Finally, we have had some recent bipartisanship in Congress. The only problem, of course, is that the recent bipartisanship further burdened public companies with additional disclosure requirements. As Broc Romanek noted in his blog last week, Congress overwhelmingly passed the Iran Threat Reduction and Syria Human Rights Act of 2012 requiring public companies to disclose to the SEC its dealings with Iran.
As we have been blogging about for nearly a year, Congress has picked up a bad habit of burdening public companies in advancing an agenda that has nothing to do with the protection of investors. These so called “social disclosures” (many of which are really “political” – or politically motivated – disclosures) while arguably related to important issues, burden public companies with specific tasks to compile and disclose certain information. These same burdens, however, are not placed on private companies. Yet, Congressman Darrell Issa, the Chairman of the House Committee on Oversight and Government Reform, has been demanding to know why there are fewer public companies today as compared to a decade ago.
To be fair, I note that the House has recently passed (in bipartisan fashion) HR 4078, Red Tape Reduction and Small Business Job Creation Act, which would limit the ability of the SEC to add more regulatory burden on public companies, but given recent Congressional acts, HR 4078 appears more “Do as I say and not as I do.” For example, Congress passed the American Jobs Creation Act of 2004, which requires public companies to disclose in its Form 10-K if the company incurs a specific type of tax penalty from the IRS involving abusive or tax avoidance (shelter) transactions. More recently, as everyone is keenly aware, laws have passed pertaining to conflict minerals, mine safety, and executive compensation pay ratios. Laws that have been proposed, but have not passed (yet), include laws on human trafficking and outsourcing American jobs. No one is defending human trafficking or the human deaths caused by the conflict minerals in the Democratic Republic of the Congo, but it seems that Congress has misplaced its anger over these issues by burdening public companies rather than dealing with the underlying issues.
On a related note, as we all continue to watch the reporting burdens of public companies increase, we recently were asked to obtain from the SEC archives a client’s Form 10-K filed in the 1960s. While we took bets on whether it was typed or hand written (it was typed), we were blown away with the length of the document. The filing was only 13 pages total! The body of the Form 10-K was three pages (Items 4 to 9 were incorporated by reference from the Proxy Statement) and the financial statements audited by a then Big 8 Firm were 10 pages including footnotes. While some of the expanded disclosures (when written clearly and succinctly) have proven helpful to investors (for example, the MD&A and the narrative description of the business), others are either too confusing, too difficult to read, or just too long (for example, the disclosures on market risk and the executive compensation disclosures) that the cost incurred by companies to compile the information greatly outweighs its usefulness. In fact, a survey commissioned by the SEC Office of Investor Education and Advocacy in 2008 (before the enactment of the Dodd-Frank Act, but after the implementation of the CD&A), supports the theory that we are past the point of overloading investors with information. The real question is whether members of Congress (already accused by some for not reading bills they are voting upon) will get the message that the cost of requiring public companies to disclose information that is not read by investors anyway hinders the capital markets and costs jobs. Smaller public companies, in particular, are beginning to drown in their own required disclosures. At some point, we need to say “Enough is Enough!”