Directors have an obligation to ensure that “material” information is made available to their shareholders. Determination of material information is clearly an area where judgment and experience are of great value. The US Supreme Court in TSC Industries Inc. v Northway Inc. the standard for materiality was stated as follows:-

“There must be a substantial likelihood that the disclosure of an omitted fact would have been viewed by the reasonable investor as having significantly altered the “total” mix of information made available”

The court further developed the following definition of materiality:

“Information is material if there is substantial likelihood that a reasonable investor would consider it important in making an investment decision.”

If the materiality decision is borderline the information should probably considered to be borderline and released using a broad means of dissemination. Decisions to release material information may be qualified by confidentiality and information may be withheld for legitimate business reasons, such as the benefit of the company or the shareholders, as long as no insider trades on that  information. Of course this does not mean a company can withhold “bad news” indefinitely because such information many not be beneficial to the company or its shareholders due to its effect on the share price!

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