longer explicitly reference the disclosure requirements
under Item 101(c)(vi) regarding disclosure of working capital
practices; or the Item 101(c)(viii) requirement regarding disclosure
about new segments and the dollar amount of backlog orders believed
to be firm.
---------------------------------------------------------------------------

1. Revenue-Generating Activities, Products and/or Services, and Any
Dependence on Revenue-Generating Activities, Key Products, Services,
Product Families, or Customers, Including Governmental Customers
a. Proposed Amendments and Comments
    We proposed to retain as a listed disclosure topic information
regarding revenue-generating activities, products and/or services, and
any dependence on key products, services, product families or
customers, including governmental customers, to the extent this
information is material to an understanding of the registrant's
business. We did not receive any comments that addressed this proposal.
b. Final Amendments
    We are adopting the amendment as proposed.\77\ Although we did not
receive any comments on this proposal, feedback in response to the
Concept Release indicated that these elements are key to how reasonable
investors often evaluate the future prospects of a registrant's
business and that highlighting these topics should elicit more
informative disclosures.\78\ We continue to believe that disclosure
regarding revenue-generating activities, products and/or services, and
any dependence on key products, services, product families, or
customers, including governmental customers, generally would be
material to an investment decision.
---------------------------------------------------------------------------

    \77\ In connection with this amendment, the Commission also
proposed several conforming amendments to Form S-4. See Section
II.C.1 of the Proposing Release, supra note 3. We did not receive
any comments on these conforming amendments and are adopting them as
proposed as well.
    \78\ See Proposing Release, supra note 3, at 44365.
---------------------------------------------------------------------------

2. Status of Development Efforts for New or Enhanced Products, Trends
in Market Demand, and Competitive Conditions
a. Proposed Amendments and Comments
    We proposed to retain as a listed disclosure topic information
regarding development efforts for new or enhanced products, trends in
market demand, and competitive conditions. We had proposed this
disclosure topic, which elicits more granular information of the type
currently specified in Item 101(c), in response to comments received on
the Concept Release. Commenters had recommended more disclosure of a
registrant's competitive position, especially the market share of its
products and industry trends shaping the nature of competition.\79\ Our
principles-based approach to this topic was intended to provide
registrants with flexibility to disclose this information to the extent
material to an understanding of their business. We received a few
comments on this proposal.\80\ One commenter recommended that the
proposal clarify that registrants are not required to disclose
proprietary or other sensitive information, which could damage their
competitive position.\81\ Another commenter recommended that this
disclosure topic be revised to include ``substantial trends known to

the company that may ultimately affect market demand.\82\
---------------------------------------------------------------------------

    \79\ Id.
    \80\ See letters from Society and Investor Environmental Health
Network (``IEHN'').
    \81\ See letter from Society.
    \82\ See letter from IEHN (noting particularly disclosure of
trends in the development of peer-reviewed scientific literature
demonstrating potential for substantial health or environmental
risks associated with the preparer's products or activities).
---------------------------------------------------------------------------

b. Final Amendments
    We are adopting the amendments as proposed. We are not adding a
clarification that the disclosure of proprietary or other sensitive
information is not required, as suggested by one commenter. We believe
the principles-based nature of Item 101(c) disclosure, which the final
amendments are intended to improve, should provide registrants with
sufficient flexibility in how they disclose this information, to the
extent material, without causing undue harm to their business
operations. Indeed, based on our experience with the current rules, we
are not aware that registrants have faced significant difficulties
providing this disclosure. We are also not adopting revisions to the
final amendments to include disclosure of substantial trends known to
the company that may ultimately affect market demand, as suggested by
one commenter. The principles-based disclosure topic should provide
registrants with flexibility to disclose information about competition
that is material to an understanding of their business. We also note
that Item 303(a)(3)(ii) of Regulation S-K requires a registrant to
describe any known trends or uncertainties that have had or that the
registrant reasonably expects will have a material impact (favorable or
unfavorable) on net sales or revenues or income from continuing
operations. In addition, if the registrant knows of events that will
cause a material change in the relationship between costs and revenues,
the change in the relationship must be disclosed under Item
303(a)(3)(ii).\83\ Thus, including this disclosure in Item 101(c) could
result in duplicative disclosures.
---------------------------------------------------------------------------

    \83\ We recently proposed amendments to our MD&A disclosure
requirements to modernize and enhance MD&A disclosures. See MD&A
Release, supra note 32.
---------------------------------------------------------------------------

3. Resources Material to a Registrant's Business
    Currently, two of the twelve disclosure requirements in Item 101(c)
relate to registrants' resources: Item 101(c)(1)(iii) requires
disclosure of the sources and availability of raw materials, and Item
101(c)(1)(iv) requires disclosure of the importance to the segment and
the duration and effect of all patents, trademarks, licenses,
franchises, and concessions held, each to the extent material to an
understanding of the registrant's business taken as a whole. We
proposed amending these requirements to refocus registrants' disclosure
on all resources material to their business. Specifically, we proposed
to retain these disclosure topics with minor modifications and combine
them into one principles-based, non-exclusive set of examples of
information that should be disclosed to extent material to an
understanding of a registrant's business as a whole.
a. Raw Materials
    Item 101(c)(1)(iii) currently requires disclosure of the sources
and availability of raw materials. We received several comment letters
in response to the Concept Release that specifically addressed this
requirement.\84\ A few commenters on the Concept Release recommended
retaining this requirement.\85\ One of these commenters specified that
the disclosure requirement should be retained with a materiality
overlay,\86\ while the other commenter stated that disclosure should
only be required if raw materials are difficult to obtain.\87\ Another
commenter on the Concept Release stated that, when material,
registrants provide disclosures in response to the specific sub-items
in Item 101(c), including sources and availability of raw materials, in
the business narrative or elsewhere, including MD&A.\88\ We proposed
retaining sources and availability of raw materials as a listed
disclosure topic in Item 101(c).
---------------------------------------------------------------------------

