Investors, the C-suite and boards have different views about what is, or should be, considered material information. A company’s financial results would be considered material by all parties. Based on SEC rules, companies are required to provide updates on their financial results on a quarterly and annual basis (10-Q and 10-K, respectively) and also timely disclose specified material developments that occur in between quarters (8-K and/or press release). Beyond pure financial information, other examples of material news would include merger & acquisition activity, changes in control and/or management changes, significant product announcements, dividends, etc.
The definition of materiality varies from company to company and industry to industry because it is a fact-based determination that is subject to interpretation. The Supreme Court, SEC, Financial Accounting Standards Board (FASB), international regulators, etc. have all offered their opinions/guidance on the definition of materiality. The SEC, in its Selective Disclosure and Insider Trading Rule, defined material information as something where “there is a substantial likelihood that a reasonable shareholder would consider it important” in making an investment decision. To fulfill the materiality requirement, there must be a substantial likelihood that a fact “would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”
Read the full article by Judy McLevey (former Associate Director, The Conference Board Governance Center)