This statement does not alter or amend applicable law and has no legal force or effect. Feedback to SSRN. 2, 2021). The World Meteorological Organization has tracked damage from weather events for the past fifty years; the top five most economically destructive events all occurred since 2005. [11] Any material misstatement or omission in connection with a tender offer is subject to liability under Exchange Act Section 14(e). In the budget rider, Congress made no mention of any other agency, nor can the text of that law be reasonably interpreted to displace any agencys authority. John C. Coates and R. Glenn Hubbard, Competition in the . The result is a continuously adjusted, detailed system of disclosure specifications, reflecting the Commissions fact-finding and expertise. Recognizing innovation in the legal technology sector for working on precedent-setting, game-changing projects and initiatives. There are 300+ professionals named "John Coates", who use LinkedIn to exchange information, ideas, and opportunities. Bloomberg reports that, according to Coates, the new disclosure requirements will focus on three topics: diversity, equity and inclusion; climate change; and human capital management. Aside from the elementary fact that the Commission has no authority to edit Congressionally adopted statutes, the concept release actually says precisely the opposite. But to develop and apply a disclosure rule of the kind proposed here does not require the same level of climate expertise as held by EPA (or, for climate changes impact on weather, the National Oceanic and Atmospheric Administration), and those agencies lack the expertise in finance, accounting and investment that is also necessary for any investor-oriented disclosure rule that addresses climate-related financial risk. He joined his billionaire sister and co-CEO, Denise, in 2001 to launch Bet365 after she . The Division plays an essential role in ensuring investors have the information they need to make informed investment decisions. An effective ESG disclosure system does not imply a rigid and soon-to-be outdated set of limited disclosures. 6LinkedIn 8 Email Updates. . 1, 2005) (Where the failure to make such disclosure is negligent, an issuer would violate Section 14(a) of the Exchange Act and Rule 14a-9 thereunder). These understandings help explain Congresss decision to direct the Commission to specify additional disclosures under the 1934 Act, to adapt the statute to emerging financial risks and opportunities and maintain efficient capital market pricing and investor confidence over time. It is not clear that claims about the application of securities law liability provisions to de-SPACs provide targets or anyone else with a reason to prefer SPACs over traditional IPOs. People often think of mandatory disclosure in a way that suggests that there is nothing more than an on/off switch between mandatory and voluntary disclosure. At the same time, the risk of misuse of such information should also be carefully evaluated in light of the economic realities of the capital formation process. For example, the famous phrase full and fair disclosure is in the full title to the 1933 Act, and so part of its statutory meaning. These reports are filed with the Clerk of the House as required by Title I of the Ethics . The Helpful Hand Guiding Brisbane's Olympic Victory. Coates, Lindsey. Companies may chooseas many do nowto go beyond what is required, to convince investors and others that (for example) their strategies are going to succeed. John Coates, the vice-president of the International Olympic Committee and outgoing president of the Australian National Olympic Committee, said "to a large extent" that Sydney was awarded the. Professor of Law and Economics at Harvard Law School. 3 of 1970, nowhere mentions the Securities and Exchange Commission. .. The Court has stressed the structure and design of the 1933 and 1934 Acts reflect an understood need for regulatory flexibility, even in decisions limiting the reach of Commission rules where the precise limits of its authority are less clear, such as Rule 10b-5: Congress recognized that efficient regulation of securities trading could not be accomplished under a rigid statutory program. In numerous cases, the Court and lower courts have held that the federal securities laws are to be construed broadly, not technically and restrictively, but flexibly to effectuate its remedial purposes.. In truth, as this Point will detail, the actual proposed rule best fits with what investors need and want, and not what climate activists seeking to reduce climate impacts of business would seek, or even a rule they might write to elicit reporting about those impacts. If a given climate risk or opportunity is large for a company, then its investors need and would under the rule obtain information about that risk or opportunity, even if (when compared to the overall impact of all human activity on the environment) the risk or opportunity is not large enough to require reporting under some other regime (such as the EPAs greenhouse gas reporting regime). "He has spent the last three decades deeply engaged with our capital markets as a scholar, practitioner, and member of the SEC's Investor Advisory Committee. But Congress has never cut back on the Commissions general obligation to specify the contents of its disclosure regime, such as by editing or reversing prior disclosure