New SEC Chair Mary Jo White has addressed a series of topics in recent weeks, essentially outlining her vision for the Commission. Those remarks have delineated an enforcement doctrine, detailed her views on the role of an independent agency and outlined an approach to the markets. Now, in remarks to the National Association of Corporate Directors titled “The Path Forward on Disclosure (October 15, 2013), Ms. White addressed disclosure policy (here).
“Without proper disclosure, investors would be unable to make informed decisions” Ms. White noted. “They would not know about the financial condition of the company they are investing in. Nor would they know about the company operations, who its board members are or what business, operational or financial risks the company faces . . .” Paraphrasing the Supreme Court’s seminal decision in TSC Industries v. Northway, she defined its “core purpose” as providing investors with the information necessary for making an investment or voting decision.
Nevertheless, there can be “too much” disclosure the SEC Chair declared. There can be “’information overload’ – a phenomenon in which ever- increasing amounts of disclosure make it difficult for an investor to wade through the volume of information she receives to fret out the information that is most relevant.” This can result from rules or from professionals adding items such as long lists of risk factors to a filing.
Returning to a point she made in earlier remarks about Dodd-Frank’s mineral disclosure requirements, Ms. White cited public hearings on disclosure held by the Commission not long before the Northway decision. In those hearings there were suggestions for disclosure regarding over 100 topics that included a “bewildering array of “special causes.” The Commission, however, focused on the core purpose of disclosure policy.
Periodically over the years the Commission has updated disclosure policy. The JOBS Act provides a key opportunity for the Commission in this regard. It requires a review of disclosure requirements to consider how best to update, modernize and simplify the them. Currently the Division of Corporation Finance is finalizing a report which should be available soon.
Moving forward there are a number of areas to consider and evaluate disclosure policy. These include:
Updating: There may be a number of areas that need to be updated. For example, in view of the information available on the internet it may not be necessary to include certain information in filings. Likewise, the time period in which a filing is made might need to be considered.
Repetition: In some instances the same information may appear in different places in a filing and it may be possible to streamline this.
Industries: It may also be appropriate to revisit industry guides for specific disclosure keyed to certain industries.
Predicate: It is also appropriate to consider the predicate for disclosure – that is, should it be rule based or principle based.
In the end, the critical question is to determine if investors are receiving the information they need. While there is no one system that will satisfy everyone “our study regarding Regulation S-K will only be the first step, it will set the stage for the dialogue and path forward toward a meaningful review of our disclosure requirement” Ms. White concluded.