As good as US corporate disclosure standards are, they can and must be improved. Former SEC chairman Arthur Levitt tried with the controversial Regulation Fair Disclosure, and now his successor, Harvey Pitt, is rising to the challenge
As good as US corporate disclosure standards are, they can and must be improved. Former SEC chairman Arthur Levitt tried with the controversial Regulation Fair Disclosure, and now his successor, Harvey Pitt, is rising to the challenge. Pitt plans to push for new standards of corporate reporting and to update the regulations that govern them. He says disclosure methods must be 'made relevant to our new global world of rapid communication in the common language of business.' Indeed, what he does in the next few years will affect the whole 'global world'.
Just what does Pitt have in mind? From what we've heard so far, he wants to knock down the whole edifice of periodic disclosure and rebuild. He would like to see quarterly reporting - which, he says, implies that information is static, not dynamic - give way to continuous, real-time reporting. That would be a dramatic jump in IR practice, like moving from a quarterly snapshot to a daily TV show.
In the meantime, it's unlikely that Pitt will seek to actually get rid of Reg FD, as some have suggested. Rather, he may modify it according to suggestions from the SEC's former acting chairman, Laura Unger, and others. Unger opposed the rule when Levitt first introduced it, but she believes it should be improved upon, not repealed. She says the SEC should clarify what companies can and cannot say under FD - especially while discussing earnings. But she recognizes that Pitt's new disclosure regime would probably make Reg FD redundant.
Lou Thompson, chairman and CEO of the National Investor Relations Institute, agrees the commission should give more guidance about guidance. As he suggested in a letter to the SEC, clarification of FD's ambiguities would help companies deliver higher quality information to the markets.
There's one thing Pitt, Unger, Thompson and others agree on: public companies should be allowed to use the internet much more freely in satisfying their disclosure requirements. The so-called 'digital divide' argument - which says half of Americans are without web access - is largely irrelevant to the investment community. For example, Thompson believes at least 85 percent of individual investors have access to the internet, and many more get immediate market information via the news.
Pitt is pointing US disclosure practices down new, challenging paths. He is setting out to test the boundaries, and to do so in different ways than his predecessors. Above all, where Levitt was the investor's champion, Pitt is the friend of companies. He seems genuinely open to suggestions, and this should encourage public companies and their IROs. He knows that when it comes to corporate disclosure, where the US goes, so goes the world.