PricewaterhouseCoopers

Do disclosure rules actually work?

December 30, 2010: 1:09 PM ET

Disclosure failed during the run up to the financial crisis. As a result, the SEC developed new disclosure requirements for U.S. companies this year. So how well have they worked?

By Eleanor Bloxham, contributor

Disclosure is the often sought remedy in regulation. Rather than specify what a company is required to do, disclosure itself is often used as the regulatory mechanism.

The idea behind requiring disclosure from companies, rather than coming up with specific behavioral requirements, is that, if you specify too much, you run the risk of getting the requirements wrong.

Disclosures can inspire external pressure on corporations from shareholders, creditors, customers, government agencies, rating agencies, members of the community, and the media. But the beneficial impacts of disclosure are highly dependent on two factors -- careful reading of the disclosures and actions taken, based on the disclosures.

Sometimes disclosure leads to corrections; other times it fails miserably.

Disclosure failed during the run up to the financial crisis. The available warning signals, both inside and outside corporations, failed. As a result, the SEC developed new disclosure requirements for U.S. companies this year.

So how well have these disclosures worked? More

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