A couple of decades ago I was doing some work on the topic of executive compensation disclosure, and would have lost count of the number of times I heard the line “sunshine is the best disinfectant” used to justify the effort. As it turns out, it was a slight misquote all along: the actual line, from Supreme Court justice Louis Brandeis, placed here in context, was “Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.” But regardless, Brandeis is likely better remembered now for that single aphorism than for anything else, for instance:

• Sunlight is the best disinfectant,” a well-known quote from U.S. Supreme Court Justice Louis Brandeis, refers to the benefits of openness and transparency. I invoke this quote often as executive director of the NYSSCPA, to illustrate that the most credible and respected organizations operate in an atmosphere of avowed openness. We should not only accept criticism and suggestions, we should embrace them. If questions from constituents, the public, or the media make leaders or other responsible parties obfuscate, the questions are usually valid and the answers are not. People who feel uncomfortable under the bright light of scrutiny and criticism often have something to hide.

Anyway, at the time that I was frequently hearing the line, it was to justify the premise that greater disclosure of executive compensation would provide a better window into the relationship between pay and performance, allowing stakeholders to curb excesses and force greater restraint. To say the least, it didn’t work out that way: it turns out that sunlight is better at nurturing malignant weeds than at disinfecting them into non-existence. Nowadays, Brandeis is just as likely to be quoted for the purposes of illustrating the limits of his thesis:

• Louis Brandeis was wrong.
• The lawyer and Supreme Court justice famously declared that sunlight is the best disinfectant, and we have unquestioningly embraced that advice ever since.
• Over the last century, disclosure and transparency have become our regulatory crutch, the answer to every vexing problem. We require corporations and government to release reams of information on food, medicine, household products, consumer financial tools, campaign finance and crime statistics. We have a booming “report card” industry for a range of services, including hospitals, public schools and restaurants.
• All this sunlight is blinding. As new scholarship is demonstrating, the value of all this information is unproved. Paradoxically, disclosure can be useless — and sometimes actually harmful or counterproductive.

This all comes to mind because of a recent Globe and Mail article titled U.S. plan to slash executive pay disclosures spurs debate in Canada. Some extracts:

• In late May, the U.S. Securities and Exchange Commission proposed what law firm Latham & Watkins LLP described as sweeping reforms to public company executive compensation disclosure requirements. If adopted, the SEC said roughly 81 per cent of U.S. public companies will no longer be obliged to reveal certain key details of their leaders’ pay packages.
• … “This is very significant, they are scaling back completely,” Richard Leblanc, professor of governance, law and ethics at York University, said in an interview. “What companies have argued to the Trump administration is that there is a huge compliance cost for say-on-pay, for pay-for-performance and the Trump administration has said we agree and we are going to eliminate all of it.”
• Proxy advisory firms such as Institutional Shareholder Services and Glass Lewis need that data, Prof. Leblanc said. If the SEC proposal is adopted, he said Canadian securities regulators should “definitely not” enact similar changes.
• “There is a really strong current to match up with what the Americans are doing,” Prof. Leblanc said, referring specifically to the American plan to move from quarterly to semi-annual financial reporting that Canada is now piloting. “There really is a pressure on Canadian firms to follow suit. I think regulators need to understand that pressure but at the same time maintain a Canadian environment.”

The article quotes a couple of commentators on the age old “balance” theme, that regulators in both the US and Canada are “asking what can be done to help with the regulatory burden while still protecting investors and ensuring the integrity of our capital markets.” Well, I’ve set out many times here my opposition to rolling back Canadian requirements just to keep pace with the US, especially at a time when the demand for and capacity (as aided by AI) to process that information is higher than it’s ever been. But in this particular area, I’d find it hard to care. Whatever the sense may be in which the aforementioned proxy advisory firms “need” the data, their use of it to this point has done less than nothing to curb abuses (they’re so ineffectual in this respect that it actually made news that they both opposed Elon Musk’s deranged Tesla compensation package, which was approved regardless). The malpractice in this area is by now so acute, and the social impact so toxic, that no amount of regulatory sunlight will make a difference; meaningful opposition will have to come from the setting of a broader societal fire…

The opinions expressed are solely those of the author.