    \84\ See Proposing Release, supra note 3, at 44365.
    \85\ See letters from Fenwick West LLP (dated Aug. 1, 2016)
(``Fenwick'') and New York State Society of Certified Public
Accountants (dated July 19, 2016) (``NYSSCPA''), available at
https://www.sec.gov/comments/s7-06-16/s70616.htm.
    \86\ See letter from Fenwick.
    \87\ See letter from NYSSCPA.
    \88\ See letter from Davis Polk & Wardwell LLP (dated July 22,
2016), available at https://www.sec.gov/comments/s7-06-16/s70616.htm.
---------------------------------------------------------------------------

(ii) Comments on the Proposed Amendments
    We received limited comment on this aspect of the proposed
amendments. One commenter supported the proposal, but suggested that it
should specifically direct registrants to discuss how climate change
will affect access to raw materials.\89\ Another commenter stated that
the availability of raw materials as a disclosure topic was established
at a time when the U.S. economy was largely manufacturing-based and is
no longer representative of the value drivers of today's technology-
based and intangible-based economy.\90\
---------------------------------------------------------------------------

    \89\ See letter from Southern Environmental Law Center
(``SELC'').
    \90\ See letter from CFA Institute.
---------------------------------------------------------------------------

(iii) Final Amendments
    After considering the comments received, we are adopting the
amendments as proposed. In accordance with our overall approach to Item
101(c), the final amendments emphasize a principles-based approach and
clarify that disclosure regarding sources and availability of raw
materials is required only when material to a registrant's business.
Although the disclosure topic of raw materials might not be applicable
to all registrants, we continue to believe that, for businesses whose
products or services depend on raw materials, disclosures regarding
such raw materials should be provided to the extent material. The one
commenter's suggestion that the final amendments should require all
registrants to specifically discuss how climate change will affect
access to raw materials is not consistent with the principles-based
nature of Item 101(c), so we are not adopting it.
b. The Duration and Effect of All Patents, Trademarks, Licenses,
Franchises, and Concessions Held
(i) Proposed Amendments
    Item 101(c)(1)(iv) requires disclosure of the duration and effect
of all patents, trademarks, licenses, franchises, and concessions held
to the extent material to an understanding of the registrant's business
taken as a whole. Since the promulgation of this disclosure
requirement, intellectual property has become increasingly important to
the business of a broad range of registrants. Correspondingly, many
registrants provide detailed disclosure in response to Item
101(c)(1)(iv), although disclosure varies among registrants and across
industries. The Concept Release solicited feedback on whether to
maintain, expand or revise the current scope of this Item and requested
comment on the competitive costs of this disclosure. Numerous
commenters supported maintaining the current scope of Item
101(c)(1)(iv),\91\ with many

of these opposed to expanding this Item based on competitive
concerns.\92\
---------------------------------------------------------------------------

    \91\ See, e.g., letters from 36 Organizations with an Interest
in Trade Secret Protection (dated Aug. 8, 2016) (``36
Organizations''), Association of American Publishers (dated July 21,
2016), American Intellectual Property Law Association (dated Aug. 9,
2016) (``American IP Law Association''), Intellectual Property
Owners Association (dated July 15, 2016) (``IP Owners
Association''), and Financial Services Roundtable (dated July 21,
2016), available at https://www.sec.gov/comments/s7-06-16/s70616.htm.
    \92\ See, e.g., letters from 36 Organizations, American IP Law
Association, Financial Services Roundtable, and IP Owners
Association, available at https://www.sec.gov/comments/s7-06-16/s70616.htm. Item 101(c)(1)(iv) currently does not refer to
disclosure of copyrights or trade secrets and these commenters
expressed concern that requiring such disclosure would impose
substantial costs on registrants and could have an adverse impact on
shareholder value.
---------------------------------------------------------------------------

    In light of this feedback we proposed to retain as a listed
disclosure topic the duration and effect of patents, trademarks,
licenses, franchises, and concessions held as non-exclusive types of
property that may be material to a registrant's business.
(ii) Comments on the Proposed Amendments
    In response to the Commission's request for comment on whether the
proposed amendments should include as a disclosure topic the duration
and effect of copyright and trade secret protection, one commenter
stated that the duration and effect of copyright protection is
extrinsic information that is derived from applicable U.S. and foreign
copyright laws.\93\ This commenter, however, opposed requiring
disclosure of the duration of trade secret protection on the ground
that this information is generally indefinite as it lasts only as long
as the secret is maintained. Another commenter stated that disclosure
of a registrant's reliance on copyrights and trade secrets is warranted
because such disclosure is significant to an understanding of the
registrant's business and strategic plans.\94\ Other commenters,
however, opposed requiring disclosure of copyrights and trade secrets,
contending that such disclosure would not benefit investors and would
be costly and time-consuming for registrants to prepare.\95\ These
concerns are consistent with comments we received on the Concept
Release, in which commenters indicated that because copyright and trade
secret protection is not contingent on registration, a requirement to
disclose even a subset of these two types of intellectual property
would force registrants to systematically identify and catalog these
types of intellectual property, which could impose substantial costs
and require significant time.\96\
---------------------------------------------------------------------------

    \93\ See letter from CLA.
    \94\ See letter from CFA Institute.
    \95\ See letters from Society and GM.
    \96\ See, e.g., letters from 36 Organizations, American
Intellectual Property Law Association (Aug. 9, 2016), U.S. Chamber
of Commerce (July 20, 2016), FedEx Corporation (July 21, 2016),
Intellectual Property Owners Association (July 15, 2016), National
Association of Manufacturers (July 21, 2016), Association of
American Publishers (July 21, 2016), available at https://www.sec.gov/comments/s7-06-16/s70616.htm. But see letters from
International Integrated Reporting Council (July 20, 2016) and CFA
Institute (Oct. 6, 2016) (supporting the inclusion of copyrights
under Item 101(c)), available at https://www.sec.gov/comments/s7-06-16/s70616.htm.
---------------------------------------------------------------------------

