It’s no secret that most ordinary investors don’t read the securities disclosures that firms are legally required to produce, and research shows that most people cannot effectively absorb the volume and complexity of information in a prospectus or annual report. Critics have gone so far as to call mandated disclosure “the most common and least successful regulatory technique in American law.” We reach a different conclusion. Based on first-in-field interviews with mutual fund professionals, our article suggests that mandatory disclosure protects the 128 million Americans invested in mutual funds inside the fund itself, not just at the point of purchase.

Mutual funds offer a clean test case to argue that the principal consumer-protection effects of mandated securities disclosures do not depend on whether retail investors read those disclosures. Obligations to draft, publish, and update accurate disclosures activate professional norms, legal oversight, and organizations’ routines that shape how funds design, market, and manage investment products. Interviewees summed up this hidden work of disclosures in a simple maxim: “Say what you do, and do what you say.”

Operating under the shadow of SEC enforcement, shareholder litigation, and competitive pressure, disclosure mandates engender internal discipline within funds, empowering lawyers to challenge portfolio managers drifting from disclosed strategies. Annual reviews force funds to reconcile operational reality with public representations. And the process of drafting and revising disclosures elicits input and feedback from teams across the funds, while fostering a culture of compliance at organizations. Drawing on new governance theory, we characterize this dynamic as a form of co-regulation, and we argue that it advances investor protection by harnessing internal governance.

Three Mechanisms of Internal Governance

First, disclosure empowers lawyers. Funds typically assign responsibility for drafting and revising disclosures to fund counsel, and that designation is consequential. Stewardship of the disclosure process elevates the authority of lawyers within organizations that financial professionals would otherwise dominate. SEC-enforced disclosures give lawyers the authority to rein in straying portfolio managers and to say, “This is in your prospectus.… This is how it’s disclosed to shareholders, and this is what we need to do.”

Second, disclosure builds a culture of compliance. Drafting a prospectus and updating it annually is a cross-department exercise recruiting portfolio managers, risk teams, accountants, marketing personnel, compliance officers, and independent trustees into periodic collaborations. Leading this process, in-house lawyers and outside counsel work collaboratively, discerning SEC priorities and requirements for internal teams and translating complex financial frameworks for external audiences. In-house lawyers acquire the character of  “good inspectors” rather than enforcement cops, building trust and gaining access to information, while anticipating problems before they arise. Outside counsel provide an industry-wide view by benchmarking funds’ practices against market trends, which tells funds whether they are safely “in the antelope herd” or “about to get picked off by the lions.”  Compliance culture isn’t about altruism. A fund’s reputation for doing the right thing is a highly prized asset that establishes its status within the industry, the trust that the SEC has in the fund, and most important, its brand value among investors.

Disclosure forces institutional learning. Annual reviews compel funds to revisit their disclosures, kick the tires, and reconcile public representations with operational reality. Interviewees described disclosures as the “blueprint,” the “playbook,” and “gold standard,” guiding fund operations from top to bottom with current information. Lawyers, in turn, cross-pollinate among funds—sharing best practices related to disclosure drafting and revision through bar committees, trade associations, law firms, and professional contacts. Disclosure language and compliance methods spread through this network, producing a degree of industry-wide convergence that command-and-control regulation alone could not deliver.

The Ordinary-Investor Myth as Productive Fiction

Interviewees readily acknowledged that few retail investors read the prospectus—and everyone in the industry knows it. Yet the image of the ordinary investor remains a polestar. It motivates fund counsel to push back against jargon-heavy drafts (“you need to be able to explain this to your Aunt Mildred”), keeps SEC examiners attentive to the agency’s investor-protection mission, and supplies the moral vocabulary through which fund professionals describe—and constrain—their own work. The ordinary investor myth is not a deception, but a productive fiction facilitating co-regulation.

Why It Matters Now

As administrative enforcement capacity contracts, critics have renewed calls to weaken or eliminate disclosure mandates as ineffective, costly paperwork. Our findings reframe the debate: Disclosure’s principal consumer protection value is fostering disciplined internal governance inside firms. Even as government resources are drawn down,  so long as SEC enforcement remains credible and shareholder litigation looms in the background, mandated disclosures help maintain the investment ecosystem. We close the article with three design principles for enabling this hidden work in other regulatory contexts.

A Note on Method

Our findings draw on a purposive sample of 20 mutual fund professionals interviewed between 2023 and 2024. We selected for direct, hands-on experience with the production of mutual fund disclosures—outside and in-house fund counsel, chief compliance officers, independent trustees, trade-association leaders, and former SEC staff. Our  interviewees brought 564 combined years of experience and worked at funds that hold more than a quarter of the $34 trillion U.S. mutual fund market.

Importantly, we did not begin the interviews with our co-regulation thesis. Interviewees were asked to describe, in detail, how the disclosure process actually works—who drafts, who reviews, who signs off, what happens when fund operations drift from disclosed strategies, what counts as a problem, and how problems get fixed. What we heard was both a rich account of process—also featured in the article—and a story about governance.

Timothy D. Lytton is Regents’ Professor at Georgia State University College of Law, and Anne M. Tucker is the Robert Cotten Alston Chair in Corporate Law at the University of Georgia School of Law. This post is based on their recent article, “The Hidden Work of Disclosures,” forthcoming in the Oregon Law Review and available here.