And earlier this month, Bloomberg reported that John Coates, the SEC's Acting Director of the Division of Corporation Finance, indicated that new disclosure requirements would focus on three areas: diversity, equity and inclusion; climate change; and human capital management. It cannot fairly be argued that losing production or even permanent asset impairments due to weather damage are not financial risks for companies with property, plant and equipment in flood plains or otherwise exposed to climate-related weather events. To be clear, the Commission has also routinely added required disclosures that do affect the financial statements, too. Moreover, state law, such as in Delaware, may require disclosure of projections used by the boards or their advisors in these transactions. The creation of an entire new agency (the Commission) to implement and enforce the laws. Not surprisingly, disclosure about these risks did not initially show up in SEC filings, but there too they went from invisible to increasingly disclosed. The Commission does, but has no investor-protection authority over climate impacts more generally, such as those on communities or habitats, beyond impacts that are important to investors decision-making. Coates' Canons NC Local Government Law. 6, 2021) (showing that there have been 26 total liquidations as of Apr. This is perfect for attorneys licensed in multiple jurisdictions or for attorneys that have fulfilled their CLE requirement but need to access resourceful information for their practice areas. In contrast to the specific mentions of these other federal agencies, the authorizing document, Reorganization Plan No. 3:09-CV-01740 VLB, 2013 WL 1188050 (D. Conn. Mar. A public company might have a large amount of transition risk due to many different emission sources, each of which is below EPA thresholds. John Coates is a senior research fellow at the University of Cambridge. S190602 (daily ed. Modern finance and valuation techniques focus on risk and expected future cash flows. 1993) (To rebut the [business judgment] rule [presumption], a shareholder plaintiff assumes the burden of providing evidence that directors, in reaching their challenged decision, breached any one of the triads of their fiduciary dutygood faith, loyalty or due care.); In re Transkaryotic Therapies, Inc., 954 A.2d 346, 357-63 (Del.Ch. Are current liability protections for investors voting on or buying shares at the time of a de-SPAC sufficient if some SPAC sponsors or advisors are touting SPACs with vague assurances of lessened liability for disclosures? Coates, recently finished work on a follow-up to the 1982 film to celebrate its . In this way, SPACs offer private companies an alternative pathway to go public and obtain a stock exchange listing, a broader shareholder base, status as a public company with Exchange Act registered securities, and a liquid market for its shares. Its greenhouse gas emission disclosure elements are aligned with the EPAs existing requirements for US emission sources, which in turn are aligned with the widely used and privately developed Greenhouse Gas Protocol, which was a joint product of companies, investors and other organizations. Previously, Coates was a partner at Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and financial institutions. The Commission has commonly limited requirements to material and related items, but that is not because of a legal limit on its authority, but as a subsidiary choice of how to implement Congresss policy judgment to require full and fair disclosure, based on its experience and expertise. John Coates, the John F. Cogan, Jr., Professor of Law and Economics at Harvard Law School, has joined the American College of Governance Counsel as a Fellow. Coates was angry because he believed Wylie was behind moves to unseat him at the then upcoming AOC election - an allegation Wylie denied. This statement creates no new or additional obligations for any person. 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. It is not a transformative surprising regulatory departure, raising such a major question as to justify interpretive methods other than those of a faithful agent of Congress. He previously worked for Goldman Sachs and ran a trading desk for Deutsche Bank in New York. [2] Item 407(c)(2)(vi) of Regulation S-K. (Disclosure required of whether, and if so how, the nominating committee (or the board) considers diversity in identifying nominees for director and if the nominating committee (or board) has a policy with regard to the consideration of diversity in identifying director nominees, describe how the policy is implemented, as well as how the nominating committee (or the board) assess the effectiveness of its policy.), STAY CONNECTED The D.C. Circuits decision, moreover, was premised in part on a representation by the Commission that the Commission would continue to reevaluate the need for such [new disclosure] requirements from time to time. The climate disclosure rule now proposed by the Commission is precisely in keeping with that long-standing commitment by the Commission. Companies either do or do not have property, plant and equipment in flood plains. Equally clear is that any material misstatement or omission in connection with a proxy solicitation is subject to liability under Exchange Act Section 14(a) and Rule 14a-9, under which courts and the Commission have generally applied a negligence standard. It has never been EPAs job. Join Facebook to connect with John Coates and others you may know. Feedback to SSRN. This list contains the names for all officeholders. 