I think most securities practitioners can agree that it’s exhausting to shoehorn certain Congressional mandates for broader ’33 & ’34 Act reporting into the SEC’s mission to protect investors – and when these types of mandates come around, they also seem to be at odds with the Commission’s mission to facilitate capital formation. At the same time, a variety of stakeholders are clamoring for information, and the SEC runs the main disclosure game in town.
A paper by Tulane law prof Ann Lipton plays some of the same notes as Chief Justice Strine’s proposal (and it was actually published before his). For example, that it’s outdated to make disclosure requirements dependent on a company’s capital raising strategy. Here’s part of the abstract:
This Article recommends that we explicitly acknowledge the importance of disclosure for noninvestor audiences, and discuss the feasibility of designing a disclosure system geared to their interests. In so doing, this Article excavates the historical pedigree of proposals for stakeholder-oriented disclosure. Both in the Progressive Era, and again during the 1970s, efforts to create generalized corporate disclosure obligations were commonplace. In each era, however, they were redirected towards investor audiences, in the expectation that investors would serve as a proxy for the broader society. As this Article establishes, that compromise is no longer tenable.
Who would regulate this brave new world? Personally, I think that if the SEC’s mission was expanded, it would be well-suited to take on the challenge – but I’m not sure they’d want the job. Here’s what Ann suggests:
There is currently no federal agency with the skills to manage the system contemplated here. The SEC is not equipped to manage disclosures intended for noninvestors (which is another reason the securities laws should not be used for that purpose). The Federal Trade Commission has broad experience studying business activity, but has fewer disclosure mandates. That said, the SEC and the FTC both have skills and experience that would be useful in developing a new system: both study a wide range of industries, and the SEC in particular has expertise in developing standardized reporting for public audiences, balanced against the costs to businesses of complying with disclosure demands.
Therefore, it might be appropriate to create a joint initiative that draws on the resources and knowledge of both agencies. The initiative could begin its work by studying how public information about corporations is used by noninvestor audiences, including surveying local regulators, as well as advocacy and trade groups, for their input as to how existing disclosures are used and the weaknesses in the current system. Based on the results of this survey, the initiative could develop a standardized framework that would permit meaningful comparisons across reporting companies.
-Liz Dunshee, TheCorporateCounsel.net October 10, 2019
