Quarterly Reporting as Therapeutic Disclosure

Another reason to switch to semi-annual reporting

Ann Lipton writes:

So as long as we’re talking about semi-annual vs quarterly reporting – It has long been observed that the disclosure obligations of the federal securities laws function as sub rosa substantive governance regulation. The obligation to report necessarily carries with it an obligation of oversight; you can’t report what you don’t know.

Thus, a switch to semi-annual reporting may not simply mean less information to investors; it loosens the obligations of boards, and managers, to oversee the company.

A new paper by Anne Tucker and Timothy Lytton demonstrates this point in the context of mutual fund disclosures. After interviewing a variety of market players, including investment advisers, fund managers, compliance officers, and fund counsel, they conclude that it’s less important whether anyone reads the disclosures than the fact that the process of drafting them triggers legal and professional norms which end up substantively shaping mutual fund products.

Here we encounter a longstanding pet peeve of mine; namely, the use of “disclosure” requirements to accomplish indirectly what the SEC cannot do directly—i.e., to regulate the substance of corporate governance.