Speech by SEC Chairman:
Opening Statement — Open Meeting on the Use of Technology to Improve Financial Reporting
Chairman Christopher Cox
U.S. Securities and Exchange Commission
May 14, 2008
Good morning. This is an open meeting of the U.S. Securities and Exchange Commission under the Government in the Sunshine Act.
The sole item on our agenda this morning is a rulemaking proposal to adopt XBRL as the interactive data standard for SEC reporting, on a phased-in schedule over three years.
On July 17, 1985, Women's Wear Daily announced that "150 corporations have begun filing their annual reports, proxies and other mandatory documents in electronic form with the Securities and Exchange Commission. The corporations are participants in the pilot phase of EDGAR — Electronic Data Gathering Analysis and Retrieval — a program that the SEC hopes will cover all public companies in the United States by the end of 1988."
According to the article, the corporate securities counsel for Mobil Corp. was awed by the magic of electronic filing. "You pick up the phone, dial — and there it goes!" she said.
This was back in the 1980s, when Apple was introducing the Macintosh, and IBM gave us the PC. In that day and age, filing SEC reports by computer was thought to be cutting edge, even though EDGAR was essentially just an electronic filing cabinet for the 1930s-era paper forms.
But while EDGAR should surely be credited for bringing us into the computer age, the most important lesson for our purposes this morning is that its "new" technology took over a decade to implement. Companies were phased in to EDGAR so slowly that this 1980s idea wasn't fully in place until 1996. And even at that, foreign companies got until 2002 before they had to file electronically.
The pace of the SEC's transition to the computer age was so languid by today's standards that you could almost sleepwalk through it. This is not the kind of change that will characterize our future — the world of information overload, global investing challenges and opportunities, and rapidly changing financial products and markets. Technology isn't just a luxury for investors seeking to make sense of all of this. It's a necessity. Properly harnessed to the service of investors, technology can be the great simplifier and organizer that allows anyone to get the information they need, instantly — and in a form they can use.
The proposal we will consider today, if it is approved, will set us on a journey to significantly transform the SEC's business model. Making interactive data the backbone of the SEC's system of company registration will be true to this agency's early 20th-century roots in disclosure and transparency, while decisively changing to an unmistakably 21st-century approach.
In his influential book Other People's Money that presaged the creation of the SEC, future Supreme Court Justice Louis Brandeis memorably said that "sunlight is the best disinfectant." Interactive data will let the sunshine in as never before.
Since the SEC opened its doors in 1934, public companies have disclosed information to us and to investors on paper forms. Over the last 10 years, EDGAR has stored those paper forms in electronic format, but they are still the same paper forms that Brandeis and Joe Kennedy knew, and the information they hold is locked up inside them every bit as much as the words carved on a wooden block before the invention of moveable type.
Today, we are preparing to use technology to strengthen the Brandeis injunction that if people want to use other people's money, their choice is to provide truthful information or to face the consequences.
Today, we are considering requiring the disclosure of the same information that has long been required — but in a new format that will make this information better, faster, and cheaper — for companies to disclose and for investors to use.
Today, because the information in SEC filings starts out in life imprisoned on within a form, most of it is routinely re-keyboarded and parsed by private companies and service providers so that it can be digested by computers, and from their put to good analytical use.
By improving the methods companies use to disclose information to their shareholders and to the public, we can make that information easier for investors to get, easier for investors to use, and more efficient and more cost-effective for companies to disclose.
And, thanks to the quality control advantages made possible by technology, we expect accurancy and precision to improve as well.
On Friday, June 2, 1933, the SEC's predecessor, the FTC, thanked the American Institute of Accountants for helping to prepare the "forms and other papers" for companies to use to register with the Commission. Today, thanks are due to the AIA's direct descendant, the American Institute of Certified Public Accountants, and all of its members, for its nearly decade of work that was the essential prerequisite to our meeting today. Just as the accounting profession helped investors get better information from companies back in the 1930s, it's helping us get better information from companies in the 21st century. Today, the profession has contributed not forms and other papers, as it did in the 30s, but Internet data tags and best practices. Once again, we owe a great debt of gratitude to the accounting profession.
