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Oct 11, 2021 - Economy

Companies under pressure to disclose more information to investors

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Illustration of a magnifying glass examining a hundred dollar bill

Illustration: Sarah Grillo/Axios

Facebook's latest firestorm highlights a broader reckoning over what public companies should disclose to investors, both about their external impacts and their inner workings.

Why it matters: The belief that all companies need to disclose is how much money they’re making, and how much they’re spending, is quickly becoming outdated.

Of note: Companies have been caught off guard by discrimination and harassment disclosures, with investors filing lawsuits against Google and Activision Blizzard as a result of blockbuster revelations.

  • Following the news that California’s Department of Fair Employment and Housing is suing Activision Blizzard for systemic gender discrimination and sexual harassment, shareholders filed a lawsuit against the company for keeping them in the dark about the investigation.
  • Similarly, in 2019, investors sued Google after an extensive report by the New York Times revealed the company had been covering up sexual harassment cases involving executives and even paying them large exit packages.

What's happening: Lawmakers and regulators are putting more rules and laws on the books to get more information to emerge. For example:

  • Climate change: The SEC is working on mandating disclosures from publicly listed companies about their climate-related risks. Others, like the Fed, have also signaled an interest in such disclosures.
  • Anti-NDA laws: California, Silicon Valley’s home state, passed a law this week that will allow workers to speak about any form of workplace discrimination they've experienced, even if they signed non-disclosure agreements. The state previously added this protection for sexual harassment only.
  • Data breaches: U.S. laws require companies to disclose data breaches in a timely manner. In 2018, Uber settled both with individual states and the FTC for hiding a 2016 customer data breach for over a year. The Justice Department also announced this week a new plan to get government contractors to disclose breaches.

Yes, but: Private companies still have a lot more latitude when it comes to what they’re required to reveal to investors.

  • The latter are also considered more sophisticated because they’re mostly "accredited investors," who can be trusted to evaluate risky investments.
  • And that’s how we end up with situations like Theranos and Ozy Media, to name just two.
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