What’s the point of SEC filings?

If someone asks me, “What’s a 10-K?” I’ll tell them it’s a document submitted to the SEC containing the annual financial statements of a company. If pressed, I’ll probably mention the footnotes, MD&A, etc. It’s that “etc.” part that a recent CFO.com article perked my interest about. The article talks about the increasing use of mandatory disclosures as a method not of reporting, but rather of policy making.

Imposing new disclosure requirements on companies is one way lawmakers can indirectly change companies’ policies. “If they’re trying to shape a particular type of behavior when they can’t require a company to do something, they will require disclosures that are potentially embarrassing if the company doesn’t do what’s being asked,” says Gary Brown, a shareholder at law firm Baker, Donelson, Bearman, Caldwell & Berkowitz, who counsels companies on SEC compliance and corporate-governance issues.

Some proposals currently in the works at congress include requiring companies to disclose (in annual and quarterly SEC filings) business dealings with companies in Iran, employee hedge options, and payments made for political activities (e.g. lobbying).