Transparency versus Confidentiality in Public Firms. This post comes from Sergio Gilotta LL.M.’09, Corporate Governance Concentration
(Sergio is currently an assistant professor at the University of Bologna. In 2012 he published the book “Trasparenza e riservatezza nella società quotata” (Transparency and Confidentiality in the Public Firm). An article appeared in the 2012/1 issue of the European Business Organization Law Review summarizing the major results of his research.))
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Corporate transparency – and the set of rules mandating it – play a beneficial role for both firm governance and the well-functioning of the securities market. Firms, however, typically retain an interest in confidentiality over data and information that may be at the same time valuable for investors. How should the law address this fundamental conflict? I argue that too broad or unconditional disclosure duties are harmful, since they both weaken the firms’ incentives to innovate and also distort competition in the product market.
Mandatory disclosure systems are increasingly oriented toward price-efficiency goals and such a feature exacerbates the tension. Modern regulation does not tolerate delay in disclosure and demands an ever increasing level of detail in the information released. This is especially true for Europe, where securities regulation mandates listed companies to immediately disclose all their “price-sensitive” information. Some room for rightfully delaying the release of the information is provided, but the scope of the exemption is narrow and – worse – substantial legal uncertainty surrounds its use. Regulators should rebalance such rules, either enlarging the scope of the exemption or redefining the notion of price-sensitive information in more restrictive manner.
In addition, more space should be given to selective disclosure. Allowing issuers to disclose their most secrecy-sensitive data only to a predetermined pool of recipients (such as analysts) instead of releasing it to the public at large would be an effective means for preserving a high degree of informational efficiency in securities prices without harming the disclosing firm.
— Anastasia Tolu, Corporate Governance site administrator
December 9, 2013