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. As detailed above, the proposed rule could not fairly be viewed as embodying climate change policy generally. [11] Any material misstatement or omission in connection with a tender offer is subject to liability under Exchange Act Section 14(e). The information, including financial statements, relevant to evaluating the investment changes dramatically in the de-SPAC because the private target has operations unlike the SPAC; and initial SPAC investors commonly have the right to and do sell or have their shares redeemed. The reason is simple: the public knows nothing about this private company. Aircraft manufacturers essentially have their own specialized program accounting, due to the unusually long and complex capital investment process they follow. Banks and insurance companies are increasingly demanding similar information to make loans or underwrite policies. But the Commissions authorities go further, precisely because Congress recognized that investors need information beyond the moment of initial offer and sale, which are addressed by the 1933 Act. Mar. 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). Such a conclusion should hold regardless of what structure or method it used to do so. Second, in thinking about ESG disclosures, we should not view ourselves as forced into a stark choice between voluntary and mandatory disclosure. However, it is also commonly understood that it is the de-SPAC and not the initial offering by the SPAC that is the transaction in which a private operating company itself goes public, i.e., engages in its initial public offering. Critics of Coates say he has too . 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. If comprehensive, economy-wide disclosure of climate impacts of all types of business is to be required by regulation, doing so will require more than the Commissions authority. Specifically, for the largest companies, the proposed rule would require three types of specific disclosures: Of these, the first and third are inarguably about financial risks and opportunities related to climate change. Indeed, the texts are so clear thatin contrast to the many times the Commission has been challenged on anti-fraud rulemakings, where authority has been interpreted as limited by common law anti-fraud principlesfew attempts have been made to challenge the Commissions use of its basic disclosure authorities to require disclosure. [17] See Division of Corporation Finance, Disclosure Guidance: Topic No. 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. For EPA, those emissions may not be a priority. Many ESG-related issues are similar to ones we have faced before. Going forward, I believe SEC policy on ESG disclosures will need to be both adaptive and innovative. As a result, the rule will minimize costs and maximize benefits of compliance. Liability risk is an important feature of the conventional IPO process. The focus of the actual rule is the impact of climate change on companies, and not vice versa. The proposal is well within the Commissions authority to adopt. . [12] Given this legal landscape, SPAC sponsors and targets should already be hearing from their legal, accounting, and financial advisors that a de-SPAC transaction gives no one a free pass for material misstatements or omissions. Specifically, Section 7 gives the Commission unambiguous authority to specify the contents of disclosure documents used to register securities for sale to the public. . 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. Circuit Court of Appeals in 1979: the Commission has been vested by Congress with broad discretionary powers to promulgate (or not to promulgate) rules requiring disclosure of information beyond that specifically required by statute. EPA, by contrast, focuses on conduct in the United States. But for investors in that company, they reasonably could be, because the transition risks (in the form of higher energy costs or potential need for capital expenditures to mitigate their impacts) could be large for that company, depending on its size, capital, liquidity and financial resources. He observed first-hand the powerful emotions driving traders. To view this content, please continue to their sites. Overturning this rule as unauthorized on that basis would wipe out most of the Commissions disclosure rulebook. That request elicited massive amounts of public input on potential climate-related disclosure, and gave anyone skeptical about the project ample notice that it was on the Commissions agenda, and ample time to adduce evidence against it. If these facts about economic and information substance drive our understanding of what an IPO is, they point toward a conclusion that the PSLRA safe harbor should not be available for any unknown private company introducing itself to the public markets. As stressed by Justice Alito, when he was a Judge on the Third