Selective information sharing occurs when material, non-public information is disclosed to a limited group, such as select investors, analysts, promoters, or insiders, while being withheld from the broader market. This practice undermines transparency, distorts market fairness, and exposes companies and their leadership to significant regulatory, legal, and reputational risk. In today’s heightened enforcement environment, regulators no longer view selective disclosure as a minor governance lapse. When it influences investment decisions, share prices, or stakeholder trust, it is treated as a market integrity issue, often leading to D&O liability, shareholder claims, and regulatory action.
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At its core, selective information sharing occurs when material information, information that could reasonably influence an investor's decision, is shared unevenly.
Examples include:
Sharing unpublished financial performance updates with a few investors
Providing advance guidance to select analysts before public disclosure
Informally revealing strategic plans during closed-door meetings
Discussing regulatory developments or investigations with insiders only
The issue is not merely who receives the information, but whether the information should have been disclosed publicly at the same time.
Even unintentional disclosures can qualify as selective if:
The information is material
The recipients gain an unfair advantage
The disclosure is not promptly corrected through public channels
Why is Selective Information Sharing a Governance Failure?
Selective information sharing directly conflicts with the principles of fair disclosure, transparency, and equal access to information, cornerstones of modern corporate governance.
From a governance perspective, it raises fundamental questions:
Are all shareholders being treated equitably?
Is management exercising appropriate disclosure discipline?
Is the board adequately overseeing information flows?
When companies selectively disclose information, it creates information asymmetry, allowing a few stakeholders to act on insights unavailable to others. This erodes trust in leadership and weakens confidence in the company’s governance framework.
Common Situations Where Selective Disclosure Occurs
Selective information sharing often arises not from intent to deceive, but from weak controls, informal communication practices, or pressure to manage perceptions.
1. Investor and Analyst Interactions
Private meetings, earnings calls, or roadshows may lead to:
Clarifications that go beyond public disclosures
Forward-looking statements are shared selectively
“Colour” on performance is not available to all investors
2. Promoter or Insider Communications
Promoters or senior executives may share business updates within close circles, assuming confidentiality, without recognising disclosure obligations.
3. Crisis or Stress Situations
During financial stress, litigation, or regulatory scrutiny, management may selectively reassure certain stakeholders while withholding information from the broader market.
4. Mergers, Acquisitions, or Strategic Shifts
Information about potential deals, restructuring, or divestments is particularly sensitive and prone to selective leaks.
Regulatory Perspective on Selective Information Sharing
Regulators globally and particularly in India view selective disclosure as a serious market conduct violation.
Materiality Is the Key Test
Regulatory scrutiny focuses on:
Whether the information was material
Whether it was non-public at the time of disclosure
Whether the disclosure created unfair advantage
Even if the disclosure was accidental, liability may still arise if corrective disclosures were delayed or inadequate.
Enforcement Trends
Regulators increasingly rely on:
Call transcripts and meeting notes
Email and messaging records
Trading patterns following disclosures
This makes informal or undocumented conversations a significant liability risk.
Legal and Liability Risks for Companies and Directors
Selective information sharing exposes companies and their leadership to multiple layers of risk.
1. Regulatory Enforcement Action
Authorities may impose:
Monetary penalties
Disclosure directives
Restrictions on capital market access
2. Director and Officer Liability
Directors and senior executives may face allegations of:
Failure of oversight
Breach of fiduciary duty
Negligence in disclosure controls
Importantly, liability can extend beyond executives who made the disclosure to boards that failed to prevent it.
3. Shareholder Litigation
Shareholders who suffer losses due to unequal access to information may bring claims alleging:
Market manipulation
Misrepresentation or omission
Unfair treatment
4. Reputational Damage
Even where penalties are limited, public enforcement actions often result in:
Loss of investor confidence
Media scrutiny
Long-term valuation impact
Selective Information Sharing vs. Legitimate Confidentiality
Not all non-public disclosures are improper. Companies are permitted to share information selectively when:
The information is not material
The recipients are bound by strict confidentiality obligations
The disclosure is necessary for legitimate business purposes
For example:
Sharing data with auditors, legal counsel, or regulators
Confidential discussions with lenders under NDAs
Due diligence disclosures in M&A transactions
The risk arises when material information leaks beyond controlled, confidential channels or is shared without appropriate safeguards.
The Board’s Role in Preventing Selective Disclosure
Boards play a central role in preventing selective information sharing and mitigating liability.
1. Establish Clear Disclosure Policies
Boards must ensure the company has:
A well-defined disclosure policy
Clear materiality thresholds
Designated spokespersons
2. Oversight of Investor Communications
Boards should:
Review investor engagement frameworks
Ensure consistency between public disclosures and private interactions
Monitor earnings call scripts and presentations
3. Training Senior Management
Executives must understand:
What constitutes material information
How casual conversations can create liability
When to defer questions to formal disclosure channels
4. Documentation and Audit Trails
Maintaining records of:
Investor meetings
Analyst interactions
Key communications
Strengthens defensibility if disclosures are questioned.
How Selective Disclosure Links to D&O Insurance Risk?
Selective information sharing is a classic trigger for D&O insurance claims.
Claims may arise from:
Regulatory investigations naming directors
Shareholder lawsuits alleging disclosure failures
Derivative actions against boards for oversight lapses
From an underwriting and risk perspective, insurers increasingly examine:
Disclosure governance frameworks
Past regulatory actions
Board-level controls around information flow
Companies with weak disclosure practices may face:
Higher premiums
Narrower coverage terms
Increased exclusions
Real-World Consequences: Why This Risk Is Growing
Several trends have amplified the risk of selective information sharing:
Increased regulatory surveillance of communications
Social media and informal channels blurring disclosure boundaries
Real-time trading, magnifying the impact of information asymmetry
As a result, even small disclosure lapses can escalate rapidly.
Best Practices to Avoid Selective Information Sharing
To reduce risk, companies should adopt a proactive approach:
Centralize all external communications
Use scripted responses for investor queries
Promptly issue public disclosures if material information is inadvertently shared
Regularly review disclosure controls and board oversight mechanisms
Most importantly, boards must foster a culture where fair disclosure is a governance priority, not a compliance afterthought.
Conclusion
Selective information sharing is no longer a grey area—it is a clear governance and liability risk. What may begin as an informal conversation or selective briefing can quickly escalate into regulatory scrutiny, shareholder claims, and personal exposure for directors and officers.
In an environment where transparency defines trust and accountability defines leadership, boards must ensure that material information reaches all stakeholders equally, accurately, and on time. Strong disclosure governance is not just about compliance—it is about protecting the company, its leadership, and its long-term credibility
Disclaimer: Above mentioned insurers are arranged in alphabetical order. Policybazaar.com does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer.
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