A top U.S. securities regulator on Friday called for reforms to streamline the disclosures that public companies are required to file, saying he is concerned that some company filings may not actually be helpful to investors.
“I often hear from investors that disclosure documents are lengthy, turgid, and internally repetitive,” Securities and Exchange Commission Republican member Daniel Gallagher said in prepared remarks before the Annual Institute for Corporate Counsel in New York.
“They are … not efficient mechanisms for transmitting the most critically important information to investors.”
Gallagher is the second SEC commissioner in recent months to call for reforms to public company disclosures.
In October, SEC Chair Mary Jo White said she was afraid investors are facing “information overload,” and noted that some disclosures may be duplicative or obsolete.
She cited several examples of areas that could be ripe for review, noting that some information required to be disclosed, such as historical share prices, is already readily accessible on the Internet and may bog investors down.
The SEC is close to releasing the results of a study mandated by Congress that examines the regime governing corporate disclosures, known as “Regulation S-K,” which could help pave the way for changes to the current rules.
Gallagher said he believes the SEC should take a targeted approach to reform, rather than a comprehensive one.
“With disclosure reform it is better to start addressing discrete issues now rather than risk spending years preparing an offensive so massive that it may never be launched,” he said.
Liability Issues and 8-K Reforms
Gallagher said he believes the SEC should focus on a handful of areas, including legal liability that can accompany certain filings, and streamlining 8-K filings, a document that companies use to disclose material information that arises outside of annual and quarterly reports.
Under federal law, companies could be held liable if they omit or misrepresent critical, material information from investors in certain documents such as financial statements.
But upcoming rules stemming from the 2010 Dodd-Frank Wall Street reform law require a slew of new information, such as the ratio of a company’s chief executive to the median worker pay.
Gallagher said these types of disclosures are not “inherently material” and should potentially be filed in separate documents to give companies some legal cover.
As for 8-K filings, Gallagher said the list of information that they require has grown and should perhaps be scaled back because some is already routinely disclosed in company proxies and quarterly reports.
“There has … been a creeping incursion of financial reporting traditionally made in quarterly and annual reports into Form 8-K filings,” he said, noting that the SEC should question whether investors “really need” all of this information immediately.
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