It’s not for nothing that I’m a securities lawyer. I sincerely believe in the need for and efficacy of full and fair disclosure, both professionally and personally. That’s one of the many reasons why I have been advocating disclosure reform – or, as we now call it, “effective disclosure” – to assure that important matters are disclosed, and that unimportant matters need not be.
So it’s not surprising that I’m upset about something that happened recently. I attended a program at which a representative of a major institutional investor said that his firm just doesn’t have time to read the proxy statements of the companies in which the firm has invested. I’ve heard this song before in various guises – for example, one major institution told me a few years ago that the most they’d ever spend reading a 100-page proxy statement was 15-20 minutes – but for some reason the statement I heard recently really bothered me.
Why do securities lawyers spend most of their waking hours, and many of the hours when they should be sleeping, trying to provide investors with the information they need to make important decisions? (And, for the cynics out there, I’ve never heard a securities lawyer say anything like “How can we hide this?”) Why do companies spend untold amounts of money paying their lawyers to do that? More important, why is it acceptable for major investors to say that they don’t read their investees’ disclosures? Does it ever occur to them that they may be in violation of their legal and ethical obligations to their clients by blowing off the obligation to read those disclosures and voting on significant matters without reading those disclosures?
Which brings me back to “effective disclosure.” I’m passionate about the topic, and I’ve put my time (which is, after all, money) where my mouth is. But I’d be crazy not to think about whether it’s really worth the time and effort it will take to overhaul our approach to disclosure if, at the end of the proverbial day, few if any people will benefit from it or even care about it.
Years ago I commented on an SEC rule proposal by saying, among other things, that it would result in more disclosure that no one would read. I was told by the then-Director of the SEC Division of Corporation Finance that rulemaking isn’t based on whether anyone reads the disclosures in question. At the time, I thought he was probably right, but now I’m not so sure.
Jamie Dimon, CEO of JPMorgan Chase, is reputed to be a decisive person with a strong personality. Of course, that shouldn’t be news to anyone who follows business or who knows what it takes to be CEO of a major company. So it’s interesting that he recently said that he struggled with whether JPM should disclose that he was battling cancer. (For the record, he seems to have won the battle.)
I’m not the only securities lawyer who’s had similar struggles when the CEO of a client has become seriously ill. It’s a very challenging issue for several reasons. First, there isn’t any rule – or even any literature (at least to my knowledge) – that tells us whether and what to disclose in this situation. So when a client says, “show me the rule that says we have to disclose this,” there’s nothing to show. Second, and more important, the issue pits the need to disclose against information that is quintessentially personal. It’s also not just an issue between the executive and the company; often, the executive’s family and, possibly, his/her medical team and others are equally involved. And even when there’s agreement to disclose, it’s very difficult to know what to say about the prognosis, if and when the executive can return to work, and so on.
I think JPM’s decision to disclose was the right one. Among other things, JPM and Mr. Dimon are inextricably linked with each other; he is the public face of the company, and it’s hard to imagine mentioning one without the other. In fact, it’s arguably this linkage that led to the defeat of shareholder proposals seeking to deprive Mr. Dimon of his title as Chairman of the Board; no one wanted to see if he would carry out his threat to leave the company if the proposals passed. Second, his illness was grave and could have killed him. In other words, it seems pretty clear that the information was market-moving – a factor that must be considered in making the disclosure decision. (That said, contrast this with Apple’s treatment of Steve Jobs’s illness.) Also, according to Mr. Dimon, he lost 35 pounds in his battle, making it painfully obvious that something was up. So why hesitate to disclose something that everyone could see?
Another way of evaluating the matter is to consider whether there are any meritorious reasons not to disclose. When I had to grapple with a similar decision, the facts were different; among other things, the CEO wasn’t the company’s alter ego, and it was questionable whether the stock would tank if we disclosed. On the other hand, the company had just gotten past a nasty scandal and a period of intense upheaval in which two senior people had left and the company’s credibility had been shattered. In these circumstances I couldn’t see a significant reason not to disclose. I took some heat from the CEO’s family, but I had no doubt that I made the right decision.