'Too Big to Disclose: Firm Size and Materiality Blindspots in Securities Regulation' by George Georgiev in (2017) 64
UCLA Law Review comments
This Article argues that the securities disclosure regime contains previously unexamined structural deficiencies, which pertain to the information provided by the largest public companies. These deficiencies arise from the operation of the materiality standard, a core element of the disclosure regime that is used in a number of disclosure rules. The materiality standard is designed to limit firms’ disclosure to information that would be of importance to investors, and to prevent the overproduction of information. I argue, however, that in the case of large firms the materiality standard can also lead to the underproduction of information — or to “materiality blindspots.” Since the threshold for what is material increases as firms get bigger, at the very largest firms even matters that are significant or sizeable in absolute terms may be deemed immaterial and remain undisclosed. Such firms are “too big to disclose” and, in a perfectly legal manner, take advantage of the materiality standard to avoid disclosure.
I illustrate the materiality blindspots phenomenon by analyzing the disclosure rules in three key areas (material contracts, material legal proceedings, and material business spending) and presenting original case studies of the disclosure practices of large firms. After revisiting accepted theory on disclosure regulation through the prism of firm size and analyzing examples from the case studies, I identify two sets of potential harms. First, materiality blindspots may undermine investor protection and corporate governance, including by diminishing stock price accuracy and making inside and outside monitoring for fraud, waste, or suboptimal management practices more difficult. Second, the materiality standard may give systematic advantages to large firms and lead to market distortions, in effect serving as a regulatory subsidy for bigness. I suggest that certain disclosure requirements that currently rely only on the materiality standard should be supplemented with targeted rules employing quantitative thresholds. This could provide a safety net against materiality blindspots by requiring large firms to disclose additional information that is not caught by the existing materiality standard, but that is significant or sizeable in absolute terms.
'Case Note: ASG v Hayne - A Case iof Publish and Not Be Damned' by Jeremy Finn in [2016]
New Zealand Criminal Law Review 86 comments
The decision in ASG v Hayne has significant implications for persons seeking permanent name suppression. This appears to have been the first time the Court of Appeal has been called upon to consider the meaning of “publication” under section 200 of the Criminal Procedure Act 2011. Unfortunately the decision raises at least as many questions as it answers. Some of these difficulties may reflect the fact that the case came before the Court of Appeal on appeal from the Employment Court, rather than from a criminal proceeding.
ASG was employed by the University of Otago as a security officer. He pleaded guilty to charges of wilful damage and assaulting a female in relation to an incident unconnected with his work. The District Court Judge discharged him without conviction on both charges, on the basis that the fact of conviction would imperil his employment and such a consequence was out of all proportion to the seriousness of the offence. The judge further ordered permanent name suppression and suppression of other details under s 200 of the Criminal Procedure Act 2011. The Court of Appeal thought it probable that the order was made so that the identity of ASG would not be disclosed to his employer and no adverse consequences could ensue.
However, the persons present at the court hearing included an employee of the University who had been informed that ASG was to be sentenced for offending. That employee made notes of the matter and then made enquiries as to whether he could disclose the details of the offending and outcome to the University authorities. He obtained legal advice from the University's lawyer, who advised him that the suppression order would not prevent communication of the information as to the charges and guilty pleas to the University as an employer and therefore to a person with a legitimate interest in knowing that an employee had pleaded guilty to conduct of the kind he was supposed to prevent. Following that advice, disclosure was made to the appropriate University personnel and the University conducted an internal investigation which led to first the appellant's suspension from his duties and later to a final written warning.
The matter then went before the Employment Relations Authority and then, on appeal, to the Employment Court. ASG contended that the communication of information as to the hearing to the University was in breach of the suppression order and therefore the University was not entitled to have regard to it. When the matter came before the Employment Court, the court held that communication of the information did not breach the suppression order, relying principally on the High Court decision in Solicitor-General v Smith on the predecessor legislation which had held that communication of information to persons with a legitimate interest did not breach a statutory prohibition on publishing a report of court proceedings involving a young person.
Finn notes that on appeal the Court held that
the University, as employer, was a person with a genuine interest and therefore the communication to it of information had not breached the suppression order. That decision was telegraphed earlier in the judgement when the Court commenced its discussion of its own views of the matter by emphasising that an employee had a duty to disclose relevant material to her or his employer and that ASG was in breach of that duty. It may be thought that this conclusion, something at least arguably irrelevant to the meaning of “publication”, coloured the rest of the judgement.
