“All-Purpose” Securities Law Disclosure: Are We Reaching the Breaking Point?
As demands mount for “stakeholder”-oriented disclosure — and as the SEC faces understandable backlash about whether that type of disclosure is useful to investors — there’s a growing contingent suggesting that shoehorning extra info into an investor-focused disclosure scheme is a lot like two-in-one shampoo and conditioner: it simply doesn’t work. An article from Tulane Law Professor Ann Lipton discusses whether the SEC has been a victim of “mission creep,” and why now’s the time to look at other avenues for required “stakeholder” disclosure. Here’s an excerpt:
The assumption — stated or unstated — that all public disclosure must necessarily run through the securities laws has distorted the discourse for decades. Academics, regulators, and advocates have conflated the interests of investor and stakeholder audiences, to the detriment of both. There has been little, if any, discussion of the informational needs of the general public, or when and whether businesses should operate under a duty of public transparency. At the same time, advocates for myriad causes try to flood the securities disclosure system with information relevant to their own idiosyncratic interests, overburdening the SEC and making it more difficult for investor audiences to interpret the information they are given.
How would this type of system work? Ann looks at the EU system, “both as a model and a point of contrast,” and suggests that stakeholder disclosure would apply to these categories:
– Financial information – including issues pertaining to tax payments, anticorruption measures, and antitrust compliance
– Corporate governance
– Environmental impact
– Labor relationships – including diversity, working conditions, and pay practices
To minimize burdens on business, the initial system could focus on information that has already been compiled internally, such as reports that companies are already required to file with government agencies, or financial and governance information likely to be on hand. Doing so would spare companies the additional burdens of data gathering, and would go a long way toward standardization.
To be clear, this isn’t a call to “abolish” the SEC. Rather, it would emphasize the SEC’s focus on investors and use other ways to provide complementary info. However, we could see some ripple effects in SEC rules if something like this came to fruition, and it could expand the scope of work for people in our community, since we’re already involved with disclosure.
-Liz Dunshee, TheCorporateCounsel.net June 30, 2020
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