(iii) Final Amendment
    After consideration of the comments, we are adopting the amendment
as proposed. We are retaining, as a non-exclusive example, disclosure
about the duration and effect of all patents, trademarks, licenses,
franchises, and concessions held to the extent material to an
understanding of the registrant's business taken as a whole. We are not
expanding the requirement to include the duration and effect of
copyright and trade secret protections because of the cost and other
concerns highlighted by commenters.
4. A Description of Any Material Portion of the Business That May Be
Subject to Renegotiation of Profits or Termination of Contracts or
Subcontracts at the Election of the Government
a. Proposed Amendment and Comments
    Item 101(c)(1)(ix) requires, to the extent material to an
understanding of the registrant's business taken as a whole, disclosure
of any material portion of a business that may be subject to
renegotiation of profits or termination of contracts or subcontracts at
the election of the Government.
    Business contracts with agencies of the U.S. government and the
various laws and regulations relating to procurement and performance of
U.S. government contracts impose terms and rights that are different
from those typically found in commercial contracts. In a 1972 Notice to
Registrants, the Commission noted that government contracts are subject
to renegotiation of profit and to termination for the convenience of
the Government.\97\ At any given time in the performance of a
government contract, an estimate of its profitability may be subject
not only to additional costs to be incurred, but also to the outcome of
future negotiations or possible claims relating to costs already
incurred.\98\
---------------------------------------------------------------------------

    \97\ See Defense and Other Long Term Contracts; Prompt and
Accurate Disclosure of Information, Release No. 33-5263 (June 22,
1972) [37 FR 21464 (Oct. 11, 1972)].
    \98\ See id.
---------------------------------------------------------------------------

    Registrants with U.S. Government contracts tend to disclose that
the funding of these contracts is subject to the availability of
Congressional appropriations and that, as a result, long-term
government contracts are partially funded initially with additional
funds committed only as Congress makes further appropriations. These
registrants disclose that they may be required to maintain security
clearances for facilities and personnel in order to protect classified
information. Additionally, these registrants state that they may be
subject to routine government audits and investigations, and any
deficiencies or illegal activities identified during the audits or
investigations may result in the forfeiture or suspension of payments
and civil or criminal penalties.
    We proposed to retain renegotiation or termination of government
contracts as a disclosure topic, citing our continued belief that, when
material to a business, disclosure of this information is important for
investors. We did not receive any comments that addressed this
proposal.
b. Final Amendment
    We are adopting the amendment as proposed for the reasons discussed
above.
5. The Extent to Which the Business Is or May Be Seasonal
a. Proposed Amendment and Comments
    Item 101(c)(1)(v) requires, to the extent material to an
understanding of the registrant's business taken as a whole, disclosure
of the extent to which the business of the segment is or may be
seasonal. Although we recently considered eliminating this disclosure
requirement, noting that other Regulation S-K disclosure requirements
and U.S. GAAP require disclosures about seasonality in interim
periods,\99\ we ultimately decided to retain Item 101(c)(1)(v) and
instead to delete Instruction 5 to Item 303(b) of Regulation S-K, which
also required a discussion of any seasonal aspects that have had a
material effect on a registrant's financial condition or results of
operations.\100\ We proposed to retain this Item out of concern about
the potential loss of information in the fourth quarter regarding the
extent to which the business of a registrant or its segment(s) is or
may be seasonal

because U.S. GAAP may not elicit this disclosure.\101\
---------------------------------------------------------------------------

    \99\ See Disclosure Update and Simplification Proposed Rule,
Release No. 33-10110 (July 13, 2016) [81 FR 51607 (Aug. 4, 2016)]
(``DUSTR Proposing Release''). Public comments on the DUSTR
Proposing Release are available at https://www.sec.gov/comments/s7-15-16/s71516.htm.
    \100\ The Commission decided to eliminate Instruction 5 to Item
303(b) because U.S. GAAP in combination with the remainder of Item
303 requires disclosures in interim reports that convey reasonably
similar information to the disclosures required by Instruction 5 to
Item 303(b). See DUSTR Adopting Release, supra note 71, at 50169.
    \101\ See id. ASC 270-10-45-11 states that entities should
consider supplementing interim reports with information for 12-month
periods ended at the interim date to avoid the possibility that
interim results with material seasonal variations may be taken as
fairly indicative of the estimated results for a full fiscal year.
---------------------------------------------------------------------------

    We received one comment on this aspect of the proposed amendments.
The commenter recommended that the Commission require registrants with
seasonal businesses to discuss the impact of climate change on their
businesses.\102\
---------------------------------------------------------------------------

    \102\ See letter from SELC.
---------------------------------------------------------------------------