Circuit: Because the materiality standards for Rule 10b-5 [the Commissions primary anti-fraud rule] and SK-303 [an affirmative disclosure requirement for known trends and uncertainties, among other things] differ significantly, the demonstration of a violation of the disclosure requirements of Item 303 does not lead inevitably to the conclusion that such disclosure would be required under Rule 10b-5.. But it is also clear that companies are not doing so consistently, comparably, or reliably. About 1,020 U.S. companies voluntarily disclosed their Scope 3 emissions last year.. John C. Coates, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale Law Journal 882 (2014-2015). What lessons can we learn from earlier examples of evolving risks? My remarks here do not attempt to answer those or the multitude of other questions about ESG disclosures. Finally, even if the major questions doctrine were thought relevant here, the contents of the proposal areas discussed at length above and in Annex Adirectly in keeping with the way that the Commission has functioned since inception. Information should be cost-effective and reliable, and not materially misleading, in every securities transaction. The only limit on companies ability to speak about climate is a long-standing limitnot created by the proposed rulethat they not lie or deceptively omit material information in doing so. And she is right: environmental compliance costs and risks from non-compliance have been required by the basic business description line item in Regulation S-K, which ultimately traces back to Schedule A in the 1933 Act itself, and MD&A and risk factor requirements that would encompass known climate-related risks and uncertainties were first adopted in 1968. It would be unhelpful for multiple standards to apply to the same risks faced by the same companies that happen to raise capital or operate in multiple markets. 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. He is a former Research Fellow in Neuroscience and Finance at the University of Cambridge, and previously traded derivatives for Goldman Sachs and ran a trading desk for Deutsche Bank. Some critics argue that investor demand should not be equated with investor protection, and it is true that the Commission has not (for good reason) attempted to survey investors in setting its own rulemaking agenda. The basics of a typical SPAC are complex, but can be simplified as follows. Evidence that such targets are at least partly serious can be easily compiled from public sources, some cited in the proposing release: A list of massivefar beyond materialbets being won or lost with public investor capital driven by climate risk could be significantly longer without being exhaustive. Does that provide de-SPAC participants with protections in private litigation that are not available in a conventional IPO? The legislative history includes statements that the safe harbor was meant for seasoned issuers with an established track-record.[16]. 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. Exxon Mobil plans to invest $100 billion in carbon capture infrastructure. Important and challenging questions must be addressed, such as: These are questions that the SEC should be a key part of answering. 5, 2021); Priya Cherian Huskins, Why More SPACs Could Lead to More Litigation (and How to Prepare), A.B.A. So, instead, like a cuckoo putting its eggs into anothers nest, critics have resorted to mischaracterizing the proposal, and inventing their own, fictional rulenot actually proposedto attack premise two, and claim the Commission lacks authority for their fictional new rule. Some but far from all practitioners and commentators have claimed that an advantage of SPACs over traditional IPOs is lesser securities law liability exposure for targets and the public company itself. These reports are filed with the Clerk of the House as required by Title I of the Ethics . They will go unresolved by this proposed rule. [7] See, e.g., Chris Bryant, Why Chamath Palihapitiya Loves SPACs So Much, Bloomberg Opinion (January 28, 2021) (citing Haystack, Alignment Summit Chats: SPACS (w/ Chamath Palihapitiya), YouTube (Dec. 2, 2020) (statement of Chamath Palihapitiya) (Because the SPAC is a merger of companies, youre all of a sudden allowed to talk about the future. If a company would benefit from climate-mitigation policies adopted by other agencies, that information would be no less useful to investors than information about transition risk. 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. He chairs the faculty committee on executive education and teaches contracts, corporations, corporate governance and financial regulations. In adopting mandatory risk factor disclosures, for example, which had previously been made by many companies, but not by all; in adopting disclosure requirements for derivative contracts, which many companies had disclosed in detail, but others had not; and in codifying thresholds for disclosure of environmental liabilities, which many companies had been previously disclosing, but not all, or consistently, or reliably. What is the upshot of this? 6LinkedIn 8 Email Updates. Mar. The United States Securities and Exchange Commission has focused increasingly on SPACs in recent months, and is particularly concerned with conflicts of interest that incentivize a SPAC's sponsors, directors, officers, and affiliates to close a de-SPAC transaction even when doing so is not in the best interests of SPAC shareholders, and whether John Coates, the producer of the classic animation film The Snowman, has died of cancer. 