Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, May 26, 2013

Schwartz on Disclosing Corporate Disclosure Policies

Disclosing Corporate Disclosure Policies, by Victoria L. Schwartz, University of Chicago - Law School; Pepperdine University School of Law, was recently posted on SSRN.  Here is the abstract:

Between Steve Jobs’ diagnosis of pancreatic cancer in 2003 and his death in 2011, Apple struggled to respect the privacy of its CEO while disclosing relevant information to its shareholders. The existing rules that govern corporate disclosure were of little help. They offer no mechanism for taking into account privacy considerations; nor do they provide any clear guidance regarding whether, when, and under what circumstances a corporation must disclose personal information about its executives. Existing privacy laws also fail to comprehensively address this problem. This legal void has created widespread uncertainty for executives, corporations, and shareholders. Scholars have also struggled to identify solutions that appropriately account for both privacy and disclosure. Their attempts have been hindered by the difficulty of estimating the respective values of disclosure to investors and of privacy to executives, especially to the extent that the value of privacy varies widely across individuals and depends on the type of personal information.

This Article offers one solution for accounting for this privacy-disclosure problem. First, corporations and executives should contract for a disclosure policy that takes into consideration the individual executive’s privacy preferences. The corporation should then be required to disclose the contracted-for disclosure policy to its shareholders. The use of a contractual menu approach would allow for the possibility of executives’ heterogeneous privacy preferences, while minimizing transaction and other costs of traditional default rules. At the same time, disclosure of the policy allows shareholders to indirectly exert influence on the corporation’s negotiations. In addition, the creation and disclosure of the disclosure policy increases certainty for all the parties involved.

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