b. Final Amendment
    We are adopting the amendment as proposed. Consistent with our
previous evaluation of this Item, we continue to believe that the
seasonality of the business or a segment should be disclosed to the
extent it is material to an understanding of the registrant's business.
Although a commenter suggested that this non-exclusive example should
require disclosure about the impact of climate change on seasonal
businesses, consistent with our response to a similar suggestion
regarding the raw materials disclosure topic, we are not adding this
additional specificity to avoid undermining the principles-based nature
of Item 101(c). Our principles-based approach to this disclosure
affords registrants sufficient flexibility to address relevant factors
that may affect seasonality to the extent material to an understanding
of the registrant's business.
6. Compliance With Material Government Regulations, Including
Environmental Regulations
a. Proposed Amendment
    Item 101(c)(1)(xii) requires disclosure of the material effects of
compliance with environmental laws on the capital expenditures,
earnings, and competitive position of the registrant and its
subsidiaries, as well as any material estimated capital expenditures
for the remainder of the fiscal year, the succeeding fiscal year, and
such future periods that the registrant deems material.
    Pursuant to the National Environmental Policy Act of 1969
(``NEPA''),\103\ which mandated consideration of the environment in
regulatory action, in 1973, the Commission adopted a new provision to
require disclosure of the material effects that compliance with
Federal, state, and local environmental laws may have on the capital
expenditures, earnings, and competitive position of the registrant, now
designated as Item 101(c)(1)(xii).\104\ Subsequent litigation \105\
concerning both the denial of a rulemaking petition and adoption of the
1973 environmental disclosure requirements resulted in the Commission
initiating public proceedings primarily to elicit comments on whether
the provisions of NEPA required further rulemaking.\106\ As a result of
these proceedings, the Commission in 1976 amended the Item 101
requirements to specifically require disclosure of any material
estimated capital expenditures for environmental control facilities for
the remainder of the registrant's current and succeeding fiscal years,
and for any further periods that are deemed material.\107\
---------------------------------------------------------------------------

    \103\ Public Law 91-190, 42 U.S.C. 4321-4347 (Jan. 1, 1970).
    \104\ See Disclosure with Respect to Compliance with
Environmental Requirements and Other Matters, Release 33-5386 (Apr.
20, 1973) [38 FR 12100 (May 9, 1973)] (``Environmental Disclosure
Adopting Release'').
    \105\ See Natural Resources Defense Council, Inc. v. SEC, 389 F.
Supp. 689 (D.D.C. 1974); and Natural Resources Defense Council, Inc.
v. SEC, 606 F.2d 1031 (D.C. Cir. 1979), rev'g 432 F. Supp. 1190
(D.D.C. 1977). See also U.S. Sec. & Exch. Comm'n, Staff Report on
Corporate Accountability 1, 251-259 (Comm. Print 1979) (``Staff
Report'') (providing a description of this litigation).
    \106\ See Disclosure of Environmental and Other Socially
Significant Matters, Release No. 33-5569 (Feb. 11, 1975) [40 FR 7013
(Feb. 18, 1975)].
    \107\ See Conclusions and Final Action on Rulemaking Proposals
Relating to Environmental Disclosure, Release No. 33-5704 (May 6,
1976) [41 FR 21632 (May 27, 1976)]. For further discussion of how
the Commission has sought to consider environmental effects in its
business disclosure requirements, see infra Section II.C.2.
---------------------------------------------------------------------------

    Although there is no separate line item requiring disclosure of
government regulations that may be material to a registrant's business,
it is common practice for many registrants to include disclosure
regarding such information in response to Item 101(c)(1)(xii). In
response to the Concept Release, a few commenters supported requiring
registrants to disclose all government regulations material to their
business given that many registrants already voluntarily provide such
information.\108\
---------------------------------------------------------------------------

    \108\ See Concept Release, supra note 9. For a more extensive
discussion of the related comment letters see Section II.B.6 of the
Proposing Release, supra note 3.
---------------------------------------------------------------------------

    In recognition of this common practice and because we believed this
disclosure would provide important information to investors, we
proposed including the material effects of compliance with material
government regulations, not just environmental laws, as a listed
disclosure topic in Item 101(c).
b. Comments on the Proposed Amendment
    A number of commenters supported the proposal to include the
material effects of compliance with material governmental regulations,
not just environmental laws, as a listed disclosure topic in Item
101(c).\109\ Several of these commenters affirmed that the proposal was
consistent with current market practice and would provide material
information to investors.\110\ One commenter suggested that the
Commission should require disclosure of the impact of material
government regulations on the business and specify that this must
include disclosure about environmental risks.\111\ This commenter also
recommended the Commission adopt a more prescriptive approach to ensure
that this disclosure provides investors with consistent, comparable
data about regulatory compliance matters. Other commenters recommended
that the Commission should require disclosure of international tax
strategies.\112\
---------------------------------------------------------------------------

    \109\ See, e.g., letters from La Berge, EEI and AGA, Nareit,
CCMC, FedEx (expressing support for the comments provided by CCMC),
Virginia Harper Ho (``Harper Ho''), American Securities Association
(``ASA''), PRI, and Humane Society.
    \110\ See, e.g., letters from CCMC, FedEx, and PRI.
    \111\ See letter from PRI.
    \112\ See, e.g., letters from individuals and entities using
Letter Type A and PRI.
---------------------------------------------------------------------------

    One commenter stated that the proposed amendment was confusing
because the text of the amendment repeatedly used the term ``material''
and urged the Commission to clarify the rule text.\113\ Another
commenter recommended that the rule should define the term
``environmental regulations'' to include, as examples of regulations
warranting disclosure, animal-welfare and wildlife regulations, and
regulations relating to climate change.\114\
---------------------------------------------------------------------------

    \113\ See letter from Nareit.
    \114\ See letter from the Humane Society.
---------------------------------------------------------------------------

    Several commenters opposed the proposal to include the material
effects of compliance with material governmental regulations, not just
environmental laws, as a listed disclosure topic in Item 101(c).\115\
All of these commenters stated that registrants are already required to
disclose the material impact of compliance with material governmental
regulations in their MD&A, risk factor, or financial statement
disclosure. Some of these commenters also expressed concern that the
preparation of this disclosure could be burdensome to registrants and
may result in boilerplate disclosure, as

registrants might feel compelled to provide lengthy recitations of all
of the laws that affect their business and operations.\116\
---------------------------------------------------------------------------

