How the SEC’s Push for Disclosures Could Impact Your Private Organization
One major benefit of being a private company in the U.S. is being able to, for the most part, keep your financial and operational data private. But as the push for private organization transparency grows even stronger, keeping all of this information confidential may be a hindrance moving forward.
This push comes from the U.S. Securities and Exchange Commission, which earlier this year announced their intent to require large private organizations to routinely disclose information about finances and operations.
In recent years, private capital markets have become a common way to raise money without the regulatory requirements involved with going public. So common in fact that the number of unicorns—private companies valued at $1 billion or more—continues to rise even in the midst of the IPO boom. Currently, 1,000+ private organizations across the globe are valued at more than $1 billion. This increasing number is a main reason why the SEC has taken a keen interest in private company transparency.
Although the SEC’s push for transparency is in its early stages, private organizations should take note of what it could mean for business as usual moving forward and how it could ultimately affect your reporting processes.
More transparency: What it means for private organizations
The push for greater transparency begs the question: What exactly should private organizations consider when disclosing? With an ever-shifting regulatory landscape and the recent proposal for climate-related disclosures from public companies, there’s a lot evolving in terms of expectations from the SEC—making it even more difficult to pinpoint what could be required from private companies.
Based on comments from Commissioner Allison Lee, it seems requirements, at least at the onset, would target only larger organizations. Even so, if and when requirements change, they could trickle down to mid-sized and small private companies.
In addition to the agency’s regulations, other stakeholders, such as your employees, will likely be looking for more visibility into financial information. In fact, 88% of CFOs who responded to a Robert Half survey say their organizations are already disclosing financial information to at least some employees.
The key takeaway? No matter the size of your private organization, it’s time to start thinking about how to prepare to meet future reporting demands.
Who needs to disclose? Considerations for determining private organization size
There’s another pivotal question when it comes to private organization transparency: What guidelines could the SEC use to determine which private organizations need to disclose? Nemit Shroff, Associate Professor of Accounting at the MIT Sloan School of Management, has conducted extensive research on the subject of company disclosures and says regulators would likely consider two major factors for private company disclosures:
- What is the value of the company’s disclosure to the broader public?
- What are the costs of making such disclosures, including compliance costs and the cost of disclosing sensitive or proprietary information?
Nemit notes that one idea for mandatory disclosures could be based on a private company’s size or economic footprint given that “larger companies have more stakeholders, more employees, more customers, more suppliers, and thus there is a greater benefit to public disclosure.” He also mentions that the fixed cost of complying with a regulation would likely be proportionately smaller the larger an organization is.
Basing disclosure requirements on company size can pose challenges though. While many other countries in Europe, Asia, and South America tend to base their disclosure thresholds on metrics, including sales, assets, and employee count, they do not always paint an accurate picture of company size. For example, some companies with large valuations may have a low employee count.
Regardless, it’s possible that the SEC could adopt similar metrics as a benchmark for which private organizations need to disclose.
The benefits of transparency for companies and stakeholders
While it might seem overwhelming to think about how to comply with future regulations, there are many positives to consider. In fact, improving reporting processes to increase financial transparency now has numerous benefits for private organizations. These benefits could include:
- Raising capital from investors: You want to raise capital, and investors want more insight into your finances and operations—increasing transparency means you can more easily provide the information investors want on demand
- Enhancing visibility for improved decision-making: Having more transparency into crucial financial and operational data can result in better, more informed decisions across your organization
- Spending time where it counts: With more efficiency in your reporting processes, your teams can focus on high-value, strategic work to help your organization reach goals faster and fuel growth
- Building trust and awareness with employees: Being transparent with financial information can help your employees better understand how their role fits into the company’s overall mission and strategy
While potential regulations remain unclear, the benefits of transparency are clear—when you have repeatable and scalable reporting processes in place, you open the door to improved collaboration, enhanced employee morale, and more strategic decision-making.
Streamline your financial reporting processes with cloud-based technology to deliver timely insights and stay ahead of regulations
While there will likely continue to be debate over what private companies should disclose and what constitutes reasonable SEC requirements, there’s never been a better time to start making your financial reporting processes more efficient.
Your organization can use this push for transparency as a catalyst to spark transformation initiatives across your reporting processes. Aside from minimizing business disruption if and when disclosures become mandatory, improving reporting processes now is crucial so you can drive your business forward by providing real-time, accurate insights to decision-makers and investors.
But if you’re dealing with manual, outdated reporting processes, you know this can be a challenge. And the complexity of working across multiple teams, geographies, business units, and systems can make it even more difficult to keep up—not to mention increase the risk of error.
This is exactly why so many teams are turning to cloud-based technology to help. With the right cloud-based platform, you can simplify, automate, and speed up complex reporting processes, and be confident in the data you deliver to your stakeholders.
To transform your reporting, you should look for a cloud-based solution that:
- Connects data by linking to multiple systems of record and sources, automating the process of data pulling and data updates across reports while reducing the risk of error
- Scales with your organization and allows you to add team members and processes as you grow
- Brings collaborators together in a single location to work in real time, eliminating the need for back-and-forth edits and expediting review time
- Provides a complete audit trail of your financial and operational data
- Allows for access, view, and edit permissioning to help mitigate risk
While future regulations may lurk around the corner, harnessing cloud-based technology to input, process, and deliver accurate, reliable financial and operational data is a critical way to not only get ahead but also transform your reporting processes now for better decision-making. And with the right technology, people, and processes in place, you’ll be ready to tackle whatever comes next.
At Workiva, we can help you automate, streamline, and future-proof your financial reporting processes. See how you can use the Workiva platform to simplify complex reporting processes and prepare for potential future mandates. Request a demo today.
P.S. If you’re a private organization looking to automate and simplify complex reporting work so you can focus on fueling growth, get more information and tips in our resource library here.