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Show The National Enterprise, August MfiteM MtM T 4, 1976 page tw Corporate Disclosure: To Tell or Not to Tell? A morality of cor- biguity" about exactly what is porate conduct is sweeping 'material thinking "it keeps the nation's boardrooms. people on their toes." "Confess and be saved" is the Chairman Hills last February strange value of a company's stock in a motto. , What theyre confess- did, however, appoint an Ading to, not many know. It's visory Committee on Corporjust that in the wake of the ate Disclosure to examine the Watergate cover-up- , a contin- uum of investigation, discovery, and condemnation has them running Over a scared. hundred com- panies have already come forward to confess various and sundry sins. In his judgement, the executive is no longer sure of what the Securities and Exchange Commi- deems 'material infoand is therefore doubly uncertain about what he must ssion rmation disclose. Companies confess to actions they describe as "unethical," "improper," "im- moral,", "questionable," etc., and in defiance, attach notes saying, "In our opinion, this is not of 'material imThey look for portance." salvation in disclosing everything and anything for to harbor but one untold fact is tantamount to self-admitt- ed guilt. Companies and' their counsel, fortunately, arent system that has evolved. The committee is now soliciting viewpoints from interested parties about the rules and regulations promulgated by the commission. In order to enforce its rules of corporate disclosure, the SEC relies on its historical mandate from Congress conEmcerning materiality. bodied in the Securities Act of 1933 and 1934, the obligation rests with the SEC to ensure disclosure of all mateial information information that is of significance to an investor. On this point, recently retired commissioner, A. A. Sommer, Jr., wished to make the distinction (in favor of the former) between "disclosure as a. means of informing investors and disclosure as a means for altering conduct." Materiality ought to be easy to define, according to Norman S. Johnson, Salt Lake attorney. "Material information is information that would likely affect a reasonable person's investment judge- - the only ones concerned with the present- state of affairs. The SEC, itself, is in turmoil ment." - . to make some distinctions and draw up some in trying Compatible with his definition is that of a prominent But too reasonable rules. challenger of the SEC, Milton they are divided. Chairman of the V. Freeman who thinks "matSEC, Roderick M. Hills, de- erial information could be lights in the "delicious am expected to affect the market substantial way." Freeman believes that the commission has forgotten the real purpose of disclosure is protection of the investor. Rather, he said, it has become an arbiter of legality. Writing to the Enterprise, a corporate executive expressed hope that through participation of the investment community in the efforts of the Advisory Committee, the SEC will "become aware of the abuses which now exist in the 'minutia of unnecessary detail and the difficulty of interpretation found in the present disclosure system." Addressing that issue, Johnson was emphatic in pointing out that what many people, might consider immoral or improper doesn't, in his opinion, constitute materiality unless it affects the profit and loss statement of a "It is not the company. business of the agency whose job it is to regulate the marketplace to enforce laws of countries 'round the globe nor even its own standard of morality," he said. If payment is made to a commissioned agent in a foreign country, Johnson illustrated, the SEC, and the company, ought to be concerned with the impact it will have on the economic condition of the company, not on the morality of a 'bribe. "By and large," the attorney said, "disclosure prov isions are well conceived. But we are dealing with people a high degree of sophisticaas tion, Johnson contends and their imperfections and have the needs of investors.' limited frames of reference." But in overhauling the The entire approach to corporate disclosure system, disclosure and the regulations he implores the SEC to leave Continued on Page Ten surrounding it have evolved to JUST PUBUSHED "INVESTING IN THE GREAT NORTHWEST." NOW ... FOR THE FIRST TIME. A DEFINITIVE BOOK THAT ANALYZES EXCITWIG IN VESTMENT OPPORTUNITIES IN THE DYNAMIC, RESOURCE-RIC- H SEVEN STATE REGION OF THE PACIFIC NORTHWEST (MCLUDMG ALASKA). ABOUT THE AUTHORS. 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