Securities and Exchange Commission Chairman Mary Jo White said the agency will review corporate disclosure rules to root out requirements that may be causing “information overload” for investors.
SEC rules, congressional mandates and company efforts to protect against litigation have led to lengthy disclosures that can make it difficult to find the content that is most relevant to people making investment decisions, Ms. White said last Tuesday in a speech in Oxon Hill, Md.
“We must continuously consider whether information overload is occurring as rules proliferate and as we contemplate what should and should not be required,” Ms. White said in her remarks at the National Association of Corporate Directors' annual conference.
The SEC will take a step toward a potential overhaul with the release of a study of company filing rules that will come “very soon,” she said. The study was mandated by the 2012 Jumpstart Our Business Startups Act, which requires the agency to look for ways to simplify rules for smaller companies.
Ms. White's comments probably will be applauded by public companies, said Hillary A. Sale, a professor of law and management at Washington University. On the other hand, institutional investors and stock analysts find value in some of the information the SEC may move to eliminate.
ACTIVIST INVESTORS
“Not every individual investor reads every report a company issues, but individual investors rarely move the market,” Ms. Sale said. “People who make the largest "buy' and "sell' decisions are either activist investors or hedge funds or institutional investors, and they do read and digest this information, and use it. The other group of people who use this are the analysts who make "buy' and "sell' and "hold' recommendations.”
The widespread availability of information on the Internet has made some disclosure details potentially unnecessary, Ms. White said in her speech, citing forms that require companies to list historical share prices.
“It's true they could go get information in lot of places, but maybe it makes sense to have it there, once a year, where you can have it there all at once,” Ms. Sale said. “The 10-K is the place where you go to get the big picture.”
The ability to share information almost instantly, via social media and other tools, also may call into question the deadlines for disclosing material information such as the buying and selling of stock by directors, officers and beneficial owners, Ms. White said.
CONSIDERING TIME FRAMES
“Given the ever-increasing use of technology by virtually everyone, we need to think about whether the current time frames in our rules and forms continue to be appropriate,” she said. “In some cases, investors may benefit from receiving the information sooner than currently required. But we must also consider whether shorter time frames would impose an undue burden on companies.”
Reports also have grown longer because businesses have become more defensive against potential lawsuits, Ms. White said. Companies may overwhelm investors with excessive “cautionary language” in the “Risk Factors” annual reports, she said.
Ms. White also said the SEC has issued useful guidance on when to disclose online security intrusions, calling on companies to tell investors about breaches that are material, meaning they could affect willingness to buy, sell or hold shares.
“We'll be monitoring very closely to see if a rule-making step is necessary or desirable,” Ms. White said in an interview after her speech.
Ms. White, a former director of Nasdaq OMX Group Inc., has given two speeches in the past few weeks touching on disclosure requirements. She said Oct. 3 that lawmakers left the SEC “no room” for independent judgment when they mandated rules related to mining safety and conflict minerals.
The SEC expects to issue a proposal to authorize equity crowdfunding “quite soon,” Ms. White told the conference during a question-and-answer session. If approved, the proposal would be issued for public comment before it could be adopted.
