The Commission, Terrorism and the Politicization of the Disclosure Process

An odd footnote in the history of the Commission will be the misguided effort to post information at the agency's web site on companies that did business with countries designated as state sponsors of terrorism.  The Commission put up a "web tool" that designated the companies, with the information coming from 2006 annual reports.  The approach was ham fisted and poorly done, identifying some companies that in fact had ceased operations in the relevant countries.  More importantly, however, it put the Commission in the position of repackaging disclosures already in the pubic domain on politically sensitive topics.  It was, as we wrote, abad idea.

The idea, however, is back, this time in the form of aconcept release.  The release seeks comment on a number of issues, most notably whether the Commission "should reinstate a web tool" to identify the companies doing business in these countries.  We have a simple answer:  No.

First, there are the costs.  As the release acknowledged, the reinstitution "would require a significant and indefinite commitment of agency personnel, with concomitant impact on the SEC budget and on the other work of the Commission. . . "

Second, the information is in the public domain and anyone who wants it (individual investors or activist organizations) can already find it and post it.

Third, the Commission conceded the securities laws "do not impose a specific disclosure requirement that addresses business activities in or with a country based upon its designation as a State Sponsor of Terrorism."  The very act of posting these self identifying countries on an agency web site will simply result in less, rather than more disclosure about activities in these countries.  In other words, those disclosing, despite the absence of a "specific disclosure requirement," suffer the most severe consequences. 

Fourth and most importantly, the Commission has no business in taking existing corporate disclosure and recasting it based upon a political objective.  So, for example, the release never even purports to explain why a web tool is needed here, but not in the case of disclosure about global warming or human rights.  The same is true, by the way, with the argument that this type of disclosure should be data tagged.  Moreover, the release noted that it was not the role of the Commission "to determine the degree to which a public company's business activities may support terrorism or may be  inconsistent with U.S. foreign policy or U.S. national interests."  But, no matter how much the Commission suggests otherwise, the mere creation of a web tool that highlights companies doing business in only the five relevant countries is itself a political act that will result in some viewers concluding that the companies are aiding the enemies of the United States. 

The web site came down after a torrent of criticism.  It should remain down.