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Nadelle Grossman, Out of the Shadows: Requiring Strategic Management Disclosure, 116 W. Va. L. Rev. 197 (2013)

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116 West Virginia Law Review 197 (2013)


One of the central goals of federal securities laws is to protect investors by ensuring that they receive a steady flow of timely, complete, and accurate information. However, that goal is partially undermined by the SEC’s failure to require public companies to disclose anything about their strategic management processes despite increasing requirements on the disclosure of associated risk management processes. Like risk management processes, strategic management processes are designed to create firm value. But instead of focusing on loss-creating risks, strategic management focuses on wealth-creating opportunities. As a result, investors are given a lopsided — rather than a complete or accurate — picture of firm processes to create value.

To address this concern, I propose that the SEC require public firms to disclose those qualities of their strategic management processes equivalent to what they disclose about their risk management processes. I also propose that firms disclose how those two processes relate to one another. This new disclosure would give investors a more balanced picture of firm processes to create value. It would also reinforce the reality that the path to long-term success for a firm lays not merely with managing its risks, but also with formulating and implementing an effective strategy for growth — a process that unfortunately may suffer from neglect amidst the box-checking exercise that flows from compliance with scores of risk-based regulations.

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