Companies Are Urged to Provide Shareholders with Meaningful Disclosures
Bill Hinman, the head of the U.S. Securities and Exchange Commission’s corporate finance unit, announced that he will leave the commission by the end of the year. In announcing his departure, Hinman urged companies “to provide shareholders and investors with meaningful, principles-based disclosures that go well beyond the ‘line-item’ requirements of securities laws.” Specifically, Hinman encouraged companies that want to act as “good corporate citizens” to earn the trust of investors by asking not what they can do, but what they should do. While the SEC disclosure requirements provide investors with critical information for making informed decisions about investing and voting, there is more “meaningful information” that can be tailored to a company’s specific set of circumstances. Rather than viewing disclosures as an obligation, Hinman suggests they be viewed “as an opportunity to engage and build trust with shareholders.” He elaborated that transparency can eliminate “any suggestion of impropriety or unfairness which, in turn, can facilitate long-term interest alignment and other principles of good corporate governance.” Two areas in which disclosures can be particularly helpful are regarding how COVID is affecting a business, its prospects and financial conditions, and insider trading.
SEC Ended its Fiscal Year 2020 with a Record-Breaking $4.68 Billion Collected Through Enforcement Actions
Hinman’s recommendations come as the SEC announced that its enforcement actions against public companies recovered $4.68 billion even while the number of enforcement actions filed hit a six year low in fiscal 2020. The first half of 2020 was slow due to the coronavirus pandemic and the SEC’s transition to remote operations. As in past year’s, the SEC ended the year with much activity, filing 18 of its 61 actions during the last two weeks of fiscal 2020. Of its 61 actions, half were related to reporting and disclosure issues, up from 29% of cases from fiscal year 2019. More public companies should take a cue from Hinman and implement robust disclosure policies to avoid SEC enforcement actions and the imposition of fines.
Good corporate governance protects shareholders and companies alike.
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