Four two-person teams at The George Washington University School of Business each spent their summers studying hundreds of forms 10-K, looking for ways to make company annual reports more clear, concise and user-friendly.
Teams were involved in a competition that was part of the “Initiative on Rethinking Financial Disclosure,” a partnership between the university’s Institute for Corporate Responsibility (ICR) and the Center for Audit Quality (CAQ). Their recommendations are currently being compiled into a report the school plans to submit to the Securities and Exchange Commission, which last December asked for comments to help further its ongoing disclosure effectiveness project.
“We were thinking about what might be an innovative way to look at this,” says Cindy Fornelli, executive director of the CAQ. “We thought young people might have some fresh points of view about how to modernize the disclosure regime.”
Each team was tasked with making two recommendations. The winners proposed, first, to stratify annual reports’ risk factors into two groups. They offered two methods for making the division. One was segregating company-specific risks from those applicable to the company’s industry generally and other non-company-specific risks. The other method was sorting risk factors based on their potential impact on company performance and probability of occurrence.
“We were surprised to win, because we thought our recommendations were the simplest,” said MBA student Elizabeth Moehlenbrock, who was part of the winning team. “But the reasoning given [for the decision] was their simplicity and, therefore, their feasibility.”
The students had some help, in the form of an advisory committee that included Fornelli; former SEC chairman Harvey Pitt; ICR senior research scholar Cynthia Glassman, a one-time SEC commissioner; Troy Paredes, another ex-commissioner; David Martin, a former director of the commission’s Division of Corporate Finance; and Susan Phillips, a former Federal Reserve Board governor and George Washington finance professor, among several other finance and investment luminaries. Each student team met with each advisory committee member twice.
“It was like having your ideas in an Etch-a-Sketch,” said GW MBA Elizabeth Halford about the process of interacting with the advisers. “Every time you thought you had it, you met with a new advisory board member who brought in a different angle, and you decided to shake the Etch-a-Sketch and start over. It was a very involved learning experience, much more so than we’ve had in any of our classes.”