A targeted, step-by-step approach is the best way for the SEC to review and overhaul its financial disclosure requirements under securities laws, SEC Commissioner Daniel Gallagher said Monday.
In a speech at the Forum for Corporate Directors in California, Gallagher said he hopes the SEC can “make real headway” in its initiative to reduce unnecessary disclosures. And he said a piece-by-piece approach is preferable to addressing the issue in a comprehensive fashion.
“I would prefer to address discrete issues now rather than risk spending years preparing an offensive so massive that it may never be launched,” Gallagher said.
In December, SEC Chairman Mary Jo White instructed the commission’s staff to develop recommendations for updating what companies should be required to disclose in public filings. Gallagher said it’s time to get started on disclosure reform even though the SEC has yet to complete about 60 rules mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203.
Here are some of the issues Gallagher said the SEC may need to focus on:
Layering disclosures. This would mean making key
information easily available in a standardized format, while making
additional details available elsewhere. Gallagher said material
information, such as a company’s financial statements, could be
treated differently from information that he said is not material,
such as the Dodd-Frank pay-ratio
disclosures the SEC is developing.
Streamlining Form 8-K disclosures. “Does each of the categories of information now required to be disclosed on Form 8-K really require almost immediate disclosure when a change occurs?” Gallagher asked.
Location, location. Authoritative guidance can be provided, Gallagher said, about where issuers must disclose or need not disclose particular types of information, enabling analysts and others to easily find the information or identify its absence.
Streamlining proxy and registration statements. Permitting some required financial information to be included in an appendix to the proxy would aid investors and preparers, Gallagher said. He also said it could be helpful if the SEC permits forward incorporation by reference in Form S-1 registration statements. This could simplify the registration process by allowing reference to previous forms.
The potential of technology. Gallagher suggested testing a standardized system that would require one-time online disclosure of basic corporate information, mandating that it be updated as necessary with changes tracked. “We have not come anywhere close to realizing the potential technology holds for improving our disclosure system,” Gallagher said.
Improving guidance. SEC disclosure guidance could be more reliable and authoritative if significant guidance was issued only with the explicit endorsement of the commission, rather than as staff guidance, Gallagher said.
Opposing politically driven disclosures. The SEC’s newly required conflict minerals disclosures were cited by Gallagher as an example of “ill-advised anomalies” that should not be the realm of an independent, bipartisan agency.
“From an investor’s standpoint, excessive illumination by too much disclosure can have the same effect as inundation and obfuscation—it becomes difficult or impossible to discern what really matters,” Gallagher said.
Ken Tysiac (
) is a JofA senior editor.