SEC Chair White Delivers Speech on Disclosure Requirements (with Lofchie Comment)

SEC Chair Mary Jo White spoke at the National Association of Corporate Directors Leadership Conference, focusing on the importance of disclosure and the need to update the disclosure system to better fit today's securities markets.

According to Chair White, the core purpose of disclosure is to provide investors with the information they need to make informed investment and voting decisions. Chair White discussed information that companies are required to disclose, such as how their businesses are operated, how much money they've made over the past few years, and specific details about large shareholders. She went on to say, however, that current disclosure requirements may be too lengthy and could lead to an "information overload" that made finding the most relevant information difficult for an investor.

Additionally, Chair White stated that many disclosure requirements become outdated due to technological advances, legislative mandates, and things such as "investor demand or a company's decision to take a defensive posture and disclose more information rather than less to reduce the risk of litigation claims that there was insufficient disclosure." Chair White also said that companies have complained about repetitive disclosure mandates which required them to disclose the same information in separate filings.

To move forward with making improvements to the disclosure system, Chair White said that the SEC must first understand what information is demanded from companies and why, referencing JOBS Act Section 108 ("Review of Regulation S-K") as a mandate which provided an opportunity for the SEC to analyze the rules that form the disclosure system. The Division of Corporation Finance is scheduled to release a report on the disclosure system soon pursuant to this mandate, according to White. In addition, White said the SEC must consider whether investors would benefit from disclosures that were more tailored to the particular industries in which they operated, and whether the current EDGAR electronic disclosure system and current timeframes for disclosure requirements were still appropriate given the increasing use of technology.

Lofchie Comment: In discussing the issue of "information overload," Chairman White reported that various interest groups had sought disclosure on "over 100 topics - a bewildering array of special causes" (presumably having little to do with whether the company would make a good investment). Later in the speech, she singled out "executive compensation" as an area where companies are required to make excessive disclosures that "can amount to more than 40 detailed pages." This is the second recent speech in which Chairman White has questioned the use of SEC disclosure requirements as a tool that serves a goal other than protecting investors. (See the link below as to her speech on the independence of the SEC.) The Chairman's speech raises the question as to whether or not she intends to support the SEC's newly proposed rule (see news item) on the ratio of executive pay to the pay of the average employee (a proposal that we consider ill-conceived).

See: SEC Chair White, Speech, "The Path Forward on Disclosure".Related news: SEC Chairperson Mary Jo White Speaks at Fordham Law School on the Importance of Independence (with Lofchie Comment) (October 4, 2013).