    \115\ See, e.g., letters from Society, DP&W, FEI and GM.
    \116\ See, e.g., letters from Society, GM and DP&W.
---------------------------------------------------------------------------

c. Final Amendment
    After considering the comments received, we are adopting the
amendments largely as proposed with certain modifications. Some
commenters opposed the proposal, asserting that disclosure of the
material impact of compliance with material governmental regulations is
required under MD&A or financial statement requirements. Item
101(c)(1), however, seeks to elicit broader disclosure that may be
material to an understanding of the registrant's business as a whole,
whereas disclosure in a registrant's MD&A or financial statements may
focus more narrowly on the specific impact on a registrant's financial
results, liquidity and capital resources or balance sheet. As such, we
agree with the commenters that supported the proposal and stated that
it would provide material information to investors.\117\
---------------------------------------------------------------------------

    \117\ See, e.g., letters from CCMC, FedEx and PRI.
---------------------------------------------------------------------------

    The final rule will require, to the extent material to an
understanding of the business taken as a whole, disclosure of the
material effects that compliance with government regulations, including
environmental regulations, may have upon the capital expenditures,
earnings, and competitive position of the registrant and its
subsidiaries. The final rule also will continue to require registrants
to include the estimated capital expenditures for environmental control
facilities for the current fiscal year and any other subsequent period
that is material.
    In response to the concerns of a commenter,\118\ we have revised
the text of the proposed rule to eliminate the second instance of the
word ``material'' that appeared before the term ``government.'' \119\
Although we included ``material'' there to make clear that disclosure
should not include a discussion of every regulation that may apply to a
registrant, we were persuaded by commenters that the dual use of the
term ``material'' in the text of the proposed amendment could be
confusing.\120\ The final amendment more closely follows the existing
text of Item 101(c)(1)(xii). As we noted in the Proposing Release,
while existing Item 101(c)(1)(xii) does not require disclosure of
government regulations that are material to a registrant's business, it
is common practice for many registrants to include such disclosure in
response to the Item. Consequently, we think this formulation will be
less likely to cause confusion. In addition, we believe that this
principles-based requirement will help provide investors with material
information about a registrant's compliance with the government
regulations that are material to an understanding of the registrant's
business. For this reason, we are not adding prescriptive requirements
to the final amendment, such as requiring disclosure of international
tax strategies as recommended by some commenters.\121\ The principles-
based approach of the final rule should improve the ability of each
registrant to tailor its disclosure to discuss only those governmental
regulations that are of particular importance to it. The Item does not
call for, or require, a recitation of every regulation that affects a
registrant's business and operations.
---------------------------------------------------------------------------

    \118\ See letter from Nareit.
    \119\ We have also made other non-substantive, clarifying
changes to the text of this disclosure topic.
    \120\ See supra note 116.
    \121\ See, e.g., letters from individuals and entities using
Letter Type A and PRI.
---------------------------------------------------------------------------

    With respect to one commenter's suggestion that the final amendment
define the term ``environmental regulations'' to include animal-welfare
and wildlife regulations, and regulations relating to climate
change,\122\ we do not believe that this additional specificity is
necessary. One of the purposes of the final amendment is to make the
disclosure of the material effects of compliance with government
regulations more principles-based. Although specific categories of
government regulations are not identified in the final amendment,
disclosure of the material effects of compliance with government
regulations, including animal-welfare and wildlife regulations, would
be required if material to an understanding of the registrant's
business.
---------------------------------------------------------------------------

    \122\ See letter from the Humane Society.
---------------------------------------------------------------------------

7. Human Capital Disclosure
a. Proposed Amendment
    Item 101(c)(1)(xiii) currently requires disclosure of the number of
persons employed by the registrant. Some registrants distinguish
between the number of full-time and part-time employees, and others
specify the number of employees in each department or division. Some
registrants with large numbers of employees disclose the approximate
number of employees and some registrants discuss their employees'
membership in a union or similar organization.
    The Concept Release solicited input on this disclosure requirement,
requesting feedback on, among other things, whether this numeric
disclosure is still important to investors, and what, if any,
improvements could be made.\123\ Some commenters on the Concept Release
recommended retaining and expanding the requirement, while others
questioned the continued relevance of the requirement.\124\
---------------------------------------------------------------------------

    \123\ See Concept Release, supra note 9, at 23936.
    \124\ See Proposing Release, supra note 3, at 44369.
---------------------------------------------------------------------------

    Subsequent to the issuance of the Concept Release, we received a
rulemaking petition requesting that the Commission adopt new rules, or
amend existing rules, to require registrants to disclose information
about their human capital management policies, practices and
performance.\125\ This rulemaking petition generated a substantial
number of comments supporting increased disclosure of human capital
management policies and specific human capital metrics.\126\
---------------------------------------------------------------------------

    \125\ See Rulemaking petition to require registrants to disclose
information about their human capital management policies, practices
and performance, File No. 4-711 (July 6, 2017) (``Human Capital
Rulemaking Petition''), available at https://www.sec.gov/rules/petitions/2017/petn4-711.pdf.
    \126\ See Comments to File No. 4-711 available at https://www.sec.gov/comments/4-711/4-711.htm.
---------------------------------------------------------------------------

    In light of the feedback that we received on the Concept Release
and the Human Capital Rulemaking Petition, and as part of our efforts
to modernize disclosure, we proposed to amend Item 101(c) to replace
the current requirement to disclose the number of persons employed by
the registrant with a requirement to provide a description of the
registrant's human capital resources, including in such description any
human capital measures or objectives that management focuses on in
managing the business, to the extent such disclosures would be material
to an understanding of the registrant's business taken as a whole.\127\
In addition, the proposed amendment included non-exclusive examples of
human capital measures and objectives that may be material, depending
on the nature of the registrant's business and

workforce, such as measures or objectives that address the attraction,
development, and retention of personnel.
---------------------------------------------------------------------------

