SEC Disclosure of the Future: Summary Disclosure Documents with Hyperlinks to the Details

In a special report appearing in the June 19 Wall Street Journal under "Voices from the Conference," former SEC Chairman Harvey L. Pitt addressed a problem with current SEC disclosure. “Disclosure is supposed to be for the purpose of informing. But instead it’s become for the purpose of providing a defense. And so when you have proxy statements that run hundreds of pages, I think it’s impossible to expect any normal individual to put in the time to read all of those pages,” he was quoted.

To bridge the gap, former SEC Chairman Pitt foresees this eventual change: “[G]o to a summary disclosure document the way disclosure used to be, five, six pages long, with hyper-links using technology so that the more detailed information that companies right now are required to report anyway are available to people who want to dig that deep. And by watching how many people actually use the information, judgments can start to be made about eliminating some of the information….”

Over the last 30 years, the SEC has consistently sought to simplify disclosure and make SEC disclosure documents more user-friendly. These attempts include the SEC’s Plain English initiative, as well as increased eligibility to use short-form registration statements and incorporation by reference by issuers for which (i) the investing public has access to sufficient and timely information about them and (ii) there is sufficient market interest and following to ensure that information contained in their periodic reports is widely disseminated to the marketplace. This simplification has been largely determined by reference to an issuer’s public float (which supposedly reflects on both information dissemination to the market and following by investment institutions) and often scaled to the size of an issuer.

Former SEC Chairman Pitt’s suggestion is certainly supportable for larger publicly traded companies and with regard to joint proxy statements/prospectuses for mergers and registration statements for capital raises. While former Chairman Pitt admits his view of the future is part of an “evolutionary process,” to the extent that this proposal applies to small-cap and microcap issuers which are current filers but do not necessarily have a wide market following, it would be a great step forward.  

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