The basic premise underlying most disclosure requirements seems to be that issuers won’t disclose to investors unless legally required to do so. Yet, there is ample evidence of issuers making disclosures in the absence of legal compulsion. Below are just a few examples:
- Earnings announcements. While SEC rules require companies to file quarterly and annual financial information, the SEC has no rule requiring that companies issue a press release announcing earnings. Nonetheless, I would be surprised to learn of any publicly traded issuer (other than penny stock companies) that does not routinely issue earnings releases.
- Earnings calls. No SEC rules require companies to hold earnings calls yet most issuers host these calls after issuing the also voluntary earnings press release.
- Q&A with investors. An issuer that voluntarily hosts an earnings call is under no legal obligation to allow listeners to ask questions. Nonetheless, a “Q&A” period is a de rigueur part of the earnings call.
- Guidance. Many, but not all, issuers provide earnings guidance. Although lawyers fret about the practice, it remains a common practice.
- Q&A with stockholders. Outside of the proxy statement and form of proxy, the SEC doesn’t regulate the conduct of stockholder meetings. These matters are generally left to state law. There is no requirement in the corporate laws of California, Delaware or Nevada that issuers provide stockholders the opportunity to ask questions of management and the board. Yet, the practice is a standard element of most annual meetings.
Why do companies routinely go beyond minimal disclosure requirements? They do so because it is in their interests to do so. Presumably, these companies feel that they will compare unfavorably with companies that provide additional disclosures. When considering a new disclosure mandate, I therefore think the first question should be is why aren’t companies providing this information? Perhaps the answer is that the market doesn’t consider the disclosure valuable or helpful. The SEC should mandate disclosure only when it can identify some market failure that prevents issuers from making the disclosures that the market truly values.