SEC Commissioner Gallagher Discusses Disclosure Requirements, Criticizes Use of Regulatory Requirements to Advance Political Goals (with Lofchie Comment)

SEC Commissioner Daniel Gallagher discussed the SEC's corporate disclosure requirements, focusing on the extent to which those requirements have been misdirected to purposes other than providing benefits to investors.

Commissioner Gallagher stated that the SEC is imposing too many frivolous reporting requirements, and that these requirements impede economic recovery. He asserted that the "increasing encroachment" of congressionally mandated governance-related disclosure requirements distracts the SEC from its core purpose of requiring material information that is considered significant by the "reasonable investor."

Commissioner Gallagher claimed that certain stakeholders and "corporate gadflies" have "hijacked" the shareholder proposal system to advance unnecessary and often politically motivated disclosures that are irrelevant and unhelpful to the average investor. These arbitrary disclosures, he explained, are mandated in order to "name and shame" corporations. He noted that many times, certain interests have sought to compel the SEC to regulate indirectly through disclosure where direct restrictions would have been unconstitutional.

Since the last overhaul of the disclosure rules took place in the 1980s, Commissioner Gallagher stated, it is time for the SEC to evaluate critically the SEC's disclosure-based approach to regulation. He recommended that the SEC implement rules that focus on meaningful disclosures of material information.

Lofchie Comment: Commissioner Gallagher's important remarks dovetail thematically with Chair White's speech on the National Market System. His commentary goes to the heart of the mission of the SEC. At its core, the SEC's mission should be to benefit the economy, whether that is by preventing fraud, improving disclosure to investors or regulating market structure. When the SEC is diverted from that mission by the imposition of goals that are not merely extraneous, but antithetical to helping investors, the economy is injured. Issuers subject to these extraneous SEC requirements are put to greater expense, hurting their investors and the economy. Further, the SEC's limited resources are diverted from matters that should be their focus, including the important issues raised in the speech on the same day by SEC Chair White.

See: Commissioner Gallagher's Remarks.
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