Disclosure Obligations in Company Law: Bringing Communication Theory into the Fold

Abstract

Company law in the United Kingdom is underpinned by a disclosure philosophy. Traditionally regarded as “the price to be paid for the twin privileges of legal personality and limited liability”, disclosure and information-sharing form a major aspect of corporate activity, either voluntarily or as a result of legal or professional obligations. During the latter part of the twentieth century the company law debates on disclosure were dominated by the law and economics movement in the United States. This approach has recently been adopted in the United Kingdom by the Department of Trade and Industry in its review of company law. In particular, the efficient capital market hypothesis (ECMH) has been recognised as a major influence on information activity and securities prices, with emphasis upon the so-called “semi-strong version” of market efficiency. Whilst the semi-strong version of the ECMH provides justification for a mandatory disclosure system, it offers little help in establishing the appropriate form of information disclosure to be required. The reality is that the disclosure regime is widely regarded as inadequate for meeting the needs of those who use the information. This article offers an approach that rests upon communication theory as a potential route to improving the disclosure system. Relying upon Habermas for a theoretical justification, the article seeks to provide a practical input to Habermas' theory of communicative action by exploring the scientific processes of communication. It then suggests how this approach might impact upon the corporate context, offering some tentative suggestions for law reform in order to achieve such a system.