Don’t Ask, Don’t Tell: A Poor Framework for Risk Analysis by Both Investors and Directors
Harvard Law School Forum on Corporate Governance and Financial Regulation, on Sunday November 15, 2009
(Editor’s Note: This post comes to us from Sanford J. Lewis, Counsel to the Investor Environmental Health Network.)
A clash is emerging between the needs and duties of directors and investors to manage risks, and attorneys who advise “don’t ask; don’t tell” to minimize corporate liability in any possible future litigation. The task of mitigating this clash falls on the shoulders of regulators at the Securities and Exchange Commission and the Financial Accounting Standards Board.
When the Financial Accounting Standards Board (FASB) took up the issue of contingent liability disclosures on behalf of investors in 2008, it appeared progress would be made. However, under pressure from the corporate legal community, which sought to block any requirements to require disclosure of potentially prejudicial information, the FASB may now be about to take a step backward unless the directors and investors can be mobilized. The Securities and Exchange Commission is also in a position to act to make vital improvements in disclosure of information relevant to potential liabilities.
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Interview with Sanford Lewis regarding SEC and risk resolutions at SocialFunds.Com
October 29, 2009
Activist Shareowners Celebrate SEC Reversal of Bush-Era Ruling
by Robert Kropp
SocialFunds.com — Shareowners seeking to engage meaningfully with companies on matters of environmental, social, and governance (ESG) criteria won an important victory this week, when the Division of Corporation Finance at the Securities and Exchange Commission (SEC) issued Staff Legal Bulletin No. 14E. The ruling effectively reversed an SEC decision enacted in 2005, under the Bush administration, which disallowed shareowner resolutions that addressed questions of financial risk associated with corporate activities on ESG issues.
The ruling arrives in time for the 2010 proxy season, as many shareowner proposals for the new proxy season will be filed in November.
SocialFunds.com spoke with Sanford Lewis, an attorney in private practice whose clients include the Investor Environmental Health Network (IEHN) and other responsible investor organizations working for shareowner rights. He said, “I think the Bush administration rule was politically motivated, and was never fully justified.”
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Dirty Secrets
Companies may be burying billions more in environmental liabilities than their financial statements show.
Marie Leone and Tim Reason, CFO Magazine
September 1, 2009
Sanford Lewis, an attorney with the Investor Environmental Health Network (IEHN), an advocacy group, agrees that companies can and do produce accurate estimates of environmental costs — for internal use. A company that tells investors that it expects liabilities of $200 million during the next 5 years may advise its insurer to expect liability claims of $2 billion over a 50-year period, wrote Lewis in a recent report. “It is happening, it’s scandalous, and investors should be outraged,” Lewis told CFO.
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