Global disclosure 2011 review: trends and new mandates in public filings

December 22, 2011

By John Mackie

NEW YORK, Dec. 22 (Business Law Currents) – The global push for increased transparency by public issuers continued in 2011, with developments on a number of fronts. U.S disclosure trends included Dodd-Frank related mandates and event-driven disclosures. Canada continued to refine its disclosure regime, seeing voices weigh in from the Canadian Securities Administrators and the Supreme Court. Regulators in the UK, meanwhile, pressed issuers to emphasize clarity over quantity in their disclosures. Business Law Currents takes a closer look at the global disclosure picture in 2011, highlighting this year’s trends, developments, concerns and challenges.

Among the hot disclosure topics for 2011 were Chinese issuers, the natural disasters in Japan, and the regulation of credit rating agencies. On a regional basis, the Supreme Courts in both the U.S. and Canada provided their thoughts regarding materiality assessments in a disclosure context.


United States


U.S. risk disclosures were often driven by major world events that impacted local companies, suppliers and those dependent on the market or currency of a particular region.

Of particular note, when, on March 11 Japan was pummeled by an earthquake and a tsunami, then threatened by radiation leaks from nuclear power plants damaged by the natural disasters.

These events has an enormous impact on businesses around the globe, threatening local subsidiaries, disrupting supply chains, and buffeting prices for commodities such as uranium. Companies such as U.S.-based Uranium Energy Corp and Paladin Energy of Perth, Australia addressed the impact of the Japanese disasters on the price of uranium shortly after the disasters occurred.

Going forward, issuers are likely to comment on the impact of the Japan disasters in their year-end disclosures regarding sales, profitability, risks to the supply chain and the like. Drug maker Patheon Inc., for example, is currently assessing the impact of the disaster and its aftermath on the company’s supply chain and operations in Japan.


In the U.S., Dodd-Frank occasioned a spate of new disclosure obligations, on topics ranging from golden parachutes to credit ratings. While the Act’s required votes on Say-on-Pay are non-binding, 2011 nonetheless provided some high-profile disclosures, including those of executives at Apple, Polo Ralph Lauren and Yahoo. Moreover, Dodd-Frank’s requirement that listed companies have independent compensation committees gave this otherwise cosmetic measure more behind-the-scenes substance.


The U.S. Supreme Court weighed in on disclosure in 2011, in particular on materiality. When a drugmaker brushed aside anecdotal evidence of anosmia (lack of smell function), citing a lack of “statistically significant evidence,” a subsequent plunge in the company’s stock price gave rise to securities litigation alleging 10b-5 violation for failure to disclose material adverse information.

Concluding that the materiality of adverse events “cannot be reduced to a bright-line rule,” the U.S. Supreme Court, in Matrixx Initiatives, Inc. v. Siracusano, following the standard set in Basic v. Levinson, declined to craft such a guideline. The Court concluded that the facts, “‘taken collectively,’ [gave] rise to a ‘cogent and compelling’ inference that Matrixx elected not to disclose the reports of adverse events not because it believed they were meaningless but because it understood their likely effect on the market.”

Quoting Basic v. Levinson, the Court summarized: “The question remains whether a reasonable investor would have viewed the nondisclosed information ‘as having significantly altered the ‘total mix’ of information made available.’”


The SEC called on companies to amplify disclosures on a wide range of topics. Unsatisfied with generalities, the Commission staff sought more disclosure from Amgen as to its litigation exposure. Staff members also pursued more information from UPS on possible dealings with Cuba, Iran, Sudan and Syria. The Commission also displayed its willingness to go beyond company disclosures, resorting to a little web-surfing to corroborate filings.



In 2011, the Canadian Securities Administrators (CSA) proposed significant changes to the regulatory regime for venture issuers – junior public companies – with a view to streamlining and tailoring disclosure obligations to “reflect the needs and expectations of venture issuer investors and to make the disclosure requirements…more suitable and more manageable for issuers at this stage of development “.