specifications. . Important and challenging questions must be addressed, such as: These are questions that the SEC should be a key part of answering. That legal questionwhether the proposed disclosures could reasonably be viewed in good faith by the Commission as beneficial for investor protectionis easy to answer in the affirmative, based on the record before the Commission when it voted to propose them. 5 C.F.R. Section 12 of the 1934 Act conditions exchange-trading privileges unless securities are registered by companies disclosing such information, in such detail, as to the [company] as the Commission may by rules and regulations require, as necessary or appropriate in the public interest or for the protection of investors, in respect of the following: the organization, financial structure, and nature of the business.. John Coates is the John F. Cogan, Jr. Regardless, as long as the disclosures are fairly designed for the protection of investors, a factual assessment of the kind commonly delegated by Congress to regulatory agencies, they would fall within the clear limiting principle of that law. Volkswagen announced $180 billion of investments in electronic vehicles. Economically, and practically, the private target of a SPAC is a different organization than the SPAC itself. The safe harbor was intended to provide a defense against such suits and provide grounds for summary dismissal. Join National Law Journal now! Companies in the defense industry report in their Commission-required filings using technical, specialized industry jargon on government procurement, budgets, military strategy, products and market dynamics about which staff at the Department of Defense have far more detailed knowledge than the Commission. Specifically, Section 7 gives the Commission unambiguous authority to specify the contents of disclosure documents used to register securities for sale to the public. And thank you very much for the invitation to be in a place I don't usually go, right? Where do we go from here? Most companies now includeand sometimes are required to include industry- or firm-specific key performance indicators in their Commission filings, which require industry- or firm-specialized knowledge to understand and evaluate. If those targets are simply greenwashing, the proposed rules will reduce their potential to harm investors caused by fraud or misleading disclosure short of fraud. Disclosure reduces paranoia, and moderates reactions. Therefore companies should ensure that any public disclosures of non-GAAP financial measures comply with applicable SEC rules and staff guidance. Second, there may be advantages to providing greater clarity on the scope of the safe harbor in the PSLRA. 5, 2021); Priya Cherian Huskins, Why More SPACs Could Lead to More Litigation (and How to Prepare), A.B.A. The Commissions proposed rule relies upon a traditional role for regulatory agenciesto find facts and use the facts so found to implement Congresss direction to require disclosures for a stated purposethe protection of investors. What about the Private Securities Litigation Reform Act? 3:09-CV-01740 VLB, 2013 WL 1188050 (D. Conn. Mar. The American College of Governance Counsel is a professional, educational, and honorary association of lawyers widely recognized for their achievements in the field of governance. At the end of 2018, the US SIF Foundation identified $11.6 trillion in US-domiciled sustainable, responsible, and impact investment strategy assets, of which $8.6 trillion were managed on behalf of institutional investors and $3.0 trillion were managed on behalf of individual investors. Finally, critics sometimes argue that investors do not need protection of mandatory climate-related financial disclosures because companies are already voluntarily making such information available. Delaware corporate law, in particular, conventionally applies both a duty of candor and fiduciary duties more strictly in conflict of interest settings, absent special procedural steps, which themselves may be a source of liability risk. In other words, public companies disclosures were expected to go beyond basic financial statements. The safe harbor is also not available if the statements in question are not forward-looking. For questions call 1-877-256-2472 or contact us at [emailprotected], Shearman and Hogan Lovells Call Off Merger Talks, Early Reports: 2023 Am Law 200 Financials, Beyond Excess Capacity, Pooled Services and Automation Expedite Staff Layoffs, Dozens of Law Firms Grew Their Equity Partner Tier, Even as Profits and Demand Plummeted. Prior to joining the SEC, John was the John F. Cogan Professor of Law and Economics at Harvard University, where he also served as Vice Dean for Finance and Strategic Initiatives. Over the past six months, the U.S. securities markets have seen an unprecedented surge in the use and popularity of Special Purpose Acquisition Companies (or SPACs). John Coates is author of the financial bestseller The Hour Between Dog and Wolf: How Risk-Taking Transforms Us, Body and Mind. Anyone who sees a role for law to require disclosure of comprehensive information about the sources of greenhouse gas emissions will not be satisfied by this rule. In this regard, the work of the IFRS Foundation to establish a sustainability standards board appears promising. The context of this authorizing language reinforces these conclusions. from Harvard University. 