Is fair disclosure the same as full disclosure?

It's an important question in the wake of the subprime mortgage crisis where investors clearly were not given sufficient information. Louis Thompson Jr, who until his retirement was the long-time chief of the National Investor Relations Institute (and a former assistant White House press secretary under US President gerald ford) says the shareholder lawsuits filed in the wake of the Bear Stearns collapse are a case in point. Investors simply did not have the proper information about risks when they decided to invest. And with the subprime debacle likely to produce more lawsuits, the question of whether so-called full disclosure is enough will be debated.

Writing in Compliance Week, Thompson says Sarbanes-Oxley does not go far enough and companies need to do more. "In the wake of Sarbanes-Oxley, many companies have instituted various means of making risk assessments. But most of that information is maintained internally. (And one can only hope that this information is communicated to the boards of directors.) What is missing is some way to communicate such risk information externally."

That means producing something better than the usual boilerplate risk factors listed in all the usual corporate earnings releases and related documents. The Motorola document, cited in Compliance Week, is a good example of vague disclosure that tells you everything and nothing.

Thompson's arguments are sound enough. The problem, however, is that analysts and investors are likely to continue to penalizing companies that come out with bad news. And until that is addressed, the problem will remain.