Taking Sides: SEC’s Pitt sets moderate tone with call for more disclosure

It has been just about three months since his confirmation, but Securities and Exchange Commission Chairman Harvey Pitt is already sending some important signals about the tenor of his administration.

During Senate confirmation hearings, the longtime securities lawyer, who has represented such high-powered clients as the New York Stock Exchange, Merrill Lynch & Co. Inc. and Goldman Sachs Group Inc., promised to run a more “business-friendly” agency.

Some SEC watchers interpreted that to mean that Mr. Pitt was likely to consider rolling back many of the more controversial regulations adopted under his predecessor, Arthur Levitt, who fashioned himself a guardian of small investors.

Fair disclosure

But so far, Mr. Pitt appears to be taking a reasoned approach to the job. Despite an attempt to be more sensitive to business concerns, he’s shown no desire to engineer a wholesale rout of Levitt-era regulations.

Obviously, with the change of administrations, the biggest bull’s-eye is on Regulation Fair Disclosure. The controversial rule went into effect a year ago this month, amid an outpouring of opposition from the financial services industry.

The regulation prevents companies from releasing key information to favored analysts who, in turn, were often accused of leaking it to favored clients. Those clients, usually large institutional investors, were reportedly able to act on the information before the rest of the market.

Critics predicted all sorts of cataclysmic fallout from the regulation, ranging from greater stock market volatility to a wholesale blackout on the release of information by public companies.

But in the months since the measure went into effect, those concerns apparently have been unfounded.

Two weeks ago, Big Five accounting firm PricewaterhouseCoopers released a fair-disclosure study that surveyed top executives at public companies. An overwhelming number of the executives said they had learned to live with the new ground rules.

Of the companies surveyed, 88% said the regulation should stay on the books, while only 10% called for its repeal. Another 2% were undecided.

As to the regulation’s effect on their stock, 75% said it had no direct effect one way or the other. Only 6% said they thought it had hurt their stock price, while 1% said it had helped, and the rest were unsure.

According to news reports, more and more companies are making earnings pre-announcements instead of providing so-called “whisper numbers” to select analysts. That’s a very healthy trend.

Although Mr. Pitt has not addressed the issue directly, he chose the occasion of his first policy speech as chairman last week to call for even more changes in the way corporations make information public.

The goal, he told a gathering at the American Institute of Certified Public Accountants’ conference in Miami, is to make it easier for investors to get market-moving information in a timely manner.

Right now, companies can choose to withhold such information until they file quarterly reports with the SEC. By then, however, the information is usually stale, Mr. Pitt said.

The SEC chairman said he would rather see corporations release that information immediately. He also favors broadening the definition of material information, requiring the use of plain English in corporate financial reports and using the Internet to keep investors informed.

We hope Mr. Pitt’s agenda on this issue is straightforward and doesn’t include any unspoken deal to overturn Reg FD. But knowing his reputation, it would be a surprise to find out that he works that way.