A U.S. Securities and Exchange commissioner speaking at Fordham on Oct. 27 took a measured approach to mandatory corporate disclosures, saying that some may not be warranted.
Commissioner Troy A. Paredes delivered Fordham Law’s annual A.A. Sommer Lecture. He advocated a rigorous cost-benefit analysis when determining effective disclosure regulations. He asserted that “more information is not always better than less” when it comes to helping investors make decisions.
“There is no disagreement that transparency achieved through disclosure is central to the federal securities laws,” he said. “That said, when evaluating the practical effects of particular disclosures it is not enough to emphasize the benefits of disclosure. One also has to engage the costs.”
Paredes outlined two costs that must be considered when determining what information and how much should be disclosed to investors. First, he suggested, the amount of information required should not put an onerous burden on the companies who are required to disclose it.
This is particularly vital for small businesses, Paredes said. Though small businesses already can avail themselves of a more streamlined and efficient regulatory regime, Paredes said he believes more reforms are needed.
“We need to consider new opportunities to alleviate regulatory demands that siphon the funding and growth from small business,” he said.
Paredes also argued the cost of information overload. He suggested that in an environment where too much information is disclosed, investors will be unable to digest the information or, worse, may disregard financial disclosures all together.
“The bottom-line risk with information overload is that investors will have so much information available to them that they will sometimes be unable to distinguish what’s important from what’s not,” he said.
“Ironically, if investors are overloaded, more disclosure actually can result in less transparency and worse decisions,” Paredes said.
He also offered practical suggestions for more effective methods of disclosure, such as enhanced use of the Internet, smartphones, and visually enhanced statements.
Paredes is the fifth sitting SEC commissioner to deliver the Sommer Lecture, which was inaugurated in 2000 in honor of A.A. Sommer. He was a commissioner of the SEC from 1973 to 1976 and joined the law firm of Morgan, Lewis & Bockius LLP, which supports the annual lecture, in 1979.
Paredes said he chose to speak on disclosure because of its consistent, central relevance to the work of the SEC.
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Sean J. Griffith, the T.J. Maloney Chair in Business Law and director of the Fordham Corporate Law Center, said he was pleased to have such a prominent intellectual leader in the field deliver this year’s Sommer Lecture.
“The Corporate Center has three core tasks: to provide students opportunities for education and networking, to give the faculty something to think about and to engage with as they pursue their scholarship, and to reach out to the public and show Fordham as a leader in corporate law. The Sommer Lecture achieves all three of these objectives,” he said.
Paredes himself said that Sommer’s work had served as a valuable resource in his research. Though they never had the opportunity to meet in person, Pardes imagined he and Sommer would have had lots to talk about.
“I could not properly study the role of disclosure under federal securities laws without reading the work of Al Sommer,” Paredes said.