George S. Georgiev
This Article suggests that the ubiquitous “public company” regulatory category, as currently constructed, has outlived its effectiveness in fulfilling core goals of the modern administrative state. An ever-expanding array of federal economic regulation hinges on public company status, but “public company” differs from most other regulatory categories in that it requires an affirmative opt-in by the subject entity. In practice, firms today become subject to public company regulation only if they need access to the public capital markets, which is much less of a business imperative than it once was due to the proliferation of private financing options. Paradoxically, then, public company regulation is both more important than ever and easier than ever to avoid.
Anne M. Tucker & Yusen Xia
The SEC requires mutual funds to write disclosures for the average investor using plain English. These requirements make funds’ investment strategies and associated risks transparent and accessible to investors. Improved investor understanding furthers the SEC’s regulation-through-disclosure regime. But our examination of funds’ summary prospectuses—an abbreviated discussion of a fund’s strategies and risks—suggests that funds often fail to meet the plain English standard. Our analysis of all summary prospectuses filed between 2010 and 2020 reveals that mutual funds write long, hard-to-read, and complex disclosures. Importantly, we find that failure to draft disclosures in plain English is more than a technical error. Using a regression model, we find that positive past returns predict easier-to-read disclosures, but an increase in fund risk predicts harder-to-read disclosures. Further, we find that compliance with other metrics of plain English, like short sentences and active voice, predicts easier-to-read disclosures. In other words, compliance in one dimension of plain English writ- ing suggests compliance in other aspects as well.
Alexander I. Platt
The largest companies in the United States are now subject to two alternative sets of rules. One set of companies makes extensive periodic disclosures about their business, finances, and corporate governance arrangements; faces market discipline from short-sellers, financial analysts, and hedge fund activists; and faces a realistic threat of Securities and Exchange Commission (SEC) investigation and private securities litigation. The others don’t.
Securities regulators are getting worried. The proliferation of “Unicorns”—startup companies that reach a valuation of $1 billion or more without going public—spawned a flood of academic articles asserting that these companies pose a distinct danger to society and that new securities regulations are needed to rein them in. These calls are now resonating at the SEC, which is on the verge of a significant crackdown on private markets as of this writing.
Mandatory disclosure requirements for corporate supply chains have the potential to leverage consumer and investor sensibilities to incentivize corporations to source ethically. Despite their growing prevalence, there are few empirical studies of whether they actually put pressure on companies. This Article examines the consumer and investor responses to corporate supply chain disclosures made pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The act requires publicly traded companies to disclose to the Securities and Exchange Commission whether their supply chain contains “conflict minerals” (minerals whose sourcing can fund human rights violations in the conflict in the Democratic Republic of Congo and surrounding areas).
The Esoteric Question of Whether Corruption Violates Human Rights and the Real-World Practice of Compliance
Philip M. Nichols
Corruption inflicts extraordinary damage on and presents significant challenges to society, people, and the planet. In response, polities around the world have knit together a global anticorruption regime, a network of local laws, treaties, arbitral rules, and administrative regulations. Although styled as universal and as aimed at corruption, this article’s analysis of the regime finds that it aims squarely at bribery, and that imposes the greatest burden on individual business firms. Individual business firms must create effective programs to prevent people associated with those firms from participating in bribery. The lively debate among legal scholars over whether or not corruption violates human rights may seem to have little to do with the important practicalities of developing effective anticorruption programs. This article finds, however, an important connection. The most effective anticorruption programs require development of organizational cultures that guide people toward compliance. Organizational culture consists of norms and rules for making decisions and acting. The debate over corruption and human rights reflects two competing frameworks for ethical decision-making. Frameworks are akin to norms and rules, thus resolution of the debate could strongly influence how business firms construct cultures. Unfortunately, however, the two positions in this debate seem irreconcilable. This article identifies the as-yet unacknowledged danger that contemplation of an irreconcilable debate might introduce uncertainty into a firm’s organizational culture. This article does not conclude that business firms should eschew contemplation of the debate, but instead suggests that firms rely on other moral or social justifications, and flex their “ethical muscles” by developing creative anticorruption programs.