While regulators ponder how to address concerns of disclosure overload, major investors say they aren't looking for less information, but perhaps less redundancy or less complexity.
“Investors pretty much said to a person they're not turning down disclosure,” says Kenneth Daly, president and CEO of the National Association of Corporate Directors, which recently convened an investor summit to hear from major investor groups. “At the same time, they made it abundantly clear, there are lots and lots of technicalities described in the disclosures,” especially with respect to complex disclosures in consolidated financial statements. “Many believe it to be excessive,” he says.
NACD gathered investors and investor advocates from organizations like the California Public Employees' Retirement System, the California State Teachers' Retirement System, Capital Group, Fidelity, State Street Global Advisors, TIAA-CREF, T. Rowe Price, Vanguard, and the Council of Institutional Investors to get a pulse on what investors are looking for from boards of directors. The NACD summarized the investor viewpoint in a report, “Critical Issues for Board Focus in 2014.” The report says investors are looking for more engagement with directors, and not just around proxy season, to get a better sense of the rationale behind the company's governance and strategy.
The Securities and Exchange Commission and the Financial Accounting Standards Board both have undertaken initiatives to reconsider present disclosure requirements. SEC Chair Mary Jo White said last fall she's concerned about the information overload produced by a growing list of disclosure requirements and was launching a review internally and externally about what might be done to address it. The SEC staff issued a report in December summarizing disclosure requirements under Regulation S-K as part of a requirement under the JOBS Act to reduce disclosure burden for emerging growth companies.
The Financial Accounting Standards Board meanwhile is reviewing its disclosure requirements and exploring how to produce a new framework for disclosure requirements that would enable both FASB itself and preparers to focus on disclosures that most matter to users of financial statements. FASB published an invitation to comment in 2012 and more recently a proposed change to its framework for financial reporting to revise the chapter on footnote disclosures.
Peter Gleason, managing director for NACD, says investors have told the NACD their concern about disclosures is focused primarily on the abundance of disclosures produced by redundancy. “There are whole sections of the proxy statement that are repeated, and that's not helpful,” he says. Investors would welcome alternative placement for certain kinds of information, he says, such as on corporate websites instead of in regulatory filings. “They are advocating for more disclosure, but in different places than the filed document.”