Corporate disclosure and reporting are the processes through which a company produces, verifies, and communicates information about its business, financial condition, results, risks, governance, and other matters. In the federal securities system, public companies make periodic reports, current reports, proxy disclosures, and transaction specific filings under detailed SEC rules. Financial statements form an important part of this system, but the system reaches much further. It also includes narrative descriptions of the business, management’s discussion of results and trends, risk factors, executive compensation, related party transactions, human capital, and other information. To produce a filing, companies must identify relevant information, collect, organize, and analyze it across headquarters, subsidiaries, and business units, apply accounting and legal standards, subject it to internal review, and obtain scrutiny from auditors, lawyers, and boards; senior officers then certify its accuracy under threat of legal liability. The public filing is the visible output of this larger organizational process. That process supplies information to investors and markets, but the disclosure system also influences corporate governance long before any disclosure is made, by shaping the behavior of corporate insiders and improving internal monitoring and decisionmaking.

Mandatory disclosure occupies a central place in corporate governance because it can improve monitoring and accountability without directing companies to adopt a single substantive strategy. A disclosure rule ordinarily requires a company to explain what it has done, how it is organized, or what risks it faces. Investors, boards, analysts, regulators, and other users then respond to that information. This design is generally less intrusive than a prohibition, a structural mandate, or command and control regulation. It also fits corporate law’s enabling orientation, which leaves firms substantial freedom to choose their governance and business arrangements. Disclosure can nevertheless influence conduct. A director attendance rule, for example, requires companies to identify directors who attended fewer than 75% of board and committee meetings. Public identification of absentees creates a strong incentive to attend. Related party transaction disclosure operates similarly by exposing nonstandard dealings to investor and regulatory scrutiny. Disclosure’s attraction lies partly in this combination of flexibility and accountability, although disclosure based interventions are often weaker, less targeted, and harder to assess than direct interventions, and their deterrent effects can be difficult to observe.

The law and economics case begins with information asymmetry and the public good characteristics of corporate information. Information released under mandatory disclosure rules is non-rivalrous and non-excludable, and firms have incentives to underproduce information about their strategy and performance that could help competitors, customers, or suppliers. Left to voluntary disclosure, firms would therefore disclose less than the socially optimal level. Mandatory disclosure allows investors to economize on information and search costs, makes comparisons across issuers possible, and helps distinguish high quality firms from low quality firms. When disclosure is absent or lacking, it becomes more costly or even impossible to make that distinction, which can lead to adverse selection and market unraveling. Because the interfirm costs borne by a disclosing firm are benefits to other firms, the aggregate social costs of disclosure are lower than the aggregate private costs. Research surveyed in the disclosure literature reports positive associations between disclosure and liquidity, cost of capital, analyst precision and following, investor trading, portfolio choices, capital raising, and managerial efficiency. Causal measurement remains difficult, but the studies confirm that the disclosure enterprise has beneficial effects, and the absence of conclusive evidence should not be read as evidence that the linkages are absent.

Disclosure improves securities price accuracy by increasing the amount, reliability, and comparability of information available to market participants. Analysts, institutional investors, traders, rating agencies, and other information intermediaries process corporate reports and act on what they learn. Their trades and recommendations help incorporate information about a company’s expected cash flows, risks, and opportunities into the prices of its securities. Better informed prices strengthen the relationship between an investor’s payment and the firm’s prospects. They also help capital move toward higher valued uses. Price accuracy does not require a perfectly efficient market. The relevant comparison is whether prices reflect more useful information under a credible disclosure regime than they would in its absence. More informative prices also support corporate governance. Activists and potential acquirers rely on market and company information to identify underperforming firms. Performance based compensation often uses stock price measures, so the integrity of those measures depends partly on the integrity of disclosure. In these ways, corporate reporting affects both trading and the mechanisms through which markets discipline management.

A standardized disclosure system allows investors to obtain core information from a common source and in a recurring format. Without such a system, each investor would have to obtain and verify information separately, and firms, left to voluntary disclosure, would disclose less than the socially optimal level. Mandatory reporting economizes on information and search costs by requiring issuers to produce information that is non-rivalrous and non-excludable, so that many market participants can use it at once. Standard sections such as the description of business, risk factors, management’s discussion and analysis, and executive compensation also help users locate comparable information across companies and over time; standardization for the sake of comparability is one of the key justifications for a mandatory rather than a voluntary regime. Information intermediaries such as research analysts, rating agencies, and proxy advisory firms analyze and translate the information, making it more accessible to sophisticated and unsophisticated investors alike. When disclosure is absent or lacking, it becomes more costly or even impossible for investors to distinguish high quality firms from low quality firms. The resulting adverse selection can lead to market unraveling.

An investor can benefit from disclosure without personally reading a filing because securities markets transmit information through prices. Sophisticated investors, research analysts, credit rating agencies, proxy advisers, and other intermediaries review company reports and act on them. Trading based on that analysis helps move the security’s price toward a level that reflects the newly available information. An investor who later buys or sells at that price receives some of the benefit indirectly. This feature distinguishes securities disclosure from many forms of consumer disclosure. A consumer generally must read and understand a warning to obtain its benefit. In a securities market, the relevant user is often the marginal information processor whose activity affects price, rather than the average investor. Information intermediaries also analyze and translate disclosure, making it more accessible to sophisticated and unsophisticated investors alike, and technology gives investors ever more powerful tools for processing large amounts of information. Comprehensible reporting still matters, and the more salient concerns are informational integrity and the overuse of boilerplate. But available evidence suggests that investors are not overloaded with information, and the effectiveness of corporate reporting should not be judged by asking how many retail investors read a Form 10-K from beginning to end.

When disclosure is absent or lacking, it becomes more costly or even impossible for investors to distinguish between high and low quality firms, which can lead to adverse selection and market unraveling. Credible disclosure reduces this problem and supports liquidity and analyst coverage; under the SEC’s offering rules, firms that achieve market efficiency through ongoing disclosure, market liquidity, and securities analyst coverage qualify as well-known seasoned issuers and can raise capital more easily. The empirical literature also documents an association between disclosure and a lower cost of capital. Disclosure also improves capital allocation. More informative prices help investors compare firms and direct funds toward projects and businesses expected to generate greater value. The same logic applies to debt as well as equity: Congress modeled the original disclosure requirements on the information that bankers demand from borrowers in order to assess creditworthiness and the cost of capital. Empirical research summarized in the disclosure literature reports associations with liquidity, capital raising, cost of capital, analyst precision, and portfolio decisions. The magnitude of any effect varies by firm and context, but the combined mechanisms explain why market transparency is treated as a foundation of deep and efficient capital markets.

Disclosure is often preferred because it preserves managerial choice while creating a basis for oversight. A substantive rule might prohibit a transaction, prescribe a board structure, cap compensation, or require a particular operational response. A disclosure rule can instead require the company to identify the relevant practice, explain its rationale, and expose it to investor, market, and regulatory scrutiny. This approach is less costly, less prescriptive, and less proscriptive than most structural or behavioral interventions, and it leaves firms a choice about how, and sometimes whether, to comply. From a circumspect regulator’s point of view, it is also less risky, because it outsources part of the regulatory function to investors. Those advantages come with limitations. Disclosure based interventions may be weaker, less targeted, and harder to assess than direct regulation. Investors may not respond, public attention may focus on a misleading metric, or companies may alter behavior in unintended ways. The CEO pay ratio illustrates the problem: a disclosure with high public salience but low informational integrity, which the research finds ineffectual and potentially counterproductive as a means of informing investors or influencing firm behavior on compensation. Disclosure is thus both a complement to substantive regulation and a substitute for it; it may be imperfect and sometimes imprecise, but it is often the only feasible instrument.

Disclosure improves corporate governance through three principal channels. First, it promotes securities price accuracy by supplying information that investors and intermediaries incorporate into market prices. Better prices improve capital allocation and strengthen market based monitoring. Second, disclosure affects internal governance. To compile disclosure and certify its accuracy under threat of legal liability, insiders continuously collect, organize, and analyze information about the firm, and lawyers, auditors, and underwriters conduct legal, accounting, and financial due diligence. The prospect of public scrutiny can also deter self dealing or encourage more defensible practices. Third, disclosure supports external governance by enabling shareholders, activists, analysts, rating agencies, proxy advisers, and regulators to monitor the company. Shareholders use information when they vote, trade, engage with management, or pursue litigation. The channels differ in an important respect: the internal governance benefits derive from the disclosure process itself and the actions of insiders and their advisers, whereas the external governance benefits depend on the actual existence of disclosure and the actions of investors, and are closely tied to the investor protection principle embedded in U.S. securities law.

The disclosure process can improve governance long before a report reaches investors. To compile a filing, corporate insiders continuously collect, organize, and analyze information about the firm, apply accounting and legal standards, and subject the result to review by lawyers and auditors; the CEO and CFO then certify its veracity under threat of legal liability. This increase in knowledge improves managerial decisionmaking and corporate performance, helps resolve information asymmetries between headquarters and branch offices or among subsidiaries, and supplies independent directors with the information their monitoring role requires. The process also changes incentives: managers who know that a transaction, performance measure, or risk will be described publicly may structure it more carefully or avoid conduct that would be difficult to defend. Once a matter is disclosed in a periodic report, it becomes embedded in the disclosure process and subject to regular monitoring by managers, lawyers, and auditors. The benefit is difficult to observe because the public sees only the final disclosure, not the behavioral adjustment that preceded it. Empirical research has nevertheless found a positive link between firms’ efforts to avoid disclosure and potential self dealing, which heightens disclosure’s importance as a prophylactic device.

Disclosure can deter self dealing by increasing the likelihood that nonstandard transactions involving insiders will attract scrutiny. Tunneling refers to the extraction of corporate wealth by managers, controlling shareholders, and other insiders. Regulation S-K Item 404, for example, generally requires disclosure of certain transactions exceeding $120,000 in which a director, executive officer, or related person has a material interest, and Regulation S-X Item 4.08 requires that material related party transactions affecting the financial statements be disclosed in the notes. These rules are not styled as prohibitions, but disclosure of non-standard or off-market terms has a negative signaling effect and may draw the attention of investment analysts, investors, or regulators. The anticipation of those consequences can discourage the conduct before it occurs. By its nature, this deterrent effect is difficult to observe. Nonetheless, research on firms that leave the SEC reporting system has found evidence consistent with insiders seeking to preserve private benefits of control, including favorable loans, perks, generous compensation, and self dealing, which heightens the importance of disclosure as a prophylactic device.

