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Conference Panelists Discuss Current Disclosure Issues

The largest companies have shown the greatest improvement in MD&A disclosure since the SEC issued guidance in December 2003, according to Alan Beller, the director of the SEC's Division of Corporation Finance. These companies are providing better disclosure on trends, forward-looking information, financial results and liquidity. The bottom few thousand companies definitely have a ways to go, he said. Beller participated in a panel discussion on current disclosure issues at the Practising Law Institute's annual program on securities regulation in New York .

Beller advised that the area that needs the most work is disclosure about critical accounting estimates in MD&A. The SEC's proposal on critical accounting policies is still out there, he said, but it is not on the front burner. The SEC is in a "wait and see" mode, he explained. Beller added that the staff does not intend to issue any further guidance on the issue.

Michael McAlevey, the chief corporate and securities counsel for General Electric Co., observed that the 2003 release reflected the long evolution of staff positions on MD&A. His advice for companies in preparing their MD&A is to plan ahead because a lot of input is needed, including an overview by the disclosure committee and a review by the audit committee and the full board of directors. He suggested that companies look at what they have provided to the analyst community in quarterly and annual meetings. Those presentations usually provide a clear understanding of where the company is headed, he said. He also recommended that the MD&A reflect the way management speaks internally when they discuss where the company is headed and the challenges it faces.

Beller said that the staff continues to issue a lot of comments with respect to segment disclosure. The staff sometimes asks for excerpts from the board's books, he advised. He said that aggregating operating segments is more of an accounting issue. Too many operate as if the instruction in FAS 131 is a principle, he said, but it is a requirement.

The panelists discussed the Regulation FD case in SEC v. Siebel Systems, Inc. that was dismissed. John Iino, with the Century City, California office of Reed Smith LLP, suggested that the case may have been an aberration. It was not well-pleaded by the SEC, he said. The judge in that case noted that companies cannot be expected to become linguistic experts to avoid violations of Regulation FD.

At the same time, Iino said companies should have an effective disclosure policy. Spokespeople need to be aware of what others in the organization are saying. He recommended holding debriefings after analyst meetings. If the company's stock price moves, take a swat team approach, he said, since the company has 24 hours to react.

Beller said that Regulation FD has become the most important factor in determining what a company's policy on updating information should be. As for the Siebel case, any time the SEC loses, the staff considers the issues involved, he said. The SEC lost Siebel on materiality grounds, according to Beller, which is the hardest issue to get one's arms around. The SEC chooses not to bring many cases because materiality is not demonstrable, he said. The SEC has a number of Regulation FD investigations underway right now, he added, and will continue to bring cases.