25, 2021); Jennifer Bennett, Canoo Faces Investor Suits Over Post-SPAC Deal Focus Changes, Bloomberg Law (Apr. The staff at the Securities and Exchange Commission are continuing to look carefully at filings and disclosures by SPACs and their private targets. The caption to Section 7Information required in registration statementcontains no qualifiers on information. The authorizing language in Section 7(a)(1) is limited by Section 7(a)(2), but only for a designated class of emerging growth companies, and not as to content. Again, some may view this company-calibrated focus as distracting, because the rule is not limited (for example) to industries that have the greatest environmental impact, such as oil and gas, or energy. Governance needs to ensure the independence and expertise of any individuals involved in the setting of ESG disclosure standards, and allow for a rigorous, inclusive and transparent process for developing standards. Credit quality of loan portfolios requires expertise to understand in detail, which is typically found in bank regulatory agencies. The economic essence of an initial public offering is the introduction of a new company to the public. Customer Service| He served as a Department of Justice-appointed independent monitor for a large, systemically important financial institution and as an independent consultant to the SEC in one of the first Fair Fund distributions. No. To be sure, some elements of the SECs regulatory regime reflect a recognition that small or new public companies may not be as able to shoulder the costs of all disclosure requirements as older, larger companies. (IOC) (AOC) 2020IOC ICAS . [8] In re Netsmart Technologies, Inc., Shareholder Litig., 924 A.2d 171 (Del. The rule builds on decades-long efforts by public companiessuch as 3M, Abbott Laboratories, Amazon, Apple, Chevron, Fujitsu, IBM, Johnson Controls, Michelin, P&G, Verizon and Walmartto develop practical, decision-useful, consistent, comparable and verifiable ways to report about climate risks and opportunities. John Coates Named Acting Director of the Division of Corporation Finance FOR IMMEDIATE RELEASE 2021-19 Washington D.C., Feb. 1, 2021 The Securities and Exchange Commission announced today that John Coates will serve as Acting Director of the agency's Division of Corporation Finance. If we do not treat the de-SPAC transaction as the real IPO, our attention may be focused on the wrong place, and potentially problematic forward-looking information may be disseminated without appropriate safeguards. 2007) (enjoining a merger because the proxy statement omitted the projections used to render the fairness opinion). By seeking to address those considerations adequately and transparently, the SEC can and should play a leading role in the development of a baseline global framework that each jurisdiction can build upon to address its individual needs. As customary, and in keeping with the Division of Corporation Finances ordinary practices, staff are reviewing these filings, seeking clearer disclosure, and providing guidance to registrants and the public. It addresses global climate risks to public companies, and not all climate risks created by domestic activities of all companies, public and private. [9] Indeed, in some ways, liability risks for those involved are higher, not lower, than in conventional IPOs, due in particular to the potential conflicts of interest in the SPAC structure.[10]. Image: Getty. SPAC use and popularity have soared over the past six months, John Coates, acting director of the Securities and Exchange Commission's Division of Corporation Finance, said in a note Thursday.. Most large public companies report much climate information, albeit in a non-comparable and inconsistent way. [14] See generally, H.R. As the proposing release notes, half of all public companies already make some climate disclosures in their SEC reports, and the Chamber of Commerce reports that more than half of surveyed companies publish sustainability reports. Existing rules already cover material climate risks is the first point she makes. Rather, they are faced with numerous, conflicting and frequently redundant requests for different information about the same topics. Nor did Congress trim back the Commissions authority whenafter the Commission published climate-related disclosure guidance in February 2010Congress adopted the Dodd-Frank Act four months later, with numerous additions (not subtractions) to the Commissions disclosure authorities. It does not regulate climate activity itself (e.g., greenhouse gas emissions) and would have modest effects on the economy as a whole. John Coates, acting director of the SEC's Division of Corporation Finance, similarly stated in a recent speech that the "SEC should help lead the creation of an effective ESG disclosure system so companies can provide investors with information they need in a cost effective manner," noting in particular the task of adapting existing rules and This demonstrates that the broader direction was consciously added during the legislative process. 