The Securities and Exchange Commission approved in principle yesterday a "safe harbor" rule for companies making public projections about such issues as management objectives and corporate profits.
The idea is to encourage companies to make more information available to investors. If such projections are based on reasonable assumptions and given in good faith, then the executives making the projections will not be vulnerable to legal action under federal securities laws if they prove wrong.
Corporate executives often make projections to securities analysts, reporters or other such limited groups. For these statements to qualify under the proposed "safe harbor" rule, they must also be passed along to stock-holders in annual reports or other public filings.
Safe harbor would apply to projections by companies of revenues, income and earnings per share, as well as statements of management plans and objectives.
A final draft of the proposed rule is expected to be ready in a week for final approval by the commission.
During a hearing on the proposed rule yesterday, the SEC enforcement division suggested that the assumptions upon which projections are based should also be spelled out by the corporations.
But the commissioners decided that it would be impossible to include all of the assumptions that go into projections.
The importance of valid assumptions, however, will be included in the release explaining the ruling but not in the ruling itself.
The commission postponed a decision on an other enforcement division proposal, to include in the ruling a requirement that companies correct projections that turn out to be wrong. Some commissioners said they believed existing law requires corrections.