Disclosure Procedure

Andrew K. Jennings

Securities disclosure is a human process. Each year, public companies collectively spend over fifteen million hours producing disclosures that undergird an equities market with tens of trillions in market capitalization. The procedures they follow in doing so affect whether their disclosures contain misstatements or omissions—errors that can cause trading losses for investors, and litigation for issuers. Yet despite the importance of the disclosures that firms produce, the literature says little about how they do it, including whether they are spending too much, too little, or just enough on their disclosure procedures. To fill that gap, this Article uses original surveys and interviews with in-house lawyers and accountants at S&P 1500 companies to give an institutional account of how disclosure is produced and how disclosure procedure affects firms and investors. In short, on a risk-adjusted basis, higher-quality procedures are likelier to produce higher-quality disclosures. That relationship promises social gains if procedures can be identified as higher- or lower-quality and firms adopt the higher-quality options. As a first step toward that promise, this Article compares S&P 1500 firms’ procedures and presents tentative evidence of divergence among them. It closes by explaining the need for firms to say more about their procedures in order to generate information that supports market-wide best practices.