Today’s W$J has an article detailing tech oriented measures being pushed at the SEC by Chairman Cox. These measures include:
• Offering incentives to companies to disclose financial information in a way that tags various pieces of data — such as revenue, profit margins and reserves — so that investors can compare companies against each other and across industry groups.
• Weighing the creation of a new benchmark that would allow investors to evaluate mutual funds’ performances after taxes and fees, akin to the auto miles-per-gallon results calculated by the Environmental Protection Agency.
• Proposing to allow companies to bypass paper forms entirely for shareholder votes — unless specifically requested by an investor — and to post proxy statements and the like on a Web site.
The article notes that the measures “are tweaked to reflect Mr. Cox’s free-market view that financial markets armed with information can discipline companies, an alternative to government regulation.â€? But under a free-market view, is there even a need for the first two measures? Specifically, doesn’t the market already provide convenient means to compare companies and mutual funds? For example, for access to various analytical tools, research reports, etc. that allow you to compare companies, just open an account at E*Trade.com. As for mutual funds, see Morningstar.com. If investors want more information than is being provided at these and other sites, won’t the market respond accordingly?
I’m certainly in favor of the SEC making it easier for the market to respond by, for example, improving EDGAR to allow companies to make their filings more user friendly, if the companies so choose (and maybe this is all Cox has in mind; the article isn’t clear on this point). However, I’m dubious of the government mandating a specific format for disclosure or a specific auto miles-per-gallon calculation for mutual funds. As Geoff has pointed out, disclosure requirements have costs beyond implementation. Bottom line: Let the market handle it.