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 staff at the Securities and Exchange Commission are continuing to look carefully at filings and disclosures by SPACs and their private targets," John Coates, the SEC's acting director of corporate finance, said in an April 8 statement . 2020) (breach of duty of candor due to failure to disclose conflict of interest in merger); Chester County Emp.s Ret. Where and how can disclosures be aligned with information companies already use to make decisions. About Us| It would not itself force any company to shut down greenhouse-gas-emitting factories. Our Compliance bundles are curated by CLE Counselors and include current legal topics and challenges within the industry. The 1933 Act does not limit additional disclosures to those that are related or similar to the items in Schedule A, or material, or financial, despite the fact that Congress frequently used those very qualifiers elsewhere in the statute. LexisNexis and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information. At the time, companies were thought by some to be reluctant to provide forward-looking information at least in part due to the prevalence of so-called strike suits which, irrespective of the merits of the claim, were usually less costly to settle than to fight in court. If the public wants comprehensive disclosures of climate impact that extend beyond impacts on investors, legal authorities other than those used here may need to be usedperhaps by other agencies or Congress itself. John Coates has few regrets on his way out the AOC door Even as he steps down from 32 years in the top job, the knowledge and contacts of Australia's Olympic supremo will be tapped for years to. 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. If that risk drives choices about what information to present and how, it should not in my view be different in the de-SPAC process without clear and compelling reasons for and limits and conditions on any such difference. The institutions included both passive index funds and actively managed funds, as well as pension funds and other kinds of institutions. These investors included individuals and institutions. However, many legal questions have clear answers. First, the 1933 Act itself required disclosure not only of specified financial items, but also qualitative, open-ended information, such as the general character of the companys business, compensation, and material contracts, and reinforced its breadth by referring not only to opinions of accountants and appraisers but also engineers and other professionals, such as lawyers oras under the present proposalexperts on greenhouse gas accounting. How much standardization can be achieved across industries? 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. Letter to the Stakeholders of the Olympic Movement - Olympic News 2 years ago | By John Coates | Olympics.com 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. For example, the Commission could use the rulemaking process to reconsider and recalibrate the applicable definitions, or the staff could provide guidance explaining its views on how or if at all the PSLRA safe harbor should apply to de-SPACs. Women, Influence & Power in Law UK Awards honors women lawyers who have made a remarkable difference in the legal profession. Finally, a coordinated global disclosure system has great potential benefits, but achieving one will take careful attention to institutional design. [15] The PSLRAs exclusion for blank check companies overlaps the exclusion for penny stock issuers. But beyond academic research, hardest for any neutral observer to challenge as evidence of the financial risks related to climateand the reasonableness of climate-related financial disclosures to protect investorscomes from public companies themselves. Funding, governance and public accountability are all critical elements of a reliable, trusted disclosure system. Despite all of this, it may still be thought that the PSLRA offers something for SPACs not available to conventional IPOs. Professor of Law and Economics at Harvard Law School. Second, forward-looking information can of course be valuable. The safe harbor was intended to provide a defense against such suits and provide grounds for summary dismissal. Each attorney is granted unlimited access to high quality, on-demand premium content from well-respected faculty in the legal industry along with administrative access to easily manage CLE for the entire team. Laws against fraud have always been consistent with the First Amendment. Getting The Talent Balance Right: From Layoffs to Laterals to Mergers, How Can Firms Staff for Success? He joined his billionaire sister and co-CEO, Denise, in 2001 to launch Bet365 after she . John Coates Coates has served as the SEC's Acting Director of the Division of Corporation Finance since February 2021.
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