Boards depend on information to monitor management, evaluate strategy, oversee risk, and discharge fiduciary responsibilities. The disclosure process reinforces this role: corporate insiders continuously collect, organize, and analyze information about the firm in order to compile disclosure and certify its accuracy under threat of legal liability, which also reduces information asymmetries between headquarters and branch offices or among subsidiaries. Independent directors cannot fulfill their monitoring functions without sufficient information. Audit committees oversee financial reporting and related internal controls; compensation committees have responsibilities for executive compensation and the CD&A; and many boards have assigned ESG or sustainability oversight, including human capital, to other committees. Once a matter is disclosed in a periodic report, it becomes embedded in the disclosure process and subject to regular monitoring.Overloading the board with oversight of non-essential matters can prevent it from monitoring effectively, and full-time management may be better placed than a part-time board to oversee policies once they reach a certain level of technical specificity. When a subject is mission-critical for the company, by contrast, Delaware case law expects a board-level system of monitoring and reporting. The practical question is which matters deserve board time and how oversight should be structured, rather than whether board oversight is an unalloyed good.

Lawyers, auditors, and underwriters function as gatekeepers because the disclosure process facilitates their monitoring of the firm through legal, accounting, and financial due diligence. Information prepared for disclosure is generally vetted carefully because the legal regime imposes liability on underwriters for misstatements and omissions in disclosure documents, and because lawyers and auditors are asked to deliver legal opinions, negative assurance letters, and auditor comfort letters, which function as reputational bonds. Financial statements are prepared under a large body of accounting rules and audited before disclosure; the purpose of the audit is to vet the financial statements before they reach investors. Auditor attestation of internal control over financial reporting has governance effects of its own: the auditor’s testing can identify weaknesses, prompt remediation, and strengthen the processes through which management and the audit committee assess internal control, and material weaknesses are far more common and persistent among filers that are not subject to attestation. Taken as a whole, the involvement of underwriters, lawyers, and auditors in the disclosure process results in active monitoring of corporate conduct. The iterative nature of the work also promotes managerial conscientiousness and diligence, because once a matter is disclosed in a periodic report it becomes embedded in the disclosure process and subject to regular monitoring.

External monitoring depends on access to information that outsiders can analyze and compare. Hedge funds, investment analysts, rating agencies, proxy advisory firms, and other information intermediaries are avid consumers of corporate reports. Their work supplies retail and institutional investors with information that facilitates the exercise of governance rights, and management and boards learn from this analysis and frequently change strategy to accommodate its recommendations. Accurate securities prices, which depend on disclosure, also allow activists and potential acquirers to identify underperforming firms as targets, so that the market for corporate control can operate as a disciplining device. Unlike the internal governance benefits, which derive from the disclosure process itself, these external benefits depend on the actual existence of disclosure and the actions of investors, who are the original intended beneficiaries of the disclosure regime. Shareholders and intermediaries do not have routine access to company information unless it has been formally disclosed, so any monitoring by information intermediaries depends on the availability of sufficient information about firms’ activities, and the disclosure regime is the primary avenue for providing it. The overuse of boilerplate language, and the resulting deficiencies in disclosure’s informational content, are accordingly more salient concerns than the volume of disclosure.

Although shareholders do not participate in the day-to-day governance of public companies, they have three types of rights, to vote, sell, or sue, and in each case the information provided through the disclosure regime is essential. Shareholders receive periodic information about the firm’s performance and special disclosure materials in connection with votes they are asked to cast, either as a matter of course (for example, to elect directors) or as a result of extraordinary corporate events (for example, to approve a statutory merger or an asset sale). Trading decisions rely on periodic and current information about the company’s business, financial condition, results of operations, material trends and uncertainties, and risks. Disclosure also informs investors when they exercise litigation rights, such as derivative suits under state law or securities fraud suits under federal law, and certain special rights under state law, such as dissenter or appraisal rights. Disclosure also facilitates ongoing monitoring and engagement by activist shareholders, whose success depends in part on their ability to gather, process, and analyze information. Because shareholders lack routine access to company information unless it has been formally disclosed, disclosure makes their limited governance rights meaningful, and information intermediaries analyze and translate the disclosure, making it accessible to investors who lack the time or expertise to analyze every filing themselves.

The investor information function is the baseline for all securities disclosure. It supplies information used in investment, voting, and litigation decisions and in monitoring by gatekeepers. The behavioral function arises when disclosure rules are designed to, or have the effect of, influencing firm behavior. Related party transaction reporting discourages self dealing; disclosure of directors who attended fewer than 75% of meetings creates strong incentives for attendance; and comply or explain rules create strong incentives to comply. All investor-focused rules have the collateral effect of informing non-investor constituencies such as employees, customers, suppliers, regulators, and the media. Certain rules are of such keen interest to those constituencies, often more so than to investors, that they can be thought of as having a social function at their core: providing stakeholders with relevant information or generating public discourse on an issue of societal importance. The CEO pay ratio, conflict minerals reporting, mine safety disclosure, and resource extraction payment reporting illustrate this function. These functions are distinct but not mutually exclusive. Policymakers should be wary of critiques that treat the investor information and stakeholder information functions as incompatible. At the same time, rules with a behavioral function risk affecting incentives in unintended and unpredictable ways, which makes rule design all the more important.

Well designed disclosure should be relevant, accurate, comprehensible, and complete. Relevance asks whether the information is useful to an identified audience and connected to a plausible decision or governance mechanism. Accuracy asks whether the disclosure faithfully represents the underlying reality and can be verified. Comprehensibility concerns presentation, organization, definitions, and the ability of users or intermediaries to interpret the information. Completeness asks whether the disclosure supplies enough context to avoid creating a misleading picture. These characteristics are overlapping, non-binary ideal types, each of which should be viewed as part of a continuum, and completeness plays a part in defining accuracy and comprehensibility. A number may be accurate under a prescribed formula yet incomprehensible or incomplete if users cannot identify what drives it. The CEO pay ratio provides an illustration: the arithmetic of the ratio is accurate, but methodological flexibility and differences in workforce composition, outsourcing, geography, and founder-CEO pay make the underlying figures unverifiable and the ratios incomparable across companies. Standardization of presentation over time and across firms improves comprehension and comparison, whereas highly prescriptive legislative mandates can generate ambiguous soundbites with low informational value. Without a clear framework for these characteristics, there is a risk that disclosure will be ineffectual or, worse, will distort the behavior of the relevant actors.

Relevance means usefulness to one or more constituencies within the corporate governance ecosystem, and it is by nature relative and contextual, never categorical. A disclosure item may be relevant because it affects valuation, helps shareholders vote, enables a board to monitor management, or informs another constituency whose actions influence the firm. Identifying relevance therefore requires a theory of how the information might lead to improvements in corporate governance. Relevance also depends on one’s view of corporate purpose: the narrowest conceptions would question the relevance of any information that cannot be linked to the needs of financially motivated investors, whereas a more expansive conception would deem disclosure about non-financial risks or corporate externalities relevant even if it is relevant only to non-investor constituencies, and relevance to stakeholders does not negate relevance to investors. Relevance does not map onto materiality, nor does it depend on satisfying a materiality test. Materiality is a distinct concept that functions as a legal threshold for the duty to disclose and for liability; the Supreme Court’s materiality test governs ex post liability determinations, not a regulator’s ex ante policy choices. Under a standardized reporting framework, not every required item needs to be material for each firm at each point of disclosure. Without a theory of relevance, disclosure risks being ineffectual or, worse, distorting the behavior of the relevant actors.

Accuracy is supported by a combination of substantive standards, procedures, gatekeepers, internal controls, and liability. Financial statements are prepared under detailed accounting rules and audited by independent accounting firms. Public company CEOs and CFOs certify specified aspects of periodic reports, and auditor attestation of internal control over financial reporting identifies weaknesses and prompts remediation before year-end reporting. Lawyers review narrative disclosure; audit committees oversee financial reporting; underwriters conduct due diligence in registered offerings. Antifraud provisions and specific liability rules create consequences for material misstatements and omissions. Securities regulators also provide detailed guidance to firms and their advisers about what should be disclosed and how; this is the routine and often invisible work of securities regulators. Accuracy also depends on definitions and measurement. Financial information is verifiable because the accounting rules would enable a different set of preparers to replicate it, whereas a requirement to disclose employee turnover or a pay ratio cannot produce comparable information unless the underlying population, period, and methodology are defined with specificity. Judgment calls in applying accounting rules are themselves subject to disclosure as critical accounting policies or estimates. The reporting system aims to translate a complex objective reality into replicable and reviewable information. Liability alone cannot accomplish that task; it works in conjunction with the processes that generate and test the disclosure before publication.

Comprehensible disclosure uses structure, terminology, and presentation that permit users to understand what the information means and how it relates to other information. One way to achieve this is by standardizing presentation over time and across firms. The description of business, risk factors, management’s discussion and analysis, and executive compensation sections give users recurring locations for particular subjects. Regulators also issue guidance on presentation: in the United States the risk factors and description of business sections are supposed to be written in plain English. Narrative explanation remains important because numbers alone may paint an incomplete picture. A retail investor may not be able to evaluate a complex accounting estimate, but an analyst or rating agency can process it and translate the result. The market can still benefit when informed intermediaries act on the disclosure, and because information is transmitted through securities prices, disclosure’s utility is properly assessed with respect to the marginal user rather than the average user. The information overload argument against disclosure is as lacking in support as it is intuitive. A concise but ambiguous metric such as the pay ratio can be less useful than a longer explanation, and simplifying the format can heighten salience at the expense of informational integrity.

