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Don’t play games with disclosure
By Lauren | September 3, 2010
Continuing my Friday series on keeping your business out of court, let’s look at a story reported by The Wall Street Journal yesterday. According to the Journal, disclosure has become an issue in the civil fraud suit that the SEC is pursuing against three former top officials of Countrywide Financial Corp. It’s an issue that most companies are wise to take into account.
The Journal reports that the central allegation in the SEC’s suit against the former Countrywide execs is that they hid information about growing risks in the company’s business from shareholders. That’s a fairly common accusation in a civil fraud case, but this one’s a bit more complicated. It seems that Countrywide actually made at least some of the disclosures the SEC requires in public filings. It’s just that the SEC considers the disclosures to have been too difficult to locate and obscure to be meaningful.
The Journal speculates that the Countrywide suit is being used as a test case by the SEC to change the interpretation of its existing disclosure rules. Countrywide’s former execs probably don’t appreciate being used as guinea pigs, though, and neither should you. If there’s something about your business that you aren’t happy disclosing, fix it, don’t conceal it. Don’t bury uncomfortable disclosures in piles of paper and microprint. Telling the truth about your company may be a little uncomfortable, but it beats all heck out of going to court.
To read the Journal article, click here.
Topics: Business Ethics, Lauren Recommends, Legal Ethics, Risk Management, business communications, corporate responsibility, ethics |
September 4th, 2010 at 5:00 am
Lauren,
I can’t comment on the Countrywide case in particular, but in general, basic professional conduct dictates that companies have a responsibility not only to disclose all information relevant to the share price, but to do so in a manner which is clear and transparent.
That includes risks. The impact of potential risks can be difficult to quantify, and it would not be realistic to expect companies to necessary provide hard and definite numbers with regard to each of the major risks on the horizon. Nevertheless, firms do have a responsibility to be upfront with shareholders about the nature of risks within the companies portfolio of operations.