    \127\ See Proposing Release, supra note 3. The SEC Investor
Advisory Committee also recommended that the Commission take
measures to improve the disclosure of a registrant's human capital
management, and suggested that any disclosure requirements ``should
be crafted so as to reflect the varied circumstances of different
businesses, and to eschew simple `one-size-fits-all' approaches that
obscure more than they add.'' Recommendation of the Investor
Advisory Committee Human Capital Management Disclosure (Mar. 28,
2019), available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/human-capital-disclosure-recommendation.pdf.
---------------------------------------------------------------------------

b. Comments on the Proposed Amendment
    Many commenters expressed general support for the inclusion of
human capital as a disclosure topic.\128\ Several commenters expressly
supported a principles-based approach to human capital disclosure.\129\
While supporting the principles-based approach in the proposal, some
commenters urged the Commission to proceed with caution and expressed
concerns that prescriptive requirements may elicit immaterial
disclosures.\130\ Many other commenters called for a combination of
principles-based and prescriptive requirements that would include
disclosure of specified quantitative metrics.\131\
---------------------------------------------------------------------------

    \128\ See, e.g., letters from International Center for
Enterprise Engagement (``ICEE''), JT Foxx Reviews Research Team
(``JT Foxx''), Intellivest Securities, Inc., Enhance Product
Development, Inc. (``EPD''), the Hashimoto's Solution
(``Hashimoto''), Auto Connection Manassas VA (``Auto Connection''),
Yoga Burn Challenge (``Yoga Burn''), Sustainability Accounting
Standards Board (letter dated Oct. 17, 2019, ``SASB 1''), Legal &
General Investment Management (``LGIM''), CFA Institute,
Breckinridge, Paul Rissman (``Rissman''), LaBerge, E&Y, Oregon State
Treasury (``OST''), IEHN, Calvert Research and Management
(``Calvert''), Dunker, EEI and AGA, CtW Investment Group (``CtW''),
CCMC, FedEx, UnitedHealth Group, Harper Ho, Los Angeles County
Employees Retirement Association (``LACERA''), PRI, Society for
Human Resource Management (``SHRM''), California State Teachers'
Retirement System (``CalSTRS''), Judy Schultz (``Schultz''), DP&W,
Hermes Equity Ownership Services Limited (``Hermes''), Better
Markets Inc. (``Better Markets''), Willis Towers Watson (``Towers
Watson''), AFL-CIO, Mercer, Human Capital Management Coalition
(``HCMC''), HR Policy Association (``HR Policy''), Senator Mark
Warner, (``Sen. Warner''), Public Citizen, Norges Bank Investment
Management (``Norges Bank''), CalPERS, the Forum for Sustainable and
Responsible Investment (``SIF''), Domini, New York State Common
Retirement Fund (``NYSCRF''), Radiant Value Management (``RVM''),
GRI, New York City Comptroller (``NYC Comptroller''), BCI, Timothy
G. Coville (``Coville''), JUST Capital, Qin Li, ShareAction, Service
Employees International Union (``SEIU''), Catherine Smith (``C.
Smith''), and.
    \129\ See, e.g., letters from ICEE, CII, LaBerge, SHRM, Towers
Watson, Mercer, HR Policy, Hashimoto, EPD, Auto Connection, GRI,
Yoga Burn, EEI and AGA, CCMC, C. Smith, SEIU and FedEx.
    \130\ See, e.g., letters from SHRM, FedEx, and CCMC.
    \131\ See, e.g., letters from LGIM, Calvert, OST, CtW, Harper
Ho, LACERA, PRI, CalSTRS, Hermes, Better Markets, AFL-CIO, HCMC,
BCI, Sen. Warner, Coville, Norges Bank, CalPERS, SIF, Domini,
NYSCRF, CFA Institute, ShareAction, JUST Capital and NYC
Comptroller.
---------------------------------------------------------------------------

    Many other commenters expressed opposition to the proposed
principles-based approach to human capital disclosure.\132\ Some of
these commenters stated that the proposed principles-based approach
would not likely elicit meaningful information about human capital
practices, or provide sufficiently comparable disclosure, unless
grounded in standardized metrics.\133\ Several commenters stated that
companies disclose a wide range of human capital information and that
this could lead to confusion among investors.\134\ One commenter stated
that requiring human capital disclosure would be inconsistent with the
Commission's mission.\135\ Some commenters urged the Commission to
consider providing interpretive guidance on human capital in light of
existing disclosure obligations.\136\ Other commenters expressed
concern based on their view that the principles-based approach would
rely entirely on the judgment of management to determine the substance
of the information to disclose and would result in less disclosure
being provided than would be the case under a prescriptive disclosure
requirement.\137\
---------------------------------------------------------------------------