A statement can be accurate in isolation and still mislead if it omits context needed to understand the whole picture. Completeness addresses that problem. Exchange Act Rule 12b-20 and Securities Act Rule 408 require additional material information when necessary to make required statements, in light of the circumstances, not misleading. Rule design often performs a similar function by pairing numerical tables with narrative explanation. Executive compensation rules, for example, require a narrative description of any material factors necessary to an understanding of the information in the numerical tables. The CEO pay ratio illustrates the risk of incomplete accuracy. A reported ratio may follow the permitted methodology exactly, yet users may draw an unwarranted conclusion if the company does not explain the role of seasonal workers, foreign employees, outsourcing, founder ownership, or a one time award. The pay ratio rule requires only numbers, without narrative description, and the general gap filler offers little help because it is unclear how a ratio calculated under the SEC’s flexible guidance could be misleading. Completeness is an abstract, non-binary concept; the aim is enough related information to prevent the required facts from creating a materially distorted impression.

Standardization allows users to compare the same category of information across companies and over time. Common definitions and presentation formats make differences among firms more likely to reflect underlying differences than reporting choices. Comparability is especially important because investment decisions are relative. An investor allocating capital chooses among issuers and bundles of issuers rather than evaluating a company in isolation. Voluntary disclosure alone cannot produce a balanced picture of the underlying reality, and standardization for purposes of comparability is one of the key justifications for a mandatory regime over voluntary reporting. Standardization also creates costs. Uniform categories may fit some businesses poorly, and a rigid table can suggest comparability where the underlying measures are noisy. Pay versus performance disclosure illustrates the issue: the SEC’s final 2022 rule presents compensation actually paid, total shareholder return, peer group return, net income, and a company selected measure in a standardized table, but total shareholder return covers one year while compensation actually paid includes awards granted in prior years, and differences in strategy make firm to firm comparisons unreliable. Well designed rules standardize what can be standardized while allowing companies to tailor disclosure to their circumstances.

Principles based rules state a general objective and allow companies to determine what information is material or useful in light of their circumstances. Prescriptive rules identify specific line items, metrics, thresholds, or formats. Principles based design accommodates differences among firms and can reduce irrelevant reporting. It also places substantial weight on management’s judgments, may produce inconsistent disclosures, and can make compliance uncertain. Prescriptive design improves comparability and gives issuers certainty, but it can require information with a low likelihood of materiality and may fit some firms poorly. The SEC’s 2020 human capital rule illustrates the tradeoff. It requires a description of human capital resources and measures or objectives that management focuses on, to the extent material, while prescribing little beyond the number of employees. Evidence through 2023 found extensive narrative disclosure but limited use of comparable quantitative metrics. A hybrid approach can combine a standardized core with company specific narrative and an obligation to explain omitted metrics. Whether to omit a materiality qualifier turns on whether particularized testing would be impractical or costly, susceptible to abuse, or unnecessary because the information is basic in nature, and on whether the metric can be standardized across firms.

A number is capable of accurate representation only if it is defined with specificity, and it can be interpreted only when placed in context. Users need to know how it was defined, what population and period it covers, and whether it reflects unusual events. The CEO pay ratio demonstrates the point. A very high ratio may reflect a low wage, seasonal, or international workforce rather than unusually high CEO pay. A very low ratio may reflect a founder CEO receiving nominal salary while holding stock worth billions of dollars. Pay versus performance figures also require context: total shareholder return is measured over one year, while compensation actually paid for that year includes compensation awarded in prior years. A workforce measure such as a turnover or accident rate is comparable only if firms use the same definition and cover the same employee base. Narrative explanation allows a company to describe methodology, limitations, and company specific circumstances. Narrative alone can be generic, however; early human capital disclosures added length but consisted largely of boilerplate. The design objective is to combine a standardized quantitative baseline with a description of the factors necessary to interpret it, so that the information is accurate, comprehensible, and complete without losing comparability.

The familiar U.S. formulation asks whether there is a substantial likelihood that a reasonable investor would consider the information important in making an investment or voting decision. Put another way, the omitted fact must have significantly altered the total mix of information available. Basic v. Levinson added that uncertain events should be assessed by weighing probability against magnitude. Materiality determinations require qualitative assessment and should not rest on percentage thresholds or rules of thumb. SEC Staff Accounting Bulletin No. 99 explains that small amounts can be material for qualitative reasons, such as masking a change in earnings or other trends, changing a loss into income, concealing a failure to meet analysts’ expectations, or affecting a segment that plays a significant role in the business. The concept is also probabilistic. Companies must make binary decisions to disclose or not disclose even though the underlying significance may fall in a gray area. Materiality serves several functions: it guides regulatory design, determines whether a company has a disclosure duty, scales the amount of information reported, fills gaps needed to prevent misleading statements, and serves as an element of liability in enforcement or private litigation.

Materiality performs at least three distinct functions. At the rulemaking stage, legislators and regulators use an often informal conception of materiality or investor relevance to decide which subjects belong in the disclosure system and how a rule should be designed. At the compliance stage, a materiality qualifier can operate as an on and off switch. The issuer must decide whether a particular risk, contract, trend, or metric is important enough to disclose. Materiality can also scale disclosure and serve as a gap filler through rules requiring additional information needed to keep required statements from being misleading. In litigation or enforcement, materiality becomes an element that must be proved after the alleged misstatement or omission occurred. Courts apply the reasonable investor and total mix framework with the benefit of an evidentiary record and, typically, evidence of price impact. Confusing these functions creates analytical errors. A standard developed to adjudicate past liability does not automatically determine how the SEC must design a future information generating framework. Likewise, a rule can require an item without a company specific materiality qualifier while still requiring proof of materiality before private damages liability is imposed.

There is no general duty under the federal securities laws to disclose every material fact. A company ordinarily must disclose information when a statute, SEC rule, form, or other legal obligation requires it, or when additional information is necessary to make an existing statement not misleading. Rule 10b-5 reaches untrue statements of material fact and omissions that make statements made misleading; it does not create a free standing duty to disclose all material information. The distinction explains why specific disclosure rules remain necessary. If issuers already had a free standing obligation to report all material information, detailed requirements for financial statements, risk factors, legal proceedings, executive compensation, and other subjects would be unnecessary. Specific rules supply the standardization and comparability that a general standard cannot, and they give issuers certainty about what compliance requires. Materiality continues to play a central role, but it operates within an information framework generated by affirmative disclosure duties. Even a cursory look at the history and structure of the SEC disclosure regime shows that the general materiality formulation, standing alone, does not provide sufficient guidance for issuers.

TSC Industries v. Northway addressed materiality in a proxy fraud action under Rule 14a-9. The Supreme Court held that information is material when there is a substantial likelihood that a reasonable shareholder would consider it important and that its disclosure would have significantly altered the total mix. Basic v. Levinson adopted the same formulation for securities fraud actions under Rule 10b-5, extended it to investment decisions, and directed that uncertain events be assessed by weighing probability against magnitude. Both cases concern ex post adjudication of whether a past statement or omission can support liability under an existing legal framework. They do not prescribe the complete contents of SEC disclosure rules or hold that every line item must contain an issuer specific materiality qualifier. The cases also recognize uncertainty. TSC stated that materiality judgments involve delicate assessments, directed that doubts be resolved in favor of those the statute is designed to protect, and warned against burying shareholders in an avalanche of trivial information. The decisions supply a liability standard and important background principles, while leaving regulators responsible for constructing the reporting system that generates the total mix against which omissions are judged.

The judicial materiality test addresses whether a particular past statement or omission was important enough to support liability. SEC rulemaking is an ex ante policy process in which the agency decides what information companies should generate, when it should be reported, and how it should be presented. The securities statutes delegate broad authority to require information necessary or appropriate in the public interest or for investor protection. They do not impose a general materiality limitation on every line item. The original Schedule A confirms the point because Congress used materiality qualifiers for some items but not for the disclosure template as a whole. Existing SEC rules likewise contain both materiality qualified provisions and specific requirements that apply without individualized testing. No court has invalidated an SEC disclosure rule on the ground that the required information lacked materiality. The total mix formulation also presupposes that some reporting framework exists. Without regulator designed disclosure, courts would lack the informational baseline against which to evaluate an omission. Materiality can guide rule design without serving as a self executing jurisdictional boundary.

A materiality qualifier is most useful when the relevance of information varies greatly across companies; it yields more focused information, allows the rule to adapt to business differences, and helps prevent trivial reporting. The qualifier is less attractive when particularized testing would be impractical or costly, when it is susceptible to abuse, or when the information is basic in nature or readily standardized. In those settings, a specific line item provides greater certainty and consistency. The choice also depends on cost. Individualized materiality testing requires companies and advisers to assess what a hypothetical reasonable investor would consider important, often under uncertain future conditions. That process can be expensive and may create litigation risk. Investors face the opposite concern: issuer discretion can generate gaps and make similar companies difficult to compare. Because the cost of non-disclosure of material information is likely greater than the cost of disclosing immaterial information, rules should be designed to avoid under-disclosure. A hybrid design can require a standardized core, apply materiality to additional company specific information, and permit explanation where a metric is not meaningful. Human capital reporting illustrates the need for such balance because workforce relevance differs by business, yet common measures such as headcount, turnover, compensation, and safety can support comparison.

Materiality qualifiers appear flexible, but they require repeated company specific judgments about whether information crosses a legal threshold. Managers and advisers must identify the relevant facts, predict the importance a hypothetical reasonable investor would attach to them, both now and at some unspecified point in the future, and revisit the decision as circumstances change. Because materiality often exists in a gray, probabilistic space, the judgment is costly in management time and legal advice, and in many cases the disclosure decision reflects a weighing of the compliance and interfirm costs of disclosure against the likelihood and penalty of liability rather than a conclusive finding of materiality. Investors bear a different cost: two companies facing similar conditions may reach different conclusions and disclose different information, so the resulting information is not standardized and comparison across issuers becomes difficult. An issuer may also under-disclose, inadvertently or deliberately, which can distort market pricing and investor decisions. A specific line item that does not require particularized materiality testing entails no such guesswork, and issuers often find it appealing even if it means more disclosure, some of which has a low likelihood of being material for a given company. Each approach involves tradeoffs for issuers and investors, and the SEC resolves them, as it customarily does, by soliciting and weighing feedback from multiple market participants.