1, 2021, 4:10 PM). As to motivations, the long and extensive record leading to the proposal of the rule can be reviewed in its entirety and nowhere will any evidence be found that the purpose of the rule is other than to protect investors. Even if one has a strong belief in the value of the major questions doctrine as an important tool for enforcing the constitutional principle of separation of powers, there is no role for a clear statement principle when the text and context of a statute are as clear and consistent as the 1933 and 1934 Acts are. To do so would turn the doctrines purpose against itself, turn courts into unelected mini-legislatures, and subvert rather than reinforce the separation of powers. As a result, Congress, markets, analysts, and the SEC staff typically treat these introductions differently from other kinds of capital raising transactions. I fear, though, that participants may not have thought through all the legal implications of these statements under the circumstances of these transactions. If arguments of that kind could limit rulemaking authority, the Commission could never have adopted any disclosure rules. Myriam Robin is a Rear Window columnist based in the Financial Review's Melbourne . Three points about this text are worth emphasizing. Congress could not have predicted the wave of SPACs in which we find ourselves. The brief historical review in Annexes A and B (and much more detail could be added) shows that nothing about the current proposed rules contents (discussed more below) should be legally surprising in any meaningful way, to Congress or to companies or their investors. Congress both expanded authorities and limited which and how specific types of companies and transactions are covered by its disclosure regime. Our Compliance bundles are curated by CLE Counselors and include current legal topics and challenges within the industry. However, the rule does need to at least be rationally designed for investor protection to be authorized. They require fact-finding and expert factual judgments about likely effects, costs, benefits and risks of alternatives, including inaction, in the face of investor needs that have led most large companies to publish inconsistent and variable climate-related disclosures. Because, finally, the disclosures are financial and do not extend to the large part of the economy owned by private companies, they would not constitute general climate change policy, such as a carbon tax or emissions cap-and-trade scheme. Overturning this rule as unauthorized on that basis would wipe out most of the Commissions disclosure rulebook. The Commissions authority is plain in its organic statutes, legislative history, in long-standing precedent, in both court decisions and its own rules, and repeatedly accepted by Congress through amendments of the statutory bases for those rules. John F. Cogan, Jr. Empirical studies of financial markets and regulation have always had strong and inherent methodological limits, well-known and not seriously disputed, as well as data limitations. Throughout I describe rather than argue for what the law should be. The rest of this post details Points I and II. US public companies (e.g., the S&P 500) derive 40% of their revenues on average from non-US operations, and many have larger shares of their activities located offshore. In other words, the delegation to the Commission was deliberate, was specifically intended to apply to required disclosures, and was sensible, reflecting an anticipation that the Congress itself could not reasonably work out in detail the kinds of choices necessary to develop and keep up to date an appropriate disclosure regime. Growing Mineola firm with national practice seeks associate (with 3-6 years experience) to handle complex general liability matters.Competit CASH KRUGLER & FREDERICKS LLC is Celebrating Our 20th Anniversary & Newest Partners! Before joining the faculty at Harvard, he was a partner at Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and financial institutions. [6] SPAC Status by Year of IPO, SPACInsider (last visited Apr. The status quo is costly for companies, and increasingly so over time. John CoatesActing Director, Division of Corporation Finance. John Coates, the Divisions current Acting Director, has been named SEC General Counsel. Any answer to that question should note the limits of the safe harbor in the PSLRA. The rule would create a framework for reliable disclosures of climate-related information that is potentially positive for investors, such as opportunities, and is not limited to risks. Before joining the SEC, he served as the John F. Cogan Professor of Law and Economics at Harvard University, where he also was Vice Dean for Finance and Strategic Initiatives. The context for the authorizing sections of those statutes supports the Commissions authority: Canons against ineffectiveness and in favor of validity, and the general terms canon all caution against courts making up their own limits on textual authority, particularly on grounds such as: For the Commission programmatically to refuse to protect investors due to concerns about politics would itself be a political and controversial policy position. The title of the 1933 Act states its purpose as creating a regime of full and fair disclosure.. John Coates does not need much of an introduction. To be clear, the Commission has also routinely added required disclosures that do affect the financial statements, too. This rule would not transform even the portion of the American economy regulated by the Commissionwhich remains investments in and markets for securities of public companies, not privately held companies, and the proposal adds no new companies to its disclosure regime. A draft of what would become the 1933 Act