Mary Jo White, Chair of the SEC, recently gave her thoughts on the future of disclosure. Some of her key points were:
- Information Overload: Ms. White raised the question as to whether investors need and are optimally served by the detailed and lengthy disclosures about all of the topics that companies currently provide in the reports they are required to prepare and file with us.
- Risk Factor Disclosure: Before 1995, risk factor disclosure was typically only provided in offering documents for higher-risk companies or securities. Over time, this cautionary language became more and more extensive, not necessarily because of a change in the SEC requirements for risk factor disclosure (although it is now required in the 10-K) but, at least in part, because of legal advice from attorneys assisting with the preparation of filings. According to Ms. White, it may be difficult or unwise to significantly walk those disclosures back, but it is fair to ask whether there is more there than is really needed.
- Redundant Disclosures: Ms. White said “We also should ask: Is there information that appears more than once in a filing, and if so, is that so bad? Or is there a way to avoid repetition in a document?” Ms. White used litigation as an example, which may be noted in the legal proceedings section, the MD&A and the notes to the financial statements. To this Ms. White noted “Accountants say that lawyers insist on the repetition and the lawyers blame the accountants. Rather than focus on who may be perpetuating this, we should simply figure out what investors want and whether such repetition is really such a burden for companies.”
- A New Paradigm: Ms. White suggested that the SEC could explore a possible filing and delivery framework based on the nature and frequency of the disclosures, including a “core document” or “company profile” with information that changes infrequently. Companies could then be required to update the core filings with information about securities offerings, financial statements, and significant events.