    \132\ See, e.g., letters from UnitedHealth Group; CLA; David
Burton (``Burton''); Amazon Watch, American Federation of State,
County and Municipal Employees, As You Sow, California Clean Money
Campaign, Campaign for Accountability, Center for American Progress,
Congregation of Sisters of St. Agnes, Environment America, Friends
Fiduciary Corporation, Global Witness, Green Century Capital
Management, Harrington Investments, Inc., Institute for Agriculture
and Trade Policy, Interfaith Center on Corporate Responsibility,
Jantz Management LLC, Miller/Howard Investments, Inc., New
Progressive Alliance, Newground Social Investment, SPC, NorthStar
Asset Management, Inc., Northwest Coalition for Responsible
Investment, Oil Change International, OIP Trust, Oxfam America, Pax
World Funds, Public Citizen, Railroads & Clearcuts Campaign,
Reynders, McVeigh Capital Management LLC, Sierra Club, Teamsters,
Tri-State Coalition for Responsible Investment, U.S. PIRG, Union of
Concerned Scientists, Women's Institute for Freedom of the Press.
(``33 Organizations''); GM; DP&W Domini; NYSCRF; Public Citizen;
RVM; FEI; Schultz; Rissman; Society; ICGN; and Breckinridge.
    \133\ See, e.g., letters from Domini, RVM, HCMC, CalPERS,
Rissman, LGIM, ICGN, OST, NYSCRF, NYC Comptroller, FEI and LACERA.
    \134\ See, e.g., letters from FEI, LACERA, HCMC and NYSCRF.
    \135\ See letter from the Heritage Foundation (contending that
the mission of the Commission does not include furthering any
social, environmental or other criteria).
    \136\ See, e.g., letters from GM, Society, DP&W and Chevron.
    \137\ See, e.g., letters from HCMC, CalPERS, NYC Comptroller,
Domini, NYSCRF, FEI, PRI, LACERA, Breckinridge, ShareAction and
SEIU.
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    In the Proposing Release, we requested comment on whether the
proposed amendment should include other non-exclusive examples of human
capital measures or objectives, such as the number and types of
employees, including the number of full-time, part-time, seasonal, and
temporary workers. A number of commenters supported the inclusion of
specific human capital management disclosure metric requirements or
examples.\138\ Many of these commenters emphasized the importance of
comparability and stated that the use of different metrics would make
it difficult for investors to analyze and compare information.\139\
Several commenters recommended that we require specific, or encourage
companies to use certain, third-party disclosure standards or
frameworks to provide human capital disclosure.\140\ One commenter
supported the inclusion of non-exclusive examples that do not focus on
numerical measurements, and argued that the disclosure requirement
should not promote comparability.\141\ This commenter stated that
because every registrant is different, the way in which each registrant
defines and measures human capital related objectives necessarily
varies widely.
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    \138\ See, e.g., letters from Louis E. Matthews, Jr., Schultz,
SASB 1, LGIM, IEHN, Dunker, FCLTGlobal (``FCLTGlobal''), PRI,
CalSTRS, Better Markets, HCMC, BCI, Sen. Warner, Public Citizen,
CalPERS, SIF, Domini, NYSCRF, NYC Comptroller, ICEE, OST, LACERA,
Hermes, Burton, SEIU, CtW, ICGN, Towers Watson, AFL-CIO, 33
Organizations, JT Foxx, EPD, Hashimoto, Auto Connection, Yoga Burn,
Bec Brideson, Calvert, Breckinridge, CFA Institute, ShareAction, Qin
Li, JUST Capital and Letter Type A.
    \139\ See, e.g., letters from SASB 1, LGIM, Calvert, E&Y, OST,
FCLTGlobal, LACERA, PRI, CalSTRS, Hermes, SEIU, E&Y, Better Markets,
HCMC, BCI, Sen. Warner, Coville, Public Citizen, Norges Bank,
CalPERS, SIF, Domini, NYSCRF, RVM, Breckinridge, ShareAction, CFA
Institute and NYC Comptroller.
    \140\ See, e.g., letters from Domini (recommending frameworks
published by the International Organization for Standardization, the
Global Reporting Initiative, the Sustainability Accounting Standards
Board, the Workforce Disclosure Initiative, and the Carbon
Disclosure Project), SASB 1, Coville, Norges Bank (recommending the
Sustainability Accounting Standards Board framework), Breckinridge
(recommending the Sustainability Accounting Standards Board
framework) and RVM. See also, e.g., letters from GRI, ICEE, SASB 1,
Coville, CII, LACERA, Domini, RVM, Breckinridge and Norges Bank.
    \141\ See letter from Towers Watson.
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    A number of commenters, also highlighting the limitations of
mandating or suggesting certain metrics for the purpose of increasing
comparability in this area, opposed the inclusion of either non-
exclusive examples or prescriptive human capital management disclosure
metrics.\142\ Some of these commenters stated that there was no
consensus on the most appropriate metrics or methodology for human
capital management disclosure.\143\ Other commenters expressed concern
that a list of non-

