Do investors have too much information?

Rather than train her sights on prosecuting Wall Street executives, SEC Chief Mary Jo White has decided to focus her attention on a hitherto unknown problem, investor “information overload.” White’s latest salvo is a rallying cry for corporations to step into the shadows, pick up their pitchforks, and wage an assault on investor intelligence.

But before she takes too many steps forward, it might behoove her to step back and determine whether those who actually read companies’ SEC filings think information overload is more than a figment of White’s imagination. After all, the mission of the SEC is to protect investors.

To test out her theory, I asked professionals about the information they thought could be eliminated from the fillings – and about any additional information they’d like to see. Here are edited excerpts of their responses.

Gregory P. Taxin, President, Clinton Group, Inc., a New York City based Registered Investment Advisor that invests across the globe and capital structure:

Is there any information you currently receive in SEC filings that you’d like to see eliminated?

Not much. We read these disclosures cover-to-cover. There are often important nuggets of information in unusual places. I’d worry about cutting any of it out. Filings are certainly lengthier today (often because lawyers insist on stating every possible risk factor under the sun and repeating them several times), but overall I think investors are better informed and are not suffering from too much information. I really don’t think there’s a part of the disclosure pie that goes uneaten.

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Is there any information that you don’t now receive that you’d like to?

I would like to know the real reasons executives depart so that we can better judge whether the board is overseeing management critically. Basically, I’d like to know when someone is fired for performance reasons. It would give me confidence that the board was working on behalf of shareholders. I would also like to see more disclosure of key performance indicators — the ones used by the board and executive team to judge performance. Today, investors are left guessing both on which performance metrics matter and on how the company is performing on those metrics. To get a handle on retailers, for example, investors have taken to sending teams of people into malls to count customers. Why are companies hiding the ball from investors?

Laura Berry, Executive Director, ICCR, an investor coalition representing $100 billion in assets under management. Berry is a former large cap value manager:

Is there any information you currently receive in SEC filings that you’d like to see eliminated?

Why is more data good in every other possible situation? I don’t understand why in the year 2014 we are having this conversation about limiting corporate disclosure. There are no areas that are over-reported. More is definitely better in this arena. The issue is not too much data. More data, big data, planning for data is shaping everything we do. Corporations are using big data to analyze their markets, to define their approaches to their customers, to design and develop their technologies, and determine where, how, and to whom they make political expenditures — yet when it comes to investors who need information to make good judgments about future valuations and risks, all of a sudden it’s burdensome. Companies are willing consumers of data. The SEC will best serve investors by focusing on making data more accessible, not limiting the amount. 

Is there any information that you don’t now receive that you’d like to?

I’d like to see more on risk areas like carbon emissions, water scarcity, and political spending and corporate lobbying. We also need to see more information throughout the tiers of corporate supply chains, for example, operational practices at the raw materials level. In 1975, 80% of corporate value was based on tangible assets. Today, that number has flipped — and corporate valuation is increasingly determined by the value of a company’s brand and intellectual property. Investors need lots of information to value this. There’s been a sea change in how corporations create value — we must adapt.

Julie Gorte, Senior Vice President of Sustainable Investing at Pax World:

Is there any information you currently receive in SEC filings that you’d like to see eliminated?

I don’t think there is anything that I would eliminate categorically. Over longer time periods, it’s hard to identify a specific category of reporting that is never material or relevant to an investment decision.

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If there were some sort of fairy dust I could sprinkle on the writers of disclosures, it would be something that repels boilerplate. The amount of “standard” language is staggering, and I suspect much of it is there to avoid any possibility of legal liability. If that boilerplate could be consigned to the dungeon it belongs in, then all we need is intelligent tagging, like XBRL, to be able to use the data much more efficiently and bring relevant information to our frontal lobes on command. But in order to do that, you need all the data.

Is there any information that you don’t now receive that you’d like to?

Generally speaking, the kind of information we need to assess a company’s sustainability is produced voluntarily by companies. There are a few things mandated — like the requirement to report on conflict minerals, but, for the most part, environmental and social disclosures are considered optional and not reported by far too many companies. A collapse in brand value often follows an environmental catastrophe, a major product safety glitch, or a prominent worker safety problem, and we’ve seen all of these in the last few years: think BP (BP), think Massey Energy, think Toyota (TM). While the SEC’s Regulation S-K requires all companies to report all material items, and specifically notes several environmental and social data as possibly material, the majority of companies apparently do not see these things as material or interpret the rules in ways that allow them to avoid reporting. This information I would very much like to have, and all too often, I don’t.

Vineeta Anand, Chief Research Analyst, AFL-CIO Office of Investment:

Is there any information you currently receive in SEC filings that you’d like to see eliminated?

No. While not all investors review every single document filed with the SEC, there are investors who read and analyze the various pieces of information and trade on that information. The assumption around information overload is that everyone reads everything. Not so. Not everyone needs to read everything, but the information is useful to someone.

Is there any information that you don’t now receive that you’d like to?

We’d like to see the CEO-to-worker pay ratio and the SEC has proposed a rule on that. Investors will be looking at that ratio to assess executive compensation, and it will also help them in casting their votes on “say on pay” and other compensation related issues.

In the past, companies used to provide information on the number of employees located domestically versus internationally. We’d like to see that information from companies. Because there’s been so much outsourcing, companies fear backlash, but the information would be useful to investors.

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Regarding additional information being a burden, companies today provide a lot of voluntary information to explain various issues, as SEC Chairman Mary Jo White herself has pointed out.  Information on pay and performance is one example. Section 953(a) of the Dodd-Frank bill requires companies to provide pay-for-performance disclosures. It would be helpful if the SEC would standardize how companies provide this information, including the definition of realizable pay.

Bob Dannhauser, Head of Capital Markets Policy, CFA Institute:

Is there any information you currently receive in SEC filings that you’d like to see eliminated? 

It’s time to give voice to the business perspectives that investors find useful that have increasingly been drowned out by the lawyers in the room, who draft disclosures with a very defensive mindset. Investors want to hear from management and the board about their assessments of strategies and risks, without the camouflage of legalese that obscures true insight. For example, the compensation disclosure and analysis is largely a wasted opportunity for issuers, burying in legal boilerplate any real insight on compensation strategy. So while we’d not recommend doing away with disclosure about comp strategy, we think we could do without the “non-disclosure” disclosure that many companies choose to make now.

Is there any information that you don’t now receive that you’d like to?

The financial crisis laid bare what an inadequate job many companies do around risk management, especially for financial companies. So we’d welcome more complete disclosure around the risks that companies confront and their strategies for mitigating them, as well as more insight on the risk governance process, including better disclosure of the board’s role and capabilities on risk management.

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If investors find the dollars corporations spend on disclosure to be money well spent, boards of directors should see that management teams supply the information shareholders want. While many portfolio managers and others declined, or did not respond to, a request for comment for this article, the CFA Institute recently released a paper that describes additional investor requests for greater transparency.

Clearly, moves to rob investors of valuable information may turn into ugly hand-to-hand combat between the SEC and the investors the agency is supposed to protect. It’s even possible the conflagration could divert money managers’ attention from managing your portfolio to preserving the intelligence required to invest your money wisely.

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White’s initiative could have other unintended consequences as well. Less transparency could create riskier equity markets with fewer people willing to invest. And less fulsome disclosure could push more money managers into insider trading to get scraps of information on the black market that are no longer available legitimately.

But perhaps in raising the issue of information overload, White has determined to conduct a bolder experiment: to test whether the U.S. stock market can flourish if it operates as a mere game of chance.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (
http://thevaluealliance.com
), a board education and advisory firm.