A Few Best Practices for Internal Disclosure Committees

The SEC Professionals Group Disclosure Effectiveness Committee met on Zoom for its annual roundtable discussion about timely topics in external reporting. Demand for more and more detailed disclosure is putting pressure on internal disclosure committees (DC) to consider, “What should be disclosed?”

Committee Co-Chair Jonathan Gregory addressed this question in a presentation about best practices for internal disclosure committees. Jonathan is a co-leader of the DC at The Hershey Company, where he is Director of External Reporting and Technical Accounting. 

Public companies produce a lot of financial and other types of information.  As investors and the SEC press to expand the definition of what is material, the DC has an increasingly larger role to play in managing the process of capturing and assessing what gets reported. How companies organize and manage their DC varies, but the best utilize some of these practices:

1. Times are changing. It might be time to update your DC charter.

Times are changing and the SEC’s focus on the material financial impact of ESG issues, including a renewed emphasis on existing climate change and human capital disclosure requirements, create an entirely new disclosure challenge. 

More and more, DCs are asked to also review a wide range of corporate documents to ensure that disclosure is accurate and correct – or to prevent inadvertent disclosure. In a very small survey of external reporting practitioners, more than half also review proxy statements, and 27% review investor presentations. 

If this sounds familiar, it may be time to update your DC charter to reflect the expanded responsibilities of your DC and its members. 

2. Keep the DC lean, but supplement it with advisory members.

There isn’t a standard for DC organization and process, with the SEC leaving it up to companies to create a structure that suits their businesses, but the Disclosure Effectiveness Committee noted similarities in DC composition, which often include the CAO, external reporting, legal, investor relations and corporate communications.  Regardless of how it’s comprised, the key to an effective and comprehensive DC process is to supplement the DC with advisory members from critical information hubs like tax and treasury and business unit leaders. DC advisory members perform an important role gathering and analyzing information.  

3. The right tools streamline the quarterly certification process.

The Committee agreed that the quarterly certification process depends on capturing disclosure insight from business units and other stakeholders. The Hershey DC uses the certifications feature in Workiva, its cloud-based financial reporting platform, to facilitate the company’s quarterly certification process, and to collect inputs from these business units and stakeholders. 

Business leaders have about two weeks to respond to an email request to certify on behalf of their departments or business units. It’s up to business leaders to capture input from their teams. Any doubts about the materiality of a transaction or material change in the business get escalated to the Disclosure Committee for review. It’s a robust process and the results are reported directly to the DC.

4. The devil is in the details: presenting to the CEO and CFO.
The Committee agreed that scheduling your 10-Q or 10-K wrap-up meeting with the CEO and CFO before the earnings press release is issued is important. (Remember, the average SEC Pro Group member files a 10-Q five days after their earnings release.) At the wrap-up meeting, the Committee recommends reviewing the disclosure committee’s process for capturing material information, including business unit certifications, the input from legal and internal audit, any discussions with auditors, and any significant changes or new disclosures since the prior quarter. The DC’s objective in this meeting is to confirm that material disclosures have been thoroughly captured and that the CEO and CFO can—or cannot—confidently certify the company’s financial statements.  

5. Your next steps.

Public companies produce a lot of information.  As investors and the SEC press to expand the definition of what is material, the DC has a larger role to play in determining what gets reported. Be sure that your committee charter, membership, and certification process adequately reflect this expanding role to enable your CEO and CFO to confidently certify the company’s financial statements.

Additional resources about the Disclosure Effectiveness Committee’s 2021 annual meeting are available on the SEC Professionals Group website

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