The California Corporate Disclosure Act was passed just before the 2002 elections, immediately following the passage of the federal Sarbanes-Oxley Act, at a time when revelations about corporate executive misconduct relating to Enron, WorldCom, Adelphia, Tyco, and the like dominated the headlines.

The Corporate Disclosure Act, among other things, imposed on publicly traded corporations an obligation to file forms with the California Secretary of State that included information similar to, but not exactly the same as, information that those companies typically file with the Securities and Exchange Commission.

The Corporate Disclosure Act included terms that were vague and inconsistent with the federal reporting obligations. This imposed compliance costs on companies that wanted to be good corporate citizens, but had to take the time and expense to figure out what it was that the law was asking, and then take the time and expense to obtain the additional information that the law required them to report.

Investors and securities professionals already can – and routinely do – quickly and easily turn to the SEC's EDGAR website to obtain essentially the same information as that required by the Corporate Disclosure Act.

Last week the Department of Corporations announced that it was requesting public comment for a study on the effectiveness of the Corporate Disclosure Act.

The California Department of Corporations study seeks to review: The effectiveness of the Act in protecting California investors against securities and investment fraud and provide enhanced transparency in the financial marketplace; The costs and other burdens imposed on publicly traded corporations by the Act; and The cost-effectiveness of alternative methods of disclosing the information required by the Act, including through filings required and disseminated by federal regulators.

In September 2004, Gov. Schwarzenegger directed the state Department of Corporations to review the efficacy of the Corporate Disclosure Act and make recommendations "to eliminate duplicative reporting requirements and further align its provisions with federal reporting." The Department of Corporations requested public comments in furtherance of that review.

The Corporate Disclosure Act was adopted by the Legislature without public hearings that would have identified the vague and problematic provisions of the act, and would have provided the Legislature with an opportunity either to re-write the law or decided against its adoption. Even before it was signed into law by former Gov. Davis, companies and attorneys who learned of the Corporate Disclosure Act's provisions warned the governor of the problems and expense that would be associated with it.

The Department of Corporations is the state agency that is charged with the task of securities regulation. The Secretary of State's office is a separate constitutional office. It currently is occupied by a Democrat, Kevin Shelley, who was the author of the Corporate Disclosure Act.

However, it would be a mistake to regard the Department of Corporations study as being motivated by partisan differences. Rather, since the governor has no need to act in political solidarity with a fellow party member, by ignoring or sweeping under the rug the problems with the Corporate Disclosure Act, the partisan difference is permitting review of the act that the Legislature did not undertake in 2002.

Now that the law has been on the books for a while, it will even be possible to evaluate its real costs and real benefits. In other words, it isn't politics, it's business.

The Department of Corporation's request for comments can be found on its website at www.corp.ca.gov. The Department of Corporations has asked that interested parties submit written comments no later than January 14, 2005.

Bruce Dravis is a partner at Downey Brand LLP, operating primarily in the firm’s Sacramento and Roseville offices, specializing in corporate, securities and business law.