We also owe our thanks to XBRL International and XBRL US, and in particular Barry Melancon, who helped stand up the XBRL US organization and empower it to create the new technology necessary to make data based reporting a reality. In addition, we should recognize the work of Al Berkeley, who was recently elected Chairman of the XBRL US board, and Greg Hayes, who has also been critical to its success. And we owe more gratitude to Mark Bolgiano, and to the remarkable interactive data technology team Mark assembled in New York City over the past two years.
The Commission has reviewed its disclosure technology many times over the years. For example, in 1969, a panel chaired by Commissioner Wheat stated clearly, "[t]he potential of data processing enhances the value of original information such as '34 Act reports." At that time, financial disclosures were still being jetted across the country on microfiche. Visicalc hadn't yet been invented, and financial disclosures were being analyzed by hand by all but the very most sophisticated investors. And the vibrancy of our capital markets fell far below its potential.
Decades later, the process of applying data tags to particular facts was well established. In 1987, President Reagan signed a law that required the Commission to report to Congress on its progress toward data tagging. Today, 21 years later, the Commission is embarking on data tagging in a serious way.
With the help of Mauri Osheroff, who is also sitting at the table today, the Commission made dramatic progress in the 80s and 90s. EDGAR vastly improved transparency and disclosure for the nation.
Interactive data will do that and more for the current generation of investors, not only in our nation but around the world. Interactive data is a truly global language. It knows no national boundaries.
We have an outstanding rule proposal, and that's primarily due to the hard work of a large staff matrixed across the SEC. That includes particularly Jeff Naumann from the Office of Interactive Disclosure and Mauri Osheroff, who is leading her second revolution in corporate disclosure for the Division of Corporation Finance. I would also like to recognize David Blaszkowsky, the Director of the Office of Interactive Disclosure, who has helped to coordinate all of the work that has gone in to creating this rule.
I'd also like to thank Jim Lopez, Mark Green, and Joel Levine in the Division of Corporation Finance. Jim, who held the pen for Mauri for much of this proposal, is a new father as of a few weeks ago, and has taken advantage of technology already in place at the Commission to telework in recent weeks. Mark put his experience with the interactive data voluntary filer program to work on this proposal, and Joel helped coordinate the Commission's extensive evaluation and comment process for the data tags we're formally considering as our standard today.
I'd also like to thank Chief Accountant Conrad Hewitt, his deputy Jim Kroeker, and his Chief Counsel, Jeff Minton, all of whom did outstanding work, as did Ted Uehlinger, who recently joined the Office of Interactive Disclosure to help us implement this new technology standard. I'd also like to thank Corey Booth, who first briefed me on interactive data nearly three years ago; Rick Heroux and Linda Lee; David Fredrickson; Cindy Alexander and Scott Bauguess; and Susan Nash.
Soon, if today's proposal is approved, the staff will be reviewing public comments from XBRL enthusiasts, and from some who view technology with skepticism. I've recently reviewed some the comments that were filed in response to the original EDGAR proposals, and in retrospect, some of them are quite entertaining. For example, back in the 1980s, some companies complained that since they have to print proxies and other documents for their shareholders anyway, preparing a diskette for delivery or filing over the telephone would create more work for the company. Others, particularly computer software companies, complained that the SEC system did not accept their brand of software or diskettes. There was also skepticism about using personal identification numbers instead of actually signing documents.
Then as now, the future had its enemies. But we should keep in mind that the SEC did not invent XBRL — people all around the world, on every continent and in every major market, have done that. Like ASCII and HTML before it, XBRL can be viewed as nothing more complicated than a computer language. But if we embrace its potential, it can truly revolutionize the benefits that investors derive from corporate disclosures. It will enable analysts at the SEC and in private industry to vastly improve their comparative capabilities. It will replace the current time-consuming methods involved in retrieving corporate shareholder information and put that information at the fingertips of every investor within seconds, exactly as they wish to see it. Nothing could be more in keeping with the SEC's mandate to provide investors with important information they need, while encouraging better tools for analysis that can be used to make better investment decisions.