in the Senate included disclosure items directly in the statute, and did not contain the equivalent language later adopted in Section 7, which directs the Commission to go beyond that list (which is separate from the Commissions general rulemaking authority in Section 19). John Coates has conceded the Australian Olympic Committee's (AOC) brand has been damaged by a bitter presidency campaign in which he emerged victorious. Congress in 2012 thus ratified long-standing Commission exercises of the unambiguous authority in 7(a)(1). Surveys of individual investors by firms such as Morgan Stanley confirm this evidence. The Commissions authority to consider environmental risks was reinforced and made even more clear by another statute, which critics do not seem to have even noted, much less considered, as detailed below. Australian Olympic Committee president John Coates received a $40,000 pay rise last year, part of $300,000 in extra remuneration for senior AOC figures. By contrast, the focus of traditional environmental regulationincluding EPA reporting rulesis solely the reversethe impact of companies on climate change. In that section, companies are required to disclose a specified list of financial disclosure and documents set out in Schedule A, to obtain consents from any accountant, engineer, or appraiser or other professional identified in the disclosures, andin a separate sentenceto disclose such other information, and be accompanied by such other documents, as the Commission may by rules or regulations require as being necessary or appropriate for the protection of investors.. Financial Reports. Congressional support for the Commissions clear (but statutorily limited) disclosure authority is shown by the fact that over time, in the face of repeated Congressional amendments and annual budget laws (in which Congress can and has inserted riders further limiting Commission discretion), the Commissions requirements ranged far beyond the limited lists of information in the 1933 and 1934 Acts themselves. Of course, as Commissioner Peirce does not do much to dispute, and as the proposing release makes clear, existing disclosures are spotty, inconsistent, incomplete and unverified under existing Commission rules. He has been the . Ch. For years, asbestos-related risks were invisible, and information about asbestos would likely have been called non-financial. Over time, those risks went from invisible to visible to extremely clear, and clearly financial. 51283 (Mar. Read fairly and dispassionatelynon-politically, one might saydisclosures specified by the rule are not about environmental impact, or climate change, but about financial risks and opportunities related to climate change. Professor of Law and Economics Harvard Law School 1875 Cambridge Street Cambridge, MA 02138, United States phone: 617-496-4420 e-mail: jcoates@law.harvard.edu *Corresponding Author Electronic copy available at : http ://ssrn.com /abstract = 2375396 COST-BENEFIT ANALYSIS OF FINANCIAL REGULATION: CASE STUDIES AND IMPLICATIONS The proposal is both narrower and broader than the critics fictional rule because it calls for and is limited to investor-focused information from public companiestraditional and long-standing hallmarks of U.S. securities laws and regulations. John Coates, the vice-president of the International Olympic Committee and outgoing president of the Australian National Olympic Committee, said "to a large extent" that Sydney was awarded the . We'll send you a myFT Daily Digest email rounding up the latest Denise Coates news every morning. Does that provide de-SPAC participants with protections in private litigation that are not available in a conventional IPO? (forthcoming 2021); Minmo Gahng, Jay R. Ritter and Donghang Zhang, SPACs, Working Paper (Mar. He has testified before Congress and provided consulting services to the U.S. Department of Justice, the U.S. Department of Treasury, the New York Stock Exchange, and participants in financial markets, including hedge funds, investment banks, and private equity funds. A public company might have a large amount of transition risk due to many different emission sources, each of which is below EPA thresholds. Congress designed the safe harbor generally to permit and even encourage reporting companies to disclose information about future plans and prospects. It specifies disclosure of facts, in neutral language. As such, there is no one set of metrics that properly covers all ESG issues for all companies. Women, Influence & Power in Law UK Awards honors women lawyers who have made a remarkable difference in the legal profession. Congress created the Commission as an expert agency with the capacity to address significant problems affecting the nations securities markets. Because (they claim) the fictional new rule reflects climate change policy, and because climate change is new and important, the plain text of the Commissions statutory authority cannot really mean what it says. This is for the obvious reason that investors in the parent company face the consequences of all economic results created by that company. As noted above, subsequent to the initial passage of the securities laws, but after the passage of the initial Clean Air Act and in the same year EPA was created (1970), Congress directed the Commission (along with all other agencies of the federal government) to consider environmental protection in its rulemakings.