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Commissioner Gallagher Comments on Disclosure Requirements

During the Society of Corporate Secretaries & Governance Professionals’ National Conference on July 11, SEC Commissioner Daniel Gallagher’s remarks focused on the need to refine the mandatory disclosure framework for the financial industry.

While the SEC is first and foremost a disclosure agency, Gallagher reminded the group that the SEC was not meant to guarantee that “investors receive all information known to a public company, much less to eliminate all risk from investing in that company.” Instead, the SEC’s role has been to ensure that investors have access to material information, in order to make informed investment decisions.

Gallagher recommends that the SEC’s new disclosure requirements focus on quality over quantity and examine the cost-benefit analysis of disclosures. Gallagher states that more government mandated disclosure isn’t always better; SEC-mandated disclosures that already run into hundreds of pages may lead to information overload. Investors who are inundated or discouraged by a massive amount of irrelevant material will either miss key disclosures or avoid the disclosure information all together. He also reminds the group that “it’s the shareholders who ultimately bear the burden of increased cost on issuers [of disclosure].” Gallagher suggests that excessive disclosure will ultimately negatively impact the investors’ ability to process the pertinent information while increasing cost of the disclosure.