Georgiev argues that universal materiality would require a category of information to be material for every covered company at every relevant time before the SEC could mandate it. The term appears in no statute or judicial decision and seems to have originated with Commissioner Peirce. It is inconsistent with the contextual and relative nature of materiality. The significance of a contract, risk, or workforce measure varies with the issuer’s size, industry, and circumstances, and few, if any, existing disclosure requirements could satisfy an all firms, all periods test. Commissioner Peirce has suggested that even the number of employees fails it because the figure “might be material for some companies under some circumstances, but not for others,” an impossibly high bar. The law recognizes a different concept, universal immateriality, when information is so obviously unimportant that reasonable minds could not differ; that principle bars liability, but it does not imply that universal materiality is required to create a reporting duty. Rulemaking necessarily operates at the category level: the SEC is guided by the general materiality of a subject matter and then designs line items or qualifiers. A regime built on universal materiality would leave all of Regulation S-K and Regulation S-X fitting on a single page and would prevent the SEC from constructing the total mix of information that the judicial materiality test assumes.

The total mix is the body of information available to a reasonable investor against which the significance of an alleged omission is assessed. Voluntary disclosure contributes to that baseline, but voluntary disclosure alone cannot produce a balanced picture of the underlying reality against which liability could be determined. Implicitly, then, it is the SEC’s job to design an information generating framework that produces the appropriate total mix. TSC Industries applies materiality in an ex post inquiry into liability, and in doing so it presupposes the existence of a total mix; without one there is no baseline against which to test, and the materiality test itself does not work. Seen this way, the case does not prohibit the SEC from mandating disclosure items that eschew the TSC Industries test; it practically requires the SEC to use its expertise and mandate appropriate items. Because materiality is contextual and relative, the total mix should contain information of various levels of significance to enable comparative judgments. It must also include consistent information about other firms, because a firm often cannot judge the materiality of its own information without knowing how it compares to its peers. Without a proper total mix, the enforcement structure of securities regulation would struggle to work.

The principal private costs fall into two categories. Compliance costs stem from the disclosure process: they are what a company spends to generate the required information and disclose it in the manner the regulator specifies. These costs are intuitive and easy to estimate, which is why they feature prominently in debates about new rules and in the SEC’s economic analysis. Interfirm costs arise from the act of publicly releasing information that competitors, customers, and suppliers can use, because disclosed information is non-rivalrous and non-excludable. A disclosure about a company’s anticipated production or the profitability of a particular line of business may lead competitors to direct resources to that business and allow major customers or suppliers to drive harder bargains; the company is forced to signal its economic rents and then share them. Interfirm costs are more intricate and more difficult to estimate than compliance costs. Private costs also shape behavior. Absent offsetting benefits, firms would rather avoid disclosure and, if possible, the disclosure regime altogether, which can influence decisions to go public and distort internal management and reporting structures; disclosing commercially sensitive information may also diminish incentives to produce private information. From a total welfare point of view, aggregate social costs are smaller than aggregate private costs, which helps explain why, absent a mandate, firms would disclose less than the socially optimal level.

A cost to the disclosing company can be a benefit to another economic actor. If a company reveals that a line of business is profitable, competitors may direct resources to it, and major customers or suppliers may use the information to drive harder bargains. The company’s loss of competitive advantage or bargaining power is a private interfirm cost, but competitors, customers, and suppliers receive corresponding benefits. In social welfare terms, it is presumed that the interfirm costs of disclosure are balanced out by the benefits that disclosure confers on other firms, so interfirm costs do not translate into social costs; an issuer’s private marginal cost of disclosure exceeds its social marginal cost by an amount equal to the interfirm costs. Compliance costs, by contrast, are costs at both levels. The distinction matters for those who ultimately bear the costs. A shareholder invested in a single firm bears that firm’s disclosure costs without the corresponding benefits from other firms’ use of the information, and may prefer that the firm disclose as little as possible. A fully diversified shareholder holding the market portfolio realizes both the interfirm costs and the offsetting interfirm benefits. Diversified shareholders, which describes most shareholders today, are therefore less sensitive to the costs imposed by a mandatory disclosure regime, which makes the use of disclosure as a corporate governance tool more appealing.

Companies decide whether to disclose voluntarily by comparing private benefits with private costs, including compliance costs and the risk that competitors, customers, or suppliers will use the information. Information about one company’s anticipated production or the profitability of a line of business is useful to other firms, and the costs to the disclosing firm are benefits to competitors, customers, and suppliers. Because the issuer bears the interfirm costs but cannot capture the corresponding benefits, its private marginal cost of disclosure exceeds the social marginal cost, and it has an incentive to underproduce information about its strategy and economic performance, especially in markets with barriers to entry and where it holds market or bargaining power. Voluntary disclosure is also selective and strategic. It cannot by itself produce a balanced picture of the underlying reality, whereas mandatory rules add standardization, comparability, regularity, verification, and legal accountability. Investors have limited ability to bargain for information, particularly from the largest firms, whose securities are in effect required holdings, and such firms have tended to underdisclose even when investors and analysts request more. When disclosure is lacking, investors cannot readily distinguish high from low quality firms, which can lead to adverse selection and market unraveling. Many companies do disclose voluntarily, but private incentives do not reliably produce the amount, consistency, and comparability of information that markets and diversified investors need.

The interfirm costs of disclosure give firms strong incentives to withhold information that competitors, customers, and suppliers could use against them, and disclosure of commercially sensitive information can reduce the rewards for innovation. This has been a longstanding securities law problem without a satisfactory answer. The Supreme Court rejected a “secrecy” defense in Basic v. Levinson, observing that creating an exception to a regulatory scheme founded on a prodisclosure philosophy because compliance might be “bad for business” is a role for Congress, not the courts. The SEC has been more sympathetic. Since 2019, it has allowed firms to redact commercially sensitive information from required filings without first submitting a confidential treatment request, so long as the information is legally immaterial and its disclosure would cause competitive harm. The 2019 change did not solve the problem so much as illustrate it: to qualify for redaction, information must be significant enough to cause competitive harm yet insignificant enough to be legally immaterial. Empirical research found that stock price discovery is significantly slower and insider trading significantly greater after companies file redacted contracts, which supports an inference of materiality. Firms also redacted more frequently, and insider trading was more pronounced, after the 2019 change, which placed even more faith in firms’ materiality assessments, judgments that are themselves difficult and imprecise.

Information overload is an intuitive concern, but it is less persuasive in securities markets than in consumer regulation, where the argument originated and where users of disclosure are potentially unmotivated and unsophisticated. Users of securities disclosure are on average more sophisticated, and because information is transmitted in the price of the security, disclosure’s utility is properly assessed with respect to the marginal user rather than the average user. An investor benefits from disclosure even without reading it, so long as others have read it and the information is impounded into the price. Technology also gives investors ever more powerful tools for processing large amounts of information. Available evidence does not show that investors are overloaded. In 2016, the SEC Investor Advisory Committee observed that the bulk of market participants did not feel inundated with useless information. It is also doubtful that regulators can meaningfully reduce volume, given overlapping requirements worldwide, legislative mandates, and voluntary disclosure. When the SEC revised its risk factor rules in 2020 with the express goal of reducing length, one study found that 79% of companies increased the number of risk factor pages and 64% increased the number of risk factors. The focus on overload obscures two more salient concerns: formulating rules so as to ensure their informational integrity and the overuse of boilerplate.

Boilerplate creates the appearance of disclosure while conveying little company specific information. A statement that recites a generic possibility or aspiration shared by every issuer may add pages without helping investors distinguish one company from another. The central problem is informational content rather than raw word count. Standardizing the presentation of information over time and across firms helps investors understand a company, assess how it has changed, and compare it to others, and well designed guidance can balance flexibility with consistency rather than imposing rigid metrics. Principles based rules can elicit tailored discussion, yet absent guidance firms can be expected to take advantage of the discretion afforded and avoid disclosure when that is rational. Evidence from the SEC’s 2020 human capital rule illustrates the problem. When the SEC staff asked issuers by comment letter to expand thin disclosures, the revised disclosures were much more extensive but consisted largely of soft, generic statements that could describe almost any firm’s governance philosophy. A large sample study found that, rather than improving over time, disclosures regressed toward the mean on length, topics, specificity, numerosity, readability, and similarity across firms, and its authors concluded that a more specific disclosure standard should be developed. Measuring quality accordingly requires attention to specificity, comparability, and changes over time, not simply the number of pages in a filing.

The costs of disclosure are always easier to estimate and quantify than its benefits. Costs are concentrated among disclosing firms, which can give regulators plausible estimates of the marginal compliance burden of any change. Benefits are diffused among a heterogeneous body of investors, their timing is difficult to predict, and market complexities make their magnitude nearly impossible to estimate. Financial markets also adapt to regulation itself, through adaptation and regulatory arbitrage, so regulators cannot forecast how the system will evolve. The SEC’s governing statutes direct it to consider efficiency, competition, and capital formation in addition to investor protection, but they do not define those terms or prescribe a quantitative formula. Courts have invalidated SEC rules for deficient economic analysis while also holding that an agency need not measure the immeasurable or base its every action on empirical data. Because the SEC routinely quantifies costs but not uncertain benefits, its disclosure rules predictably attract the criticism that they impose precise costs for vague benefits. The SEC’s pending 2026 filer-status proposal illustrates the pattern: its release monetizes roughly $1.87 billion in annual benefits, principally avoided issuer compliance costs, against $73,960 in annual monetized costs, leaving unquantified the investor costs of reduced disclosure. The asymmetry creates a predictable deregulatory bias, and cost benefit analysis remains a significant risk factor for the survival of any new disclosure rule.

