A blue-ribbon advisory committee yesterday told the Security and Exchange Commission that its corporate disclosure system "is sound and does not require radical change," but at the same time supported the controversial concept of mandatory disclosure.
The report of the 16-member committee, headed by former SEC Commissioner A. A. Sommer Jr., also stated that the commission should not be indifferent to "research which some would suggest has already, or may in the future, suggest a radical modification of this disclosure system."
The report warned the SEC that it should not attempt to require corporations to disclose information concerning civil rights environmental matters, or corporate morality unless the information pertains to investment decisions.
"The committee recognizes that many constituencies look to the corporation for a variety of information, but believes attempts to serve groups other than investors would exceed the commission's statuatory authority," the report states.
On the issue of mandatory disclosure, the report emphasized that most of the information frequently released voluntarily by corporations, would have had to have been disclosed to the SEC anyway.
"There is a need for mandatory disclosure," said Mary Beach, associate director of the SEC's division of corporate finance. "Market forces alone are insufficient to cause all material to be disclosed."
The 600-page report makes a large number of recommendations for refining the corporate reporting system:
"The commission should encourage issuers to publish forward-looking and analytical information." Traditionally, the SEC has permitted only the disclosure of "hard" or "objectively verifiable historial facts."
The call is for "soft" information such as opinions of management on the future, other predictions, analyses, and other subjective evaluations. "When companies formally publish projections, they are likely to exercise greater care in preparing the information and this would be a benefit to investors," the report claims.
"The commission (should require) companies to file annual and quarterly reports on Forms 10-K and 10-Q." The advisory committee said the traditional corporate filings should be more "readable" and commission forms should be revised to "improve the quality of their content." The committee outlined what information should be included in the reports, including more management analysis.
The committee called for "imporved rule-making and monitoring procedures." After the SEC identifies a significant problem in disclosure requirements, it immediately should initiate "rule-making procedures and not rely for unduly prolonged periods on such ad hoc procedures as commenting on filings and enforcement actions."