Monday, March 6, 2017
Most of us editors here at the Business Law Prof Blog obsess and blog in one way or another about disclosure issues. Marcia has written passionately about conflict minerals disclosure (see a recent post here) and the SEC's efforts to revamp--or at least reconsider--Regulation S-K (including here). Anne also wrote about the Regulation S-K revision efforts here. Ann wrote about mining industry disclosures here and focuses ongoing attention on securities litigation issues in the disclosure realm (including, e.g. here). Josh wrote about the intersection of corporate governance and disclosure regulation in this post. I have written about "disclosure creep" here and most of my research and writing has a disclosure bent to it, one way or another . . . .
Last summer, at the National Business Law Scholars Conference at The University of Chicago Law School, I listened with some fascination to the presentation of an early-stage project by Todd Henderson (whose work always makes me think--and this was no exception). His thesis¹ was a deceptively simple one: that the age-old disclosure debate could best be solved by creating a contextual market for disclosure (rather than by, e.g., continuing its the current system of "federal government mandates and issuer pays" or leaving market participants to their own devices as to what to disclose and punishing malfeasance merely through fraud and misstatement liability or state sanctions). The paper resulting from that presentation, coauthored by Todd and Kevin Haeberle from the University of South Carolina School of Law (but moving to William & Mary Law School in July), has recently been released on SSRN. The title of the piece is Making a Market for Corporate Disclosure, and here's the abstract:
One of the core problems that law seeks to address relates to the sub-optimal production and sharing of information. The problem manifests itself throughout the law — from the basic contracts, torts, and constitutional law settings through that of food and drug, national security, and intellectual property law. Debates as to how to best ameliorate these problems are often contentious, with those on one end of the political spectrum preferring strong government intervention and those on the other calling for market forces to be left alone to work.
When it comes to the generation and release of the information with the most value for the economy (public-company information), those in favor of the command-and-control approach have long had their way. Exhibit A comes in the form of the mandatory-disclosure regime around which so much of corporate and securities law centers. But this approach merely leaves those who value corporate information with the government’s best guess as to what they want. A number of fixes have been offered, ranging from more of the same (adding to the 100-plus-page list of what firms must disclose based on the latest Washington fad), to the radical (dump the federal regime and its fraud and insider-trading overlays altogether in favor of state-level regulation). This Article, however, offers an innovative approach that falls in middle of the traditional spectrum: Make relatively small changes to the law to allow a market for tiered access to disclosures, thereby allowing firm supply and information-consumer demand to interact in a way that would motivate better disclosure. Thus, we propose a market for corporate disclosure — and explains its appeal.
I have skimmed the article and am looking forward to reading it in full over my spring break in a week's time. I write here to encourage you to make time in your day/week/month to read it too--and to consider both the critiques of federally mandated disclosure and the article's response to those critiques. I am confident that the thinking it will make me do (again) will sharpen my teaching and scholarship; it might just do the same for you . . . .
¹ After publishing this post, I learned that the paper actually was drafted by Kevin well before Todd presented it last summer. My apologies to Kevin for leaving him out of this part of the story! :>)