39 Pages Posted: 12 Oct 2018 Last revised: 19 Jun 2019
Date Written: 2018
The United States securities regulatory infrastructure requires disclosure of a wide array of information both by and about covered companies. The basic purpose of the disclosures is to level the playing field — for investors, for issuers, and for the public. Although investor protection is the disclosure goal often touted, this article develops the purposes of disclosure extending beyond investors to issuers and the public. Indeed, the disclosure system is designed to level the playing field for issuers — addressing confidentiality concerns, for example. In addition, the system helps to promote confidence in the markets, which, in turn, enables growth and innovation by creating access to capital — goals important to issuers. Yet, as importantly, the system also protects the public more broadly. After all, the harms of market crashes and other disruptions are not confined to investors and issuers — despite the fact that writing in this space focuses largely on them.
Disclosure’s purpose, then, is to diminish asymmetries and the space for fraud, both for those within the entity and for the public affected by the entity. To achieve these purposes, the system depends on gatekeepers, like corporate directors who are assigned a role in effectively managing the purpose and consequences of disclosure. Doing so requires them take ownership of both the ensuing internal discourse between the entity, its insiders, and its owners, as well as the external discourse with the entity’s public stakeholders and the public more generally. When directors do so, the resulting discourse and candor helps to ensure the purposes of disclosure are met.
This article examines the purpose and regulation of this discourse, emphasizing the role of the board of directors and its attention to public stakeholders and the public, with a particular focus on omissions. The article proceeds as follows. Part I explores the purposes of disclosure in corporate discourse and how disclosure requirements are designed to transmit information. As we will see, the securities disclosure regime aims to address a broad range of issues — from fairness to market competitiveness. Part II develops the omissions theory in the context of the purposes of disclosure, as well as explicating their role in corporate discourse. Part III turns to the board and its responsibilities with respect to the purposes of securities disclosures and corporate discourse, with a particular emphasis on omissions and candor, and deployng some case studies to develop the theories further. Part IV analyzes the relationship between directors, disclosure (and its purpose) and omissions, and publicness, tying the information-forcing-substance theory to director gatekeeping and explicating how it can result in more thorough disclosure outcomes for investors, issuers, and the public — and thereby, fulfill disclosure’s purpose.
Keywords: corporate governance, securities, directors, fiduciary duties
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