Scalpel-or-Chainsaw Regulation Test
Trim regulatory burdens without destroying disclosures investors need
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 91%
This framework evaluates regulatory reform requirement by requirement rather than assuming that all regulation is either beneficial or harmful. Start by identifying the operational cost of a rule and the material risk it is intended to expose or control. Then determine whether the information produced is genuinely useful to investors. If the process is cumbersome but the underlying disclosure remains valuable, simplify its format, scope, or supporting presentation instead of eliminating it. Reduction is justified where costs substantially exceed decision value, but safeguards should remain where less disclosure would create meaningful information gaps. The output is a targeted reform plan: remove low-value obligations, streamline burdensome ones, and preserve protections attached to significant financial, climate, cybersecurity, or governance risks.
Origin
Michelle Leder articulated the distinction while discussing whether the SEC should reduce reporting burdens under its new deregulatory leadership on Masters in Business.
Core principles
- 01Treat regulation as a collection of distinct requirements, not a single burden.
- 02Preserve disclosures tied to material investor risks.
- 03Match reporting effort to the usefulness of the information produced.
- 04Simplify cumbersome processes before eliminating their underlying safeguards.
How to run it
- 1
Define the burden
Document the time, cost, complexity, and duplication created by the requirement. Separate the core disclosure from optional presentations, calls, and supporting materials.
Pro tip Ask which specific activity creates the burden instead of treating the entire reporting regime as one task.
Watch out Do not accept broad claims that regulation is expensive without identifying the costly component.
- 2
Identify the protected risk
State what investors could misunderstand or fail to see without the requirement. Determine whether that risk is material and whether some companies face it more heavily than others.
Pro tip Assess risk by industry and company rather than assuming identical relevance everywhere.
Watch out A difficult disclosure can still be necessary when the underlying risk is substantial.
- 3
Measure decision value
Evaluate whether investors can use the resulting information to price securities, compare companies, or detect deterioration. Low-use outputs are candidates for removal or consolidation.
Pro tip Seek evidence from actual users of the disclosure, not only from the companies producing it.
Watch out Low readership does not automatically mean low value if the disclosure exposes rare but severe risks.
- 4
Simplify before eliminating
Remove redundant presentations, narrow unnecessary detail, or standardize the format while retaining essential information. Test whether these changes materially reduce the burden.
Pro tip Distinguish periodic financial reporting from associated presentations and ceremonial processes.
Watch out Reducing frequency may create long information gaps even when it lowers preparation costs.
- 5
Choose the smallest effective reform
Adopt the least destructive change that achieves the desired cost reduction. Monitor whether investors retain timely access to material information.
Pro tip Pilot targeted changes before applying them across every public company.
Watch out Wholesale deregulation can remove useful safeguards along with genuine inefficiencies.
In the wild
A regulator finds that smaller issuers spend heavily producing elaborate quarterly slide decks and extended earnings calls. It retains quarterly financial reporting but permits a shorter standardized filing and removes duplicative presentation requirements. Investors continue receiving timely results while companies avoid much of the peripheral production work.
→ Reporting costs fall without creating a six-month gap in financial visibility.
A manufacturer and a software consultancy face the same expansive climate template despite very different physical and supply-chain exposure. The regulator replaces universal detail with a materiality-based standard, requiring deeper reporting from the manufacturer while allowing the consultancy a concise risk statement.
→ Disclosure effort becomes proportional to investor risk rather than disappearing entirely.
Common mistakes
Treating every rule as equally harmful
A blanket deregulatory position ignores differences in burden, usefulness, and the risks individual requirements address.
Confusing presentation with disclosure
Eliminating the underlying report because slide decks and earnings calls are cumbersome removes more information than necessary.
Ignoring unequal risk exposure
Uniform removal can deprive investors of material information in industries where climate, cybersecurity, or governance risks are unusually high.
Is it for you?
Best for
It is best for reviewing disclosure, governance, or compliance requirements that impose real costs but also protect investors.
Not ideal for
It is not ideal when a requirement is clearly unlawful, wholly obsolete, or unrelated to any material stakeholder risk.
From the transcript
“But do you do it with like, you know, a scalpel or do you do it with like a chainsaw?”
“I think with anything, there's things that can always be made better and improved, right, But I think this wholesale approach to like all regulation…”
“maybe we don't have to do like the PowerPoint presentation and the detailed earnings call and like the big thing, but still report earnings”
From the episode
The New Deregulatory SEC