The SEC’s 2020 human capital rule shows both the appeal and the limits of open ended design. Item 101 requires a company, to the extent material to understanding its business, to describe its human capital resources and any measures or objectives management focuses on, with the number of employees as a specific required element. The SEC declined to define “human capital,” reasoning that its meaning “may be defined by different companies in ways that are industry specific,” so firms in different industries discuss different workforce issues. It also gives management substantial control over which metrics appear. Studies following adoption found widespread expansion of narrative disclosure but relatively limited standardized quantitative information. Companies often discussed culture, diversity, and talent development in general terms; among the 100 largest public companies in 2023, only 20% disclosed a quantitative turnover rate and 17% quantitative employee compensation. Flexibility without guidance produced disclosure that is neither standardized nor comparable and that failed to meet the SEC’s own stated expectation of meaningful qualitative and quantitative disclosure. Georgiev has proposed that a stronger design could retain company specific narrative while requiring a core set of metrics, definitions, and explanations. The lesson extends beyond human capital: a principles based rule can work only if the regulator supplies principles clear enough to guide firms’ disclosure decisions and an information generating framework that produces a baseline “total mix” of comparable information.

The post adoption evidence presents a mixed picture. Companies clearly responded to the rule, and human capital discussion became a regular part of public company filings. Large sample studies found that the rule elicited more disclosure, especially from firms that had previously disclosed little, although one study found that disclosure quality regressed toward the mean after the first year. A study of over 2,393 firms found that the percentage of Form 10-K filings containing quantitative human capital metrics rose from 40% before the rule to 72% afterward; the average number of metrics increased from one to 2.5 by 2023, but 28% of firms still disclosed none. The content remained uneven. A Gibson Dunn review of the 100 largest public companies found extensive narrative reporting but much less quantitative reporting. For example, 96% discussed talent development and diversity or inclusion, while only 20% disclosed a quantitative turnover rate and 17% disclosed quantitative employee compensation. A review of SEC comment letters on IPO registration statements in the rule’s first year found that, in each of 15 cases, an SEC comment prompted the issuer to expand very limited initial disclosure, but the revised disclosure generally consisted of soft, boilerplate statements. The combined evidence suggests that the 2020 rule was consequential but did not produce a complete or comparable workforce reporting system.

Workforce conditions differ across firms, so narrative discussion is necessary to explain strategy, business context, and management’s priorities. Firms in different industries face different labor markets, safety risks, training needs, and retention challenges. Narrative alone, however, gives management discretion to choose favorable subjects and makes cross company comparison difficult. Standardized metrics can supply a common baseline. Illustrations include employee and contingent worker counts, voluntary and involuntary turnover, workforce composition, compensation and benefits, training investment, and occupational health and safety measures. Definitions are critical: a workplace accident rate, for example, is comparable across firms only if it uses the same definition of an accident in terms of severity and covers the same employee base. The reporting population should also reflect the material workforce rather than only workers classified as employees. A hybrid rule can require core metrics, allow industry specific additions, and ask companies to explain why a generally relevant measure is omitted or not meaningful; an affirmative statement that a metric is not material is more useful to investors than its silent absence and makes enforcement easier. This combination preserves company specific relevance while reducing gaps and strategic nondisclosure.

Climate disclosure illustrates why investor demand can support a rule without serving as its sole foundation. Shareholder proposals, voting behavior, stewardship policies, and public statements provide evidence that climate information is useful to investors. Demand is difficult to aggregate, however, because investors are heterogeneous, proposals differ, and preferences change. Market efficiency supplies a more objective rationale that, unlike investor statements, cannot be politicized. Physical risks, transition risks, competitive dynamics, and government programs such as the Inflation Reduction Act can affect firms’ valuations and prospects, and information about those effects needs to be reflected in securities prices independent of specific investor demand. It helps market participants value securities whether or not they invest in sustainability funds. The distinction also affects rule design. A demand centered approach can invite debate over which investors count and how many support disclosure, whereas a market centered approach asks whether relevant company information is missing, inconsistent, or costly to obtain and whether standardized reporting would improve price accuracy and capital allocation. The SEC’s 2022 proposal itself used investor demand not as a freestanding justification but as evidence supporting informed investment and voting decisions. Investor demand remains a useful input regarding content and format. It need not be the sole basis for deciding whether economically significant information belongs in the reporting system; market efficiency provides a supplemental and standalone justification.

Yes. Corporate information can serve more than one audience at the same time. Securities disclosure is nonrivalrous and nonexcludable, meaning that an employee’s, customer’s, regulator’s, or journalist’s use of information does not diminish its utility to investors. Cybersecurity information is of potential interest to customers; human capital information is of potential interest to employees; climate information will inevitably resonate beyond the disclosing firm and the capital markets. The relevant regulatory question is whether the information also advances legitimate securities law objectives, such as informed investment and voting decisions, price accuracy, market efficiency, or capital formation. Social salience does not cancel financial relevance, and the SEC is on solid footing so long as it remains guided by the informational needs of mainstream investors. At the same time, an investor focused disclosure regime has limits as a means of meeting the informational needs of non-investor audiences, which has led some scholars to advocate separate stakeholder focused disclosure regimes. It is nonetheless possible to design rules that inform both investors and stakeholders, as the SEC’s 2020 COVID-19 disclosure guidance illustrates. Treating investor and stakeholder use as mutually exclusive can obscure how information actually circulates and can cause policymakers to reject useful disclosure simply because it produces collateral public benefits.

Disclosure as soundbite, a term Bank and Georgiev introduced, describes a rule that generates information with high public salience but low informational integrity. The CEO pay ratio condenses the relationship between chief executive compensation and median worker pay into one number. It is easy to repeat in headlines, rankings, speeches, and advocacy. That simplicity gives the metric influence, but it conceals differences in workforce composition, geography, outsourcing, part time and seasonal labor, founder ownership, pension values, and permitted calculation methods. During the first reporting season, ratios ranged from near zero at some founder led companies to several thousand to one at firms with low paid or seasonal workforces. The number shifted the nature of public coverage of compensation toward pay disparity within firms, and virtually all users compared firms despite the SEC’s own statement, when adopting the rule, that the data is unfit for such comparisons. A disclosure rule may succeed in attracting attention yet fail to provide accurate, comprehensible, and complete information for its intended use. The lesson reaches beyond executive compensation: a metric’s informational integrity should be assessed separately from its publicity, and a rule that requires only numbers, without the narrative context the SEC demands elsewhere, invites inferences the data cannot support.

As Bank and Georgiev describe it, a metric can comply with a formula while failing to represent the economic relationship users assume it measures. The CEO pay ratio offers several illustrations. Alphabet reported a ratio of 0.000005 to one in 2018 because Larry Page was paid $1 for the year while the median employee received $197,274, even though the bulk of his compensation comes from returns on his stockholdings, which are not counted. Amazon reported 59 to one based on Jeff Bezos’s reported compensation of $1.68 million, excluding a stock position then worth about $33 billion. Berkshire Hathaway reported 1.9 to one; counting the $15.1 billion appreciation in Warren Buffett’s stock that year, the ratio would have been 282,435 to one. At the other extreme, Mattel reported 4,987 to one, reflecting both median employee pay of $6,271 (Mattel relies heavily on temporary and seasonal employees, 78% of them outside the United States) and a newly hired CEO’s $31.28 million package. Each calculation was arithmetically valid under the SEC rule; the underlying stories differ sharply. Similar problems can arise with turnover rates, non-GAAP metrics, or compensation actually paid when definitions, timing, and the covered population vary. Arithmetic accuracy is not informational integrity. Users need consistent definitions, a benchmark or comparable data from other firms, disclosure of methodology, and narrative context, because a single number can appear to carry far more information than it does.

The SEC’s final pay versus performance rule, adopted in 2022, generally requires a five year table showing compensation actually paid, company and peer group total shareholder return, net income, and a company selected financial measure. Smaller reporting companies provide three years rather than five. The rule also requires relationship descriptions and a list of three to seven of the most important financial performance measures used to link compensation actually paid to company performance, subject to specified qualifications. The standardized presentation makes information easier to locate and compare, but it can also imply that the required measures define good compensation design. Total shareholder return is measured over a single year, is backward looking, and may not reflect operational, strategic, or nonfinancial objectives that a board used. Compensation actually paid for a given year includes awards granted in earlier years for performance in those years, producing a timing mismatch. A uniform table may create apparent comparability while masking differences in strategy and award structure; Georgiev’s comment letter accordingly argued against a rigid template and against adding net income and peer group TSR, and for listing all measures, including nonfinancial ones, that played a significant role in setting pay. Prominent placement of particular financial measures can encourage companies and investors to focus on them even when other measures better fit long term value creation, a behavioral effect Congress did not evidently intend.

The Securities Act of 1933 and the Securities Exchange Act of 1934 establish broad authority for the SEC to prescribe disclosure by issuers and reporting companies. Section 7 of the Securities Act supplements the information listed in Schedule A with other information the Commission may require as necessary or appropriate in the public interest or for investor protection. Exchange Act Sections 12 and 13 authorize rules governing registration and periodic reporting, while Section 14 supports disclosure for the proxy process. In 1996, Congress instructed the SEC to consider efficiency, competition, and capital formation when determining whether an action is necessary or appropriate in the public interest. The statutory design combines specified requirements with delegation to an expert agency capable of updating the reporting system as markets and businesses change. Courts have described the SEC as possessing broad discretion to require information beyond items expressly named in the statutes, and in nine decades no court has invalidated an SEC rule for overstepping its disclosure authority. Ordinary administrative law constraints remain: the D.C. Circuit has set aside SEC rules for inadequate cost-benefit analysis, and courts have urged the Commission to develop a factual record and exercise its expertise. The starting point, however, is a dynamic mandate; “rather than casting disclosure rules in stone,” Congress relied on the discretion and expertise of the SEC.

Congress need not enact a new statute every time the SEC addresses a new disclosure subject. The original securities laws identified categories of information and delegated authority to require such other information as is necessary or appropriate in the public interest or for the protection of investors. The SEC has used that authority for decades to develop rules concerning executive compensation, related party transactions, asset backed securities, industry specific information, environmental matters, human capital, and other subjects without a separate topic specific mandate in each instance. This practice reflects the need for a regulator to respond to market, technological, and economic developments. Courts have read the statutory language as a broad grant of rulemaking authority and have treated the choice of disclosure topics as within the SEC’s informed discretion. No court has invalidated an SEC rule for overstepping its disclosure authority, and Congress, though it has amended the securities laws many times, has never legislatively repealed an SEC disclosure rule. Congress can impose, limit, or repeal specific mandates, and some modern disclosure rules do originate in legislation such as Sarbanes-Oxley or Dodd-Frank. The absence of a statute naming a contemporary topic does not by itself remove it from the SEC’s traditional domain when the agency is regulating disclosure rather than the underlying business activity.