exclusive examples could be viewed as mandated disclosure, which could
result in registrants providing immaterial disclosure.\144\
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    \142\ See, e.g., letters from CCMC, FedEx, SHRM, GM, Mercer,
Society, HR Policy, DP&W, FEI and Chevron.
    \143\ See, e.g., letters from HR Policy, Society and GM.
    \144\ See, e.g., letters from Mercer (``[P]roviding specific
examples of the types of measures or objectives that companies focus
on in managing their business, such as those that address the
attraction, development, and retention of personnel, as proposed,
could result in disclosure that is potentially misleading and is
less valuable to investors because it is not tailored to a company's
specific business or industry.''), Towers Watson, and HR Policy.
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    In the Proposing Release, we also requested comment on whether we
should define human capital. Several commenters stated that human
capital should be defined,\145\ while a few opposed a Commission
definition of the term.\146\ One of these commenters stated that there
were many definitions of human capital and that the concept is often
tailored to the circumstances and objectives of individual
companies.\147\ The other commenter stated that the Commission should
resist defining human capital because there is no standard method to
assess ``human capital management'' and because it is a complex concept
with many factors influencing human capital management that vary across
industries and individual companies.\148\
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    \145\ See, e.g., letters from CalSTRS, CtW, HCMC, NYC
Comptroller, Towers Watson, ICEE and PRI (advocating for defining
human capital management as ``people's competencies, capabilities
and experience, and their motivations to innovate.''). Cf. letter
from Burton (``definition for human capital should include human
capital measures or objectives that management focuses on in
managing the business'').
    \146\ See letters from Mercer and HR Policy.
    \147\ See letter from HR Policy.
    \148\ See letter from Mercer.
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    We also requested comment on whether we should retain the
requirement in Item 101(c) for registrants to disclose the number of
persons employed by the registrant. Several commenters urged the
Commission to retain the requirement.\149\ One of these commenters
stated that this disclosure provides investors with valuable
information that can be used in assessing productivity growth,
compensation measures, and capital allocation.\150\ A number of
commenters recommended that the Commission require additional
information regarding the number of persons employed by the registrant,
such as the number of full-time, part-time, and contingent workers; the
number of seasonal employees; the ratio of full-time to part-time
employees; or the number of domestic and foreign employees.\151\ Some
commenters, however, stated that the requirement to disclose the number
of employees was arbitrary, outdated, and of limited use.\152\
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    \149\ See, e.g., letters from CII, 33 Organizations, PRI and
CtW.
    \150\ See letter from CtW.
    \151\ See, e.g., letters from CalSTRS, Domini, CalPERS, CII,
Burton, BCI, NYC Comptroller, ICEE, LGIM, OST, LACERA, PRI, Hermes,
SEIU, CFA Institute, CtW, ICGN, Towers Watson, AFL-CIO, HCMC, Sen.
Warner, CalPERS, SIF and NYSCRF.
    \152\ See, e.g., letters from EEI and AGA, CCMC, Hermes, Better
Markets, CalSTRS, FedEx and Mercer.
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c. Final Amendment
    After considering public comments, we are adopting this amendment
substantially as proposed with certain modifications. Under the final
amendments, Item 101(c) will require, to the extent such disclosure is
material to an understanding of the registrant's business taken as a
whole, a description of a registrant's human capital resources,
including any human capital measures or objectives that the registrant
focuses on in managing the business. We believe that, in many cases,
human capital disclosure is important information for investors. Human
capital is a material resource for many companies and often is a focus
of management, in varying ways, and an important driver of performance.
    The final amendments identify various human capital measures and
objectives that address the attraction, development, and retention of
personnel as non-exclusive examples of subjects that may be material,
depending on the nature of the registrant's business and workforce. We
emphasize that these are examples of potentially relevant subjects, not
mandates. Each registrant's disclosure must be tailored to its unique
business, workforce, and facts and circumstances. Consistent with the
views expressed by some commenters, we did not include more
prescriptive requirements because we recognize that the exact measures
and objectives included in human capital management disclosure may
evolve over time and may depend, and vary significantly, based on
factors such as the industry, the various regions or jurisdictions in
which the registrant operates, the general strategic posture of the
registrant, including whether and the extent to which the registrant is
vertically integrated, as well as the then-current macro-economic and
other conditions that affect human capital resources, such as national
or global health matters.\153\ Although several commenters expressed
concern that the principles-based approach could result in less
comparability (as compared to a more prescriptive approach), given the
varied and evolving nature of human capital considerations, we believe
that this approach will likely lead to more meaningful disclosure being
provided to investors. Moreover, we do not believe that prescriptive
requirements or a designated standard or framework will ensure more
comparable disclosure given the variety in registrant operations as
well as how registrants define, calculate, and assess human capital
measures.\154\ Furthermore, we note that while the final amendments do
not require registrants to use a disclosure standard or framework to
provide human capital disclosure, as recommended by some
commenters,\155\ a principles-based approach affords registrants the
flexibility to tailor their disclosures to their unique circumstances,
including by providing disclosure in accordance with some or all of the
components of any current or future standard or framework that
facilitates human capital resource disclosure that is material to an
understanding of the registrant's business taken as a whole.
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    \153\ See, e.g., letters from Mercer and HR Policy.
    \154\ See, e.g., U.S. Gov't Accountability Office, GAO-20-530,
Public Companies: Disclosure of Environmental, Social, and
Governance Factors and Options to Enhance Them (July 2020),
available at https://www.gao.gov/assets/710/707949.pdf (finding lack
of consistency across companies that use the same framework to
assess environmental, social, and governance (ESG) matters); Alex
Edmans, Grow the Pie: How Great Companies Deliver Both Purpose and
Profit (2020) (stating that non-financial measures are inherently
incomparable because they depend on a company's unique purpose).
    \155\ See, e.g., letters from GRI, ICEE, SASB 1, Coville, CII,
LACERA, Domini, RVM, Breckinridge and Norges Bank.
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    We also are not adopting a definition of the term ``human capital''
as recommended by some commenters because this term may evolve over
time and may be defined by different companies in ways that are
industry specific. This approach is consistent with the view expressed
by a number of commenters that noted that there are many definitions of
human capital and that the concept, while generally well understood, is
often tailored to the circumstances and objectives of individual
companies.\156\
---------------------------------------------------------------------------

    \156\ See, e.g., letter from HR Policy and Mercer.
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    In a change from the proposal, a registrant will need to disclose,
to the extent material to an understanding of the registrant's
business, the number of persons employed by the registrant. We agree
with commenters that this disclosure topic should be retained and that
it can provide investors with important and useful information that is
material to an understanding of the

registrant's business.\157\ The number of persons employed by the
registrant can help investors assess the size and scale of a
registrant's operations as well as changes over time. In addition, we
believe this disclosure will complement, and could provide essential
context to, any discussion of a registrant's human capital management.
Although many commenters recommended that we expand this disclosure
topic to include additional metrics, such as the number of full-time,
part-time, and contingent workers, and employee turnover,\158\ we are
not adopting these prescriptive elements because we believe that they
would be inconsistent with our objective to make Item 101(c) more
principles-based. We note that, under the principles-based approach we
are adopting, to the extent that a measure, for example, of a
registrant's part-time employees, full-time employees, independent
contractors and contingent workers, and employee turnover, in all or a
portion of the registrant's business, is material to an understanding
of the registrant's business, the registrant must disclose this
information.
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    \157\ See, e.g., letters from CII and CtW.
    \158\ See, e.g., letters from CalSTRS, Domini, CalPERS, CII,
Burton, BCI, NYC Comptroller, ICEE, LGIM, OST, LACERA, PRI, Hermes,
SEIU, CFA Institute, CtW, ICGN, Towers Watson, AFL-CIO, HCMC, Sen.
Warner, CalPERS, SIF and NYSCRF.
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C. Legal Proceedings (Item 103)

    Item 103 requires disclosure of any material pending legal
proceedings, other than ordinary routine litigation incidental to the
business, to which the registrant or any of its subsidiaries is a party
or of which any of their property is the subject. Item 103 also