After a year in place, the SEC's Regulation Fair Disclosure (FD) is fulfilling its promise of fair and equal disclosure of companies' financial information to the general public, according to top executives.
In the latest PricewaterhouseCoopers (PwC) Management Barometer, nearly 90% of those surveyed said Regulation FD should be continued. However, 68% said the SEC should issue specific guidelines about what information requires disclosure, and what does not. Twenty-seven percent said such guidelines are not needed, and 5% were not certain.
Overall, 75% reported no impact on their company's stock price from Regulation FD, 18% were uncertain, while 7% noted a change. Among this latter group, 6% said the regulation had a negative impact, and 1% a positive impact.
More than 90% of those surveyed said Regulation FD increased fairness (46%) or provided about the same level of fairness as before to all analysts and investors (45%). Only 7% said it led to less fairness, and 2% were uncertain. This assessment extends evenly across industries and market cap sizes, and to investor relations and financial executives alike.
"After a year's experience, it appears Reg FD is increasing fairness for analysts and investors. On balance, the key aspects of corporate disclosure are being improved," said Frank Brown, PwC global leader for assurance and business advisory services. "But the call for specific SEC guidelines suggests a higher comfort level could be achieved."
Overall, 86% of executives said they have a good understanding of what can and cannot be done under Regulation FD, including 62% who understand the regulation "very well" and another 24% who understand it "well."
Eighty-eight percent of executives said Regulation FD had a neutral (71%) or positive (17%) affect on their company. Only 10% reported a negative impact; 2% were uncertain.
Overall, 88% said Regulation FD should be continued; only 10% said it should be repealed, and 2% were uncertain. However, 42% of those in favor of continuing feel some changes are needed. Among the changes mentioned were clarifying the rules for disclosure (37%), relaxing the rules (11%), and limiting penalties for violations (7%).
More than a third (38%) said Regulation FD would be more effective if it had stronger Safe Harbor protections, though 53% said that such a provision would not change the effectiveness of the regulation. Another 3% believes it would be less effective, and 6% was not certain.
Respondents said Regulation FD has favorably impacted company disclosures in several ways.
Forty-eight percent said regulation FD has influenced the quantity or scope of their disclosures – 37% said they are disclosing more, and 11% are disclosing less – a net of 26% providing more information.
- Quality: 33% noted a change in the quality of their company's disclosures – 29% of higher quality, and 4% lower quality – a net of 25% with higher quality disclosures.
- Frequency: 32% cited a change in the frequency of their company's disclosures – 23% more-frequently, and 9% less-frequently – a net of 14%, more often.
- Timing: 22% reported a change in the timing of their disclosures – 15% disclosing sooner, 5% later – a net of 10% disclosing sooner.
Since the advent of Regulation FD, 62% of those surveyed have allocated the same relative importance to quarterly earnings announcements. However, these announcements have become more important to 36%; and less important to only 2%, a net of 34% more important. And while 74% saw no change in off-balance sheet information reported by their company, 23% reported more, versus only 2%, less, a net of 21%, more.
"It is encouraging to see that many companies that have altered their disclosure practices have changed in the direction of greater transparency," Frank Brown noted. "Providing more information to stakeholders is one way companies can differentiate themselves from their competitors and add value for their investors."
The two major concerns about Regulation FD focus on added costs (cited by 51%) and higher litigation risk (41%). A third, but much lesser concern is that of greater company stock price volatility (19%). Each was cited by over three-fifths of those negative about Regulation FD.
- Incremental costs: Among the 51% citing increased costs, 47% said these costs are low to moderate, and 4% felt the costs are high. In contrast, 48% had not incurred added costs.
- Risk of litigation: 41% feel the risk of litigation is higher than before Reg FD; 9% feel it is lower.
- Volatility of company's stock price: Overall, 74% reported no impact on the volatility of their company's stock price due, in part, to greater volatility caused by other factors; 19% attribute more volatility to Regulation FD; 1%, less volatility.
"Overall, the benefits of Regulation FD seem to outweigh the concerns," Brown said. "Despite the dire predictions of the securities industry, the overall impact of regulation FD has not been onerous, but the risk of litigation clearly bears watching."