Schedule A supplied Congress’s original registration statement template in 1933. It listed 32 categories of information, some broad and some highly specific, while authorizing the SEC to waive some of its requirements and to require such other information as is necessary or appropriate in the public interest or for the protection of investors. Schedule A has never been amended or repealed by Congress, and Regulation S-K traces directly to it. Three features remain instructive. First, Congress knew how to use materiality qualifiers and applied them to selected items, but it did not make materiality a condition for the schedule as a whole or for the Commission’s delegated authority. Second, Congress required disclosure of specific contracts and remuneration arrangements involving amounts that were not financially significant in isolation; a $2,500 utility contract threshold translates to roughly $52,500 today, and the SEC has used its discretion to drop that provision. Third, Congress calibrated the initial framework to the risks of its time, including abuses associated with public utility holding companies, and was not deterred because a problem was not exclusively an investor protection problem. In Georgiev’s account, Schedule A undermines the idea that disclosure rulemaking must remain confined to subjects named in 1933 or that every disclosure rule must contain a materiality qualifier requiring issuer level testing.

The major questions doctrine is most concerned with an agency claiming a novel and transformative power from old statutory language. Updating the content of corporate reporting ordinarily involves a power that Congress expressly assigned to the SEC and that the agency has exercised throughout its history. The Commission has repeatedly added, revised, and removed disclosure requirements as business conditions changed. A rule requiring information about a company’s risks or operations differs from substantive regulation directing the company to achieve a policy outcome. Climate disclosure illustrates the distinction. Requiring a company to describe financially relevant climate risks does not set emissions limits, calculate carbon trading prices, draw up transition plans, or set climate resilience standards. The doctrine applies to transformative agency action whether regulatory or deregulatory, and the Commission itself invoked it in its May 2026 proposal to rescind the climate rules. It can matter, therefore, if the agency uses a definitional or exemptive provision to alter the statutory scheme on an extraordinary scale. The pending 2026 filer status proposal, for example, raises questions because it would use regulatory definitions to remove a large population from a congressionally mandated auditor attestation requirement. The analysis should focus on the nature, history, and breadth of the precise authority claimed rather than treating every salient disclosure topic as a major question.

Mandatory disclosure raises First Amendment questions when the government compels a company to speak. The level of scrutiny may depend on whether securities disclosure falls within a historically regulated category and whether the required information is commercial, factual, and uncontroversial under the framework associated with Zauderer. A rule can involve estimates, forecasts, or risk assessments without becoming nonfactual. The factual inquiry may be whether the company has made a business judgment about a risk and, if so, what that judgment is. Conventional reporting already requires estimates and judgments concerning loss contingencies, oil and gas reserves, and the trends and uncertainties discussed in MD&A. Burden also matters because a compelled disclosure must be reasonably related to a substantial governmental interest and may not be unjustified or unduly burdensome. Even where a mandate does not qualify for Zauderer review, heightened scrutiny is not automatically fatal. First Amendment doctrine has expanded in other contexts, prompting challenges to the SEC’s and California’s climate disclosure requirements. A rule that treats all predictive or politically salient information as constitutionally suspect could destabilize longstanding parts of the securities reporting system. The area remains unresolved, and the outcome will affect, and could undermine, disclosure’s continued availability as a corporate governance tool.

A topic can attract political disagreement while the information a company must report remains factual and uncontroversial in the relevant constitutional sense. Existing disclosure mandates routinely address hot-button topics because those are the topics that move markets and concern investors; such topics may attract disagreement and the label “controversial” in general discourse. A requirement asking a company to explain how, if at all, a given factor affects its own business does not force it to endorse a disputed position unless the mandate expressly requires an opinion on a disputed matter. For example, neither the SEC’s March 2024 rule nor California’s SB 261 requires a firm to take a position on policy debates or scientific disputes about climate change; they require disclosure of the impact, if any, of climate change on the firm’s risk management, governance, strategy, and targets. Opposition to a rule before its contours were known does not make the information the rule actually requires controversial. The analysis should focus on whether the rule compels an opinion on a disputed proposition, or instead requires disclosure of company specific facts and judgments. Treating salient information as categorically controversial would expose many longstanding disclosure rules to constitutional challenge simply because the underlying business issue is important enough to generate debate.

Disclosure rules can affect organizational choices when the legal reporting boundary depends on how management structures oversight. Segment reporting provides an illustration. Accounting rules identify operating segments partly by asking whether a chief operating decision maker, usually the CEO, receives financial information about the business component, uses it to assess performance, and allocates resources to it. Operating segments that are significant enough become reportable segments with revenue, profit or loss, asset, and product information disclosed at the segment level. A company that removes the CEO’s financial oversight of a line of business, which is a perfectly legal decision, may prevent the unit from qualifying as an operating segment and thereby avoid segment level disclosure. That incentive conflicts with governance goals because the CEO should focus on the important lines of business rather than ignore them. Press reports and an SEC investigation in 2017–18 concerning Alphabet’s disclosure of YouTube revenue suggest that this dynamic occurs in practice. The chapter notes that this dynamic has escaped prior academic attention. Companies may reorganize responsibilities, transactions, or information flows in response to reporting costs, and such distortions, with their negative implications for governance, deserve careful study given disclosure’s ascendance as a corporate governance tool.

Materiality evaluates information relative to the issuer and the total mix of information about it. As a company grows, an objectively large transaction, lawsuit, contract, or capital project can become small in relation to the enterprise and fall below the disclosure threshold. A smaller competitor may have to report a less valuable matter because it represents a larger share of its business. The larger firm then operates in secrecy, avoids compliance, litigation, and interfirm costs, and gains an advantage over smaller competitors simply due to its size, which Georgiev describes as a regulatory subsidy for bigness. The research develops examples involving Microsoft acquisition agreements, Berkshire Hathaway legal proceedings, and Google or Alphabet spending on capital projects and R&D to show how significant matters can go undisclosed at very large firms. The effect also has a portfolio dimension because capitalization weighted portfolios are dominated by the largest issuers, precisely where materiality blindspots arise. Absolute dollar thresholds, not percentages, can serve as a safety net in selected disclosure areas, in addition to the existing materiality requirement. Departures from size neutral treatment are justifiable for genuinely small firms on capital formation grounds but are much harder to justify for multi-billion dollar enterprises, and scaling down disclosure at the bottom without addressing under-disclosure at the top under-informs investors at both ends of the size distribution.

Foreign private issuers enjoy the same access to U.S. public markets as domestic companies while complying with a different and abridged disclosure and compliance regime, the bulk of which is contained in Form 20-F. They are not required to file quarterly reports, are not subject to most proxy rules or exchange governance listing standards, and in most cases may provide aggregate rather than individual executive compensation disclosure. The policy rationale is that foreign private issuers already comply with home country governance requirements and that an additional regulatory overlay would discourage foreign companies from listing in the United States. That rationale privileges the competitiveness of U.S. capital markets over investor protection, even though investor protection is an express statutory goal and competitiveness is not. It also assumes an often unwarranted equivalence between U.S. and foreign regimes. The rules do not differentiate between a Cayman Islands company that uses the New York Stock Exchange as its only listing venue and a British company listed on the London Stock Exchange with a secondary NYSE listing; the regime seems apt for the second company but makes little sense for the first. The approach is lax as compared to domestic issuers and inappropriately uniform as regards differently situated foreign firms, and investors in U.S. listed foreign private issuers may receive less than the disclosure and governance they expect from U.S. markets.

In the United States, public disclosure is synonymous with public company status: companies that go public must comply with securities disclosure requirements, and non-public companies need not. During the 2000s, observers linked the expansion of the disclosure regime to the decline in IPOs and argued for rollbacks; that overregulation narrative was rebutted in several empirical studies, but not before Congress passed the JOBS Act of 2012, which made it easier for firms to delay going public. More than a decade later, these measures have not boosted U.S. public markets, but they contributed to the proliferation of unicorns, which increased from 46 to 655 in the ten years ending December 31, 2023, with aggregate implied valuation rising from $137 billion to $2.05 trillion. These firms, increasingly held by mainstream investors, are not subject to public company disclosure requirements and have displayed many governance problems, some linked directly to investor losses. In Georgiev’s account, the resulting regulatory wedge keeps the disclosure regime a convenient culprit for problems in the capital markets and sustains pressure to roll back requirements, creating tension between better listed firm governance and expanding the number of public firms. The tension is less pronounced in the United Kingdom and the European Union, which apply certain reporting obligations to large private companies and public interest entities, and California in 2023 imposed climate disclosure mandates on public and private companies above revenue thresholds.

Filer status and related issuer classifications determine how different public companies are treated within the federal reporting system. These classifications can affect filing deadlines, the availability of scaled disclosure accommodations, auditor attestation of internal control over financial reporting, and other regulatory obligations. Changes to the classifications can therefore change the substantive reach of public company regulation even when the underlying disclosure rules remain formally unchanged.

Under the existing framework, large accelerated filers, accelerated filers, and nonaccelerated filers face different filing deadlines and different treatment under the auditor attestation requirement in Section 404(b) of the Sarbanes-Oxley Act. Separate but overlapping classifications, including smaller reporting company and emerging growth company status, determine eligibility for various forms of scaled disclosure.

These classifications matter because public company regulation is not uniform. Two exchange-listed companies can be subject to materially different reporting and assurance requirements because they fall into different regulatory categories. The significance of those differences extends beyond filing mechanics. Reduced disclosure, longer deadlines, or exemption from auditor attestation can affect the information available to investors and the processes through which companies generate, verify, and monitor that information internally.

Filer status rules can therefore operate as important boundary rules within the disclosure system. Changing the boundaries can change which companies receive the full set of public company requirements even if none of the underlying requirements is amended.

