The young ones among you may not be familiar with Harvey Pitt, but he is an incredibly smart man and a gifted attorney who chaired the SEC some years back. He made some political gaffes in that role, but that doesn’t diminish his understanding of the securities laws and how disclosure works.
A few weeks ago, he was quoted in The Wall Street Journal on the subject of disclosure (“Harvey Pitt Envisions a New Form of Corporate Disclosure”). Specifically, he points out that “[d]isclosure is supposed to be for the purpose of informing…but…it’s become for the purpose of providing a defense”. He also says “…when you have proxy statements that run hundreds of pages…it’s impossible to expect any normal individual to put in the time to read all of those pages”. As I said, he’s an incredibly smart man.
So what is his solution? He suggests a “summary disclosure document the way disclosure used to be” – say five or six pages – and that more detailed information be available by hyperlink for the investors who want to dig deep. At the same time, companies could track how many people actually make that deep dive and make judgments as to eliminating information that no one seems interested in.
I know – it’s a bit simplistic. Among other things, it assumes that lawyers – who Mr. Pitt says have co-opted the system – would allow their clients to commit the cardinal sin of including hyperlinks to their websites in their filings. And it also assumes that the SEC could get over its institutional fear of the web, encourage companies to use it instead of implying that companies that do so proceed at their peril, and move beyond the filing system established in 1934 (when, for those young ones, there was no web and filings were made in hard copy). However, I think he’s on to something.
The SEC staff, for which I have a great deal of respect, has been very quiet on the nature and status of the EDGAR reauthorization project, except to say that it’s in the works. The Commissioners to whom I’ve posed questions about EDGAR have been similarly reticent and have noted how resource-constrained the Commission is. But it would be nice if the project could facilitate a move from 1934 into the 21st Century.
At a minimum, I sure hope the folks at the SEC are reading – and paying attention to – Mr. Pitt’s observations. Maybe they could even think about updating the seal to show MMXVII instead of MCMXXXIV.