The U.S. Chamber of Commerce strongly supports S. 5005, the “Mandatory Materiality Requirement Act of 2022,” which would require that the Securities and Exchange Commission (SEC) adhere to the longstanding materiality standard when promulgating any new disclosure requirements for public companies. We commend you for introducing this important bill.
Since the securities laws were first enacted, materiality has been the standard to determine what information public companies must disclose to investors. In the 1976 TSC Industries, Inc. vs. Northway, Inc. decision, the Supreme Court established a meaningful standard of materiality that was designed to provide investors with the significant information they need to make informed voting and investing decisions. Importantly, the Court provided further guidance but noted that the “disclosure policy” under the federal securities laws “is not without limit” because investors should be safeguarded from being overwhelmed with information that runs counter to the goal of better investor decision making. The Court operationalized this principle in its decision – subsequently affirmed by the Court in Basic, Inc. v. Levinson – by rejecting the notion that information is material if it “might” be important to an investor in favor of the following test: information is material for purposes of federal securities regulation if “there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote” or invest. The Court has noted its concern that absent a defined materiality standard, investors could be buried “in an avalanche of trivial information – a result that is hardly conducive to informed decisionmaking.” The materiality standard has served investors well for decades and has been a bedrock of corporate disclosure in the United States.