Scaled disclosure and materiality-based disclosure limit reporting obligations in different ways. Materiality generally operates at the level of particular information: a company evaluates whether a fact, risk, trend, transaction, or other item is sufficiently significant in context to trigger a disclosure obligation or affect the content of a required disclosure. Scaled disclosure instead operates through issuer classification, giving an eligible category of companies reduced reporting requirements regardless of whether particular omitted information would be useful to investors.

The distinction matters because the two mechanisms address different concerns. Materiality accommodates differences in the significance of information across companies. Scaling generally reflects a judgment that certain companies warrant reduced regulatory burdens because of characteristics such as size, reporting history, or recent entry into the public markets.

Those rationales do not necessarily point in the same direction. Georgiev’s research on materiality blindspots shows that size already affects disclosure through the materiality standard: objectively significant matters can disappear from disclosure as firms become larger. Additional categorical scaling can therefore create a second source of differential treatment. The appropriate scope of scaled disclosure depends on the justification for treating the relevant category differently.

Changing filer status definitions can substantially alter the reach of public company regulation without formally repealing or amending the underlying regulatory requirements. If eligibility for a disclosure rule, an accommodation, or an assurance requirement depends on issuer classification, moving companies from one category to another changes the population to which the substantive requirement applies.

This makes regulatory classification more than an administrative matter. A change framed as simplification or redefinition can determine which companies provide full rather than scaled disclosure, which companies obtain auditor attestation of internal control, and how long a newly public company remains outside particular requirements.

The SEC’s May 2026 filer status proposal illustrates the potential magnitude of this mechanism. Georgiev’s comment letter, drawing on the Commission’s data, estimates that approximately 1,721 existing large accelerated or accelerated filers—about 60 percent of the analyzed population in those two categories—would move into nonaccelerated status. Of those companies, approximately 1,386 currently receive neither smaller reporting company nor emerging growth company disclosure relief, while 335 already receive some relief that the proposal would expand. Separately, approximately 1,596 registrants would become newly exempt from Section 404(b), reducing the population subject to auditor attestation by approximately 58 percent.

Category design can therefore function as substantive regulatory design. Understanding a reform requires examining not only how a regulatory category is defined, but what legal consequences attach to membership in it.

The SEC’s May 2026 filer status proposal would substantially expand scaled treatment within the public company reporting system. It would replace the existing filer status structure with two principal categories: large accelerated filers and nonaccelerated filers. For entry into large accelerated filer status, it would generally raise the public float threshold from $700 million to $2 billion, require that threshold to be met at the specified measurement periods for two consecutive fiscal years, and require at least 60 consecutive calendar months of Exchange Act reporting history. The public float calculation would use an average share price over the last ten trading days of the second fiscal quarter rather than a single-day price.

Companies outside the large accelerated filer category would receive broad scaled disclosure accommodations and would not be subject to Section 404(b) auditor attestation. The consequences therefore extend well beyond filing deadlines. Based on data in the proposing release, Georgiev’s comment letter estimates that approximately 81 percent of the analyzed domestic reporting company population would fall within the category receiving scaled disclosure accommodations without auditor attestation. Approximately 1,386 companies that receive neither smaller reporting company nor emerging growth company disclosure relief in that dataset would newly receive scaled disclosure, while approximately 1,596 registrants would become newly exempt from the Section 404(b) attestation requirement.

These are estimates of the proposal’s effects, not descriptions of an adopted change. An individual company’s classification would depend on the final rules, their transition provisions, and the company’s circumstances at the relevant measurement dates. The proposed rules also distinguish entry into large accelerated filer status from continued membership in that category.

The proposal illustrates how changes to regulatory classifications can reshape the reporting system without rewriting individual disclosure rules. Georgiev’s comment letter supports simplification of the filer status framework but argues that scaled treatment should remain tied to defensible rationales such as genuinely small size or a time-limited transition to public company reporting.

The SEC’s May 2026 climate disclosure and filer status proposals illustrate a shift toward narrower mandatory disclosure and broader scaled treatment. They operate on different dimensions of the reporting system: the climate proposal concerns what information standardized rules require, while the filer status proposal concerns which companies receive the full reporting and assurance regime.

The SEC adopted climate disclosure rules in March 2024, stayed them in April 2024 pending litigation in the Eighth Circuit, and voted in March 2025 to end its defense of the rules. Its May 2026 proposal sought to rescind those rules in their entirety, citing limits on the Commission’s statutory authority, the major questions doctrine, and a registrant-specific, materiality-based approach to disclosure. The proposed rescission therefore concerns rules that were stayed before they became operative, not the removal of reporting requirements that companies had already begun applying under those rules.

Separately, the May 2026 filer status proposal would consolidate filer statuses into two principal categories and broaden eligibility for scaled disclosure and exemption from Section 404(b) auditor attestation. Under the Commission’s analyzed dataset, approximately 81 percent of the domestic registrants would receive that treatment. The proposed thresholds, reporting history conditions, and coverage changes are addressed in the separate question, “What would the SEC’s 2026 filer status proposal mean for corporate disclosure and Section 404(b)?”

Together, the proposals emphasize registrant-specific materiality, compliance cost reduction, capital formation, and incentives to go and stay public. They also raise countervailing questions about internal control assurance, investor costs that are not captured in monetized estimates, and whether definitional changes are being used to make major substantive changes to a reporting regime designed by Congress.

Those questions connect with recurring themes in Georgiev’s research: the relationship between materiality and standardized disclosure, the evaluation of disclosure costs and investor benefits, the justification for scaled treatment, and the information production and governance functions of the reporting system. This answer analyzes the May 2026 proposals rather than treating them as adopted changes.

Disclosure custom and practice refers to the ways public companies typically approach particular reporting issues at a given time. In securities litigation, evidence of those practices can provide context for evaluating a challenged disclosure, but it does not itself determine legal compliance or materiality.

Public companies routinely make judgments about whether, when, where, and how to discuss risks, trends, uncertainties, performance measures, and other information. Depending on the issue, contemporaneous practices may help illuminate the reporting environment in which a particular disclosure decision was made, including whether companies confronting similar circumstances followed similar or different approaches.

The significance of that evidence depends on context. Disclosure quality cannot be inferred simply from the prevalence of a practice. Informational integrity, comparability, materiality, firm characteristics, and the processes through which information is generated can also matter. A widespread practice may therefore raise disclosure questions, while an uncommon practice may be entirely appropriate. Custom and practice is best understood as one potential source of evidence about the institutional and factual setting surrounding a disclosure decision.

A company’s disclosure process can be examined by considering how information relevant to a challenged statement or omission moved through the organization and ultimately reached those involved in public reporting. The particular considerations will depend on the company, the disclosure at issue, the available record, and the question being examined.

Potentially relevant evidence may concern which employees or business units possessed the underlying information; how information was escalated; the roles of finance, accounting, legal personnel, investor relations, senior management, auditors, disclosure committees, and directors; and the processes used to develop, review, or verify public statements.

Corporate disclosure involves more than transmitting a finished document to investors. The process of producing disclosure can itself generate and organize information, require coordination across organizational units, activate internal and external gatekeepers, and facilitate board and managerial monitoring. Examining those processes can provide a perspective distinct from reading the final language of a filing in isolation, without presupposing that any single organizational structure or procedure is necessary in every case.

Peer company benchmarking can provide evidence about the range of disclosure practices prevailing at a particular time. Its significance depends on the comparability of the companies, the disclosure issue being examined, and the purpose for which the comparison is being made. Benchmarking describes market practice; it does not itself establish a legal disclosure standard.

Depending on the question, an analysis might consider whether other companies discussed a similar subject, where the discussion appeared, whether disclosure was narrative or quantitative, the degree of specificity provided, or how reporting changed as circumstances evolved. Patterns and differences may both be informative.

Comparability should be examined rather than assumed. Companies in the same industry may differ in size, business model, organizational structure, reporting systems, or economic exposure. Superficially similar quantitative disclosures may rely on different definitions, populations, or methodologies. Benchmarking can therefore help identify common practices, outliers, variation, and changes over time, while the meaning of those observations depends on the underlying context.

There is no single comparison group that is appropriate for every disclosure benchmarking analysis. The usefulness of particular comparators depends on the question being studied, and relevant characteristics may include industry, company size, business model, operating structure, geographic exposure, regulatory environment, and the particular risk or activity involved.

Materiality can make the selection of comparators especially consequential. Georgiev’s research on materiality blindspots shows that information of the same absolute magnitude can have very different disclosure significance when evaluated in relation to companies of different sizes. More generally, differences among issuers can help explain why companies facing superficially similar developments make different reporting judgments.

The appropriate comparison group therefore depends on the issue under examination. An industry-wide sample may be informative for one purpose, while a more narrowly matched group may be more useful for another. In some circumstances, differences among companies may themselves be significant. The central methodological question is what a particular comparison can illuminate, given the characteristics of the companies and the disclosure issue being considered.

Materiality and disclosure custom and practice are related but distinct. Materiality concerns the significance of information under the applicable securities law framework and in light of the relevant informational context. Custom and practice concerns how companies actually approached a disclosure issue. Evidence about practice can provide context, but it does not itself establish whether information was material.

The distinction is important because materiality operates at different points in the disclosure system. Companies and their advisers make materiality judgments prospectively during the reporting process, often under uncertainty. Courts may later evaluate materiality retrospectively on a developed factual record. Regulators make a different decision when determining what information should be subject to standardized disclosure requirements.

Common nondisclosure cannot automatically be equated with immateriality. The operation of the materiality standard can itself generate informational gaps, particularly at very large companies. Conversely, another company’s decision to disclose information does not by itself establish a disclosure obligation for a different issuer. Materiality and observed practice can therefore inform one another while remaining analytically separate inquiries.

Yes. The prevalence of a disclosure practice and the materiality of particular information are separate questions. Widespread nondisclosure does not by itself establish that omitted information is immaterial, just as widespread disclosure does not establish that every issuer has the same disclosure obligation. Whether an omission violates a legal requirement also depends on the applicable disclosure duty and the surrounding statements and circumstances.

