In his article “More is Better ?: Concerns on the Growing Amount of Securities Disclosure in Offering Documents and Public Filings,” by Akin Gump investment management partner James Deeken discusses the optimal length of disclosures for securities offering documents and public filings. Deeken begins by asking whether it is better to have a shorter document with less in it, but more likely to be read by people, or a longer document that has more content, but less likely to be read by people due to its length and possible obscuring important disclosures in the lengthier verbiage.
He answers his question by noting, “There is no ‘one size (one length) fits all’ approach. There is no one type of homogeneous audience for a securities offering document. Although not a perfect summary and a possible over-simplification, there are generally two types of audiences that a securities disclosure has: (i) a ‘retail’ audience consisting of individual investors and (ii) an institutional investor audience consisting of investment funds, insurance companies, pension plans and other large financial institutions. “
“I submit that is time to consider an alternative form of securities disclosure that is shorter but at the same time, perhaps more useful than the current form of prospectuses that seem more like liability management documents than ones written with useful disclosure in mind.”
Deeken also outlines the growing volume and length of prospectus disclosures — with an estimated average length of 184 pages, compared with the 88-page prospectus for his first initial public offering in 2001 — and the problems attendant on that growth, suggesting that “[W]e need to consider adjusting securities disclosures for two separate audiences: (i) disclosure for the average retail investor and (ii) disclosure for institutional investors who might actually read through the voluminous disclosure in prospectuses. “
He also discusses a possible short summary document, five to 10 pages in length, and what would be included, then closes by noting, “Is the function of securities disclosure to provide helpful, practical disclosure to investors? If that is the goal, then the current standards for disclosure seem to fail as they rely upon unrealistic expectations about the amount of time that an investor will expend reading a fine print prospectus. The current standards allow material details to be surrounded by and encompassed by disclosure of a more boilerplate nature. ” Deeken closes by offering proactive steps to make prospectuses better.
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