Under the proposed changes, many of the current disclosure requirements for venture issuers will be consolidated into a single annual report. In addition, three-month and nine-month periodic reports will be eliminated.

The proposed changes are a response to the significance of the venture market and the economic role played by venture issuers as employers and incubators. At November 30, there were 2,444 issuers listed on the TSX Venture Exchange, compared to 1,590 on the TSX.


One of the major changes impacting Canadian issuers in 2011 was the new requirement to report under International Financial Reporting Standards (IFRS). The new reporting standard applies to fiscal years beginning on or after January 1, 2011.

Though no major restatements or errors have been reported to date, the OSC has been monitoring issuers closely, and has notified several of failures to include all of the required IFRS reconciliations and statements. The real test, however, will come with year-end reports.


The Supreme Court of Canada also commented on the process an issuer should follow in determining the materiality of information from a disclosure perspective, with its decision in Sharbern Holding v. Vancouver Airport Centre.

The Sharbern case involved securities sold to investors in connection with two hotel properties, and differences in financial arrangements between two properties that were not disclosed. Investors in one of the hotels claimed that those arrangements resulted in there being an incentive for the property manager to favour one of the properties in its operation and management efforts.

The Supreme Court concluded that the details of the financial arrangements and the potential conflict of interest were not material, commenting that materiality is to be determined on a case-by-case basis in light of all of the relevant circumstances and the “total mix” of information available to investors. Nonetheless, in the eyes of the Court, it was not necessary to prove that the omitted fact would have caused a reasonable investor to change his or her investment decision. Rather, it was sufficient if there was proof of a substantial likelihood that the omitted fact would have been considered significant by a reasonable investor in their deliberations.

United Kingdom

For a jurisdiction in which “disclosure” remains a foreign concept, the UK made a remarkable move towards a more U.S.-centric approach, although with some notable differences.


Though the takeover panel upped the ante on takeovers; requiring bidders to disclose details of their financial arrangements, adviser fees and incentives under takeover code changes, the Financial Reporting Council (FRC) chose a very different path. Choosing clarity over clutter, the FRC made it clear it is seeking quality not quantity from companies on their financial disclosures. The council suggested that pro forma information from Annual Reports be moved to websites and that disclosures should be more informative rather than box ticking exercises.


Although it provided less transparency into the murky world of commodities trading than some had hoped, Glencore’s IPO disclosures provided to be the most scintillating of year, although that was partly due to the fact that few other IPOs made it to market. Disclosing that much of the senior management would become multi-billionaires over night, it was the lack of trading strategy disclosures that caught the eye of many. Prosaic descriptions of “arbitrage opportunities” and “time-related price discrepancies” provided little insight into the traditionally secretive organisation. It was not without some irony, therefore, that it was Glencore’s openness over its subsidiary’s profits that caused the most stir.

Voluntarily opting to file financial statements on a quarterly basis (UK companies are required to produce bi-annual financial statements), Glencore briefly provided an early insight into the results of key subsidiary Xstrata, also a UK listed company. However, when Xstrata pulled its obligation to provide monthly statements under its shareholder agreement with Glencore, the commodity trading giant meekly moved to filing twice a year, ending its financial peep show.

Looking forward to 2012, there remains a lot of work to be done by regulators in determining how they intend to handle issuers from emerging markets. As well, credit ratings agencies will no doubt be under continued scrutiny should sovereign debt remain a hot potato. What new surprises await issuers remains to be seen, however with the increasing pace of communications and the global nature of commerce in today’s world, it seems inevitable that public companies will continue to face challenges on the disclosure front.

(With contributions from Jack Bunker and Chris Elias)

(This article was first published by Thomson Reuters’ Business Law Currents, a leading provider of legal analysis and news on governance, transactions and legal risk. Visit Business Law Currents online at )


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