Georgiev’s research on materiality blindspots addresses a related but different issue: economically significant information may fall below an issuer-relative materiality threshold. An objectively significant contract, lawsuit, acquisition, project, or business development may therefore remain undisclosed at a very large company even though a comparable matter would be reportable at a smaller company. That example does not, by itself, show that legally material information was omitted or that the nondisclosure was unlawful.

Keeping the two issues separate helps clarify what observed practice can establish. Patterns of nondisclosure may reflect the operation of materiality thresholds, competitive costs, reporting conventions, information production constraints, or differences in reporting systems. Evidence that a practice is common can be informative without resolving the separate questions of materiality, disclosure obligation, or potential liability.

The “total mix of information” provides the informational context in which materiality is assessed. A statement, fact, or omission generally cannot be evaluated in isolation; its significance depends on the broader information environment relevant to the company and the issue at the time.

What belongs in that environment depends on the question presented. Potentially relevant information may include periodic and current reports, related narrative and quantitative disclosures, earlier statements concerning the same subject, changes in disclosure over time, and other information bearing on how the challenged disclosure would have been understood. Care may also be necessary to distinguish information available at the relevant historical moment from developments that became known only later.

Materiality is contextual and relative. Company characteristics, including firm size, can affect the operation of the standard. Evaluating the total mix can therefore involve more than identifying individual statements. It may require understanding the broader reporting context that gave particular information its significance, with the appropriate sources and scope depending on the issue and the available record.

Key performance indicators and other corporate metrics can be evaluated by examining what they measure, how they are constructed, the context in which they are presented, and how they relate to the company’s business and reporting practices. No single consideration determines whether a metric is informative or appropriately presented.

Depending on the issue, relevant considerations may include the economic activity the metric is intended to capture, the population and time period it covers, whether definitions or methodologies changed, how management used the measure, how it relates to other disclosed information, and what explanatory context accompanied it. Peer company metrics may provide additional context, but apparent comparability warrants scrutiny.

Seemingly comparable numerical measures can reflect different definitions, populations, or methodologies. A metric can therefore be accurate on its own terms while remaining difficult to interpret or compare. Bank and Georgiev’s research on CEO pay ratios similarly illustrates how a simplified numerical disclosure can communicate effectively while also obscuring complexity in the underlying data and methodology.

Artificial intelligence can operate on both sides of the reporting process. Companies can use AI to assist with research, drafting, review, data analysis, tagging, and investor communications, while investors and information intermediaries can use AI to read, summarize, compare, and analyze corporate disclosures, including as inputs into automated or semi-automated trading decisions.

The anticipated audience can also influence how disclosure is written. Finance scholarship discussed in Georgiev’s research indicates that machine readership can encourage companies to make filings easier for software to parse and to adjust sentiment and tone in ways that algorithms may evaluate differently from human readers. Disclosure prepared for a machine audience may therefore not serve human readers equally well.

These developments can reduce the cost of producing and processing information and may strengthen disclosure’s governance functions. Georgiev’s research emphasizes that the process of producing disclosure can generate information internally, require coordination across organizational units, activate gatekeepers, and facilitate monitoring by managers and directors. AI may alter each of those channels. Expanded analytical capacity may also reduce some forms of information overload.

At the same time, differences in access to analytical tools can create new information asymmetries. Large institutional investors may have greater capacity to detect or adjust for machine-targeted presentation than retail investors. Verification, informational integrity, and comparability remain important even when a disclosure is easy to process.

The regulatory question is therefore whether the same disclosure system can serve human and AI users and preparers, and what adjustments may be needed. Many of the effects remain empirical questions, and they may change as the technology and market practices evolve.

A public company may need to disclose information about its use of artificial intelligence under existing reporting requirements. The relevant question is not simply whether the company uses AI, but whether information about that use falls within an applicable disclosure obligation. AI-related information can bear on the company’s business, material risks, financial condition, results of operations, human capital, or material trends and uncertainties. Not every use of AI is reportable merely because it involves AI.

The significance of AI therefore depends on what the technology is doing and what it means for the particular company. AI might be incidental to one business but central to another company’s products, strategy, costs, competitive position, or operating risks. Capital expenditures associated with AI infrastructure, for example, can present different disclosure questions from ordinary employee use of generative AI tools.

This illustrates a recurring issue in disclosure design. Principles-based requirements allow reporting to reflect company-specific facts, but they can also generate variation in what companies disclose and how they describe similar developments. Whether more standardized AI disclosure eventually becomes desirable is therefore distinct from whether existing securities law requirements already reach particular AI-related information.

The use of artificial intelligence is not material simply because it involves AI. Materiality remains contextual and depends on the significance of the particular information in light of the company and the broader information available to investors.

For some companies, AI may be an ordinary productivity technology. For others, it may affect a core product, require substantial capital investment, alter anticipated revenues or costs, change workforce requirements, create significant operational or regulatory risks, or reshape the company’s competitive position. The same technological development can therefore have very different disclosure significance across issuers.

Firm size can complicate the inquiry. Georgiev’s research on materiality blindspots shows that objectively significant matters may fail to cross conventional materiality thresholds at very large firms because significance is assessed in relation to an enormous enterprise. Large AI investments or commitments may provide another setting in which absolute economic significance and issuer-relative materiality diverge.

The relevant inquiry remains the ordinary materiality inquiry applied to the underlying facts, rather than to the label “AI.”

“AI washing” generally refers to statements that overstate, mischaracterize, or create a misleading impression about a company’s use of artificial intelligence, the capabilities of an AI-related product, or the importance of AI to the company’s business or strategy. From a securities law perspective, the underlying issue is not the use of the term “AI” itself, but whether a company’s statements are materially false or misleading in context.

AI can present particular disclosure challenges because outsiders may have difficulty determining how extensively a system has actually been deployed, what the technology is capable of doing, and how economically important it is to the business. A gap can therefore arise between a company’s AI narrative and its actual operations.

Related disclosure questions can arise when AI materially affects a company’s costs, risks, products, competitive position, or strategy but its public reporting does not address those developments. Those questions should be distinguished from AI washing in its narrower sense of exaggerated or misleading AI claims. Materiality alone does not establish a disclosure obligation; the applicable reporting requirement and whether an omission makes an existing statement misleading also matter.

The analysis remains highly fact specific. An unusual or aggressive AI claim is not necessarily misleading, and widespread industry terminology does not establish its accuracy.

Using AI to assist with corporate reporting does not eliminate the need for companies to collect, evaluate, verify, review, and approve the information they disclose. It can, however, change where those functions occur and which people or systems perform them.

The relevant considerations may depend on the task assigned to the AI system. A tool used to locate prior disclosure or propose initial wording presents different questions from one that analyzes internal information, identifies disclosure issues, produces substantive conclusions, or acts with substantial autonomy. Depending on the circumstances, relevant considerations may include responsibility for the tool, access to company information, verification of outputs, restrictions on system authority, human review, and procedures for identifying and correcting errors.

These questions concern the internal governance functions of disclosure. The disclosure process can itself generate information, facilitate monitoring, and bring lawyers, auditors, executives, and directors into the information production process. AI can improve those mechanisms, but poorly designed implementation could also weaken or relocate them.

AI can assist lawyers, auditors, underwriters, and other gatekeepers with tasks such as document review, diligence, anomaly detection, drafting, comparison of public filings, and analysis of large datasets. Its use can lower the cost of performing some gatekeeping functions while also changing the nature of professional review.

The implications depend on how the technology is used. An AI tool that helps identify issues for human investigation may complement professional judgment. Greater reliance on model-generated analysis can raise different questions about verification, responsibility, access to underlying evidence, and the ability of a professional to understand and challenge the system’s output.

The broader governance question is therefore not simply whether a gatekeeper uses AI. It is how AI affects the gatekeeper’s role in the information production and verification process. Lawyers, auditors, boards, and other intermediaries can improve disclosure not merely by reviewing final language but by influencing the processes through which information is gathered, tested, and communicated.

AI can increase the quantity of corporate information that investors and information intermediaries are able to process. Systems can help screen filings, earnings calls, financial data, and other information across large numbers of companies, identify changes and anomalies, compare disclosure over time, and generate research or summaries. The usefulness of those outputs depends on the system, the underlying information, and how the analysis is reviewed.

This capacity can strengthen the traditional case for mandatory disclosure. Information need not be personally read by every investor to affect market prices or corporate accountability. Analysts, institutional investors, information intermediaries, and trading systems can process disclosure on behalf of the broader market. AI may expand that processing capacity and reduce some forms of information overload.

AI can also create new information asymmetries. Different investors may use different systems, receive different summaries, or lack visibility into how an AI tool selects, weights, or omits information. Increasingly, the corporate filing may therefore be the input into a second layer of machine-mediated interpretation rather than the final information product received by an investor.

Machine-readable disclosure becomes more valuable when computers rather than individual humans perform a substantial portion of the analysis. Structured information can make it easier for AI systems and other analytical tools to identify, compare, and process information across companies and reporting periods.

AI may therefore change the benefits associated with standardization. Information that would be burdensome for an individual investor to collect and compare manually can become considerably more useful when machines can analyze thousands of filings simultaneously. Investments in structured reporting and comparable data can therefore serve as infrastructure for an AI-driven capital market.

Machine readability does not, however, guarantee informational quality. An AI system can process inconsistent, poorly defined, or misleading information at great speed. Definitions, methodologies, comparability, and context all matter for informational integrity. Reducing the cost of processing information cannot substitute for ensuring that the underlying information is meaningful.

Artificial intelligence can affect a company through automation, changes in headcount, restructuring, reskilling, changes in workforce composition, and shifts in the types of human capital on which the business depends. Those developments can become relevant to corporate disclosure when they are sufficiently significant to the company’s business, strategy, costs, risks, or management of human capital.

For companies reporting under Item 101(c) of Regulation S-K, the SEC’s human capital disclosure requirement is principles based. It calls for information about human capital resources, including the measures or objectives management focuses on, to the extent material to understanding the business. AI-driven workforce transformation may therefore produce different disclosure across companies even when technological developments are similar.

That approach has both advantages and limitations. Company-specific reporting can capture differences among businesses, but open-ended requirements can also produce uneven disclosure and weak comparability. As AI changes the organization of work, the tension between company-specific narrative and comparable workforce information may become increasingly important.