A Bridge Too Near: Response to How Cheap Is Corporate Talk?

• Date: 01 August 2017

8-2017 NEWS & ANALYSIS 47 ELR 10691

C O M M E N T

A Bridge Too Near: Response to

How Cheap Is Corporate Talk?

by Jerey A. Smith

Jerey Smith is an Adjunct Professor at Fordham Law School, a co-director of the Fordham

Law School Sustainability Initiative, and a retired partner at Cravath, Swaine & Moore LLP.

Prof. James Coleman has a keen eye, and he has con-

structed a usef ul methodology to take full advan-

tage of a rare opportunity to parse “corporate talk,”

assessing the so-called “two audience” problem in a way

not previously achieved by others. Circumstances served

up a laboratory, and Professor Coleman has created what

likely will prove to be a benchmark study.

His immediate topic—the ongoing implementation

of the Renewable Fuels Standard (RFS)—is unique raw

material, because it sits at the crowded crossroads of the

RFS approval process where several powerful forces meet

on a regular basis. Each year brings a new set of regulatory

implementation challenges and industry comment on those

challenges. Each year the same companies also le their

10-K reports, in which they address the material aspects of

the same issues for the capital marketplace. e net result is

a matrix of assertions, over time, by highly interested par-

ties in two very dierent contexts and intended, nominally,

for two very dierent audiences. ey can be compared

at all points of the compass with statements made by the

same company at a dierent time and, most revealingly,

with statements made for a dierent audience and in a dif-

ferent regulatory context.

Professor Coleman’s language coding methodology,

which tracks both stated nuances and dierences in

emphasis, allows him to record a unique level of resolution

regarding the det ails of such corporate communicat ion. It

is at this point, however, that “Cheap Talk,” by illuminat-

ing the entrenched challenges of the past, indirectly poses

but does not answer the growing challenges of the future

in corporate communication on complex environmental

regulatory issues.

Professor Coleman is, of course, keenly aware that he

neither invented nor discovered the “dual audience” issue.1

Twenty-ve years ago, for example, in a case not cited by

Professor Coleman, International Paper was called to task

not for cheap talk, but for “corporate happy-talk” in a deci-

1. See James W. Coleman, How Chea p Is Corporate Talk? Comparing Compa-

nies’ Comments on Regulations With eir Secu rities Disclosures, 40 H.

E. L. R. 47, 49–53 nn.4–8 (2016) (citing extensive historical and

ongoing scholarship).

sion that analyzed the adequacy of the company’s state-

ments about its environmental performance in the proxy

statement context, which has since become a prominent

battleground.2 Today, many companies are at risk of being

in the same basic position as International Paper; telling

their own story in environmental reports, website post-

ings and through other media in a manner that contrasts

sharply, in substance and tone, with the story they tell

investors in their mandatory lings or in opposing their

proposals.3 is is a dual audience problem at its base, but

splintered to multiple audiences in multiple media.

At issue in the International Paper case was a shareholder

resolution calling on the company to implement the Valdez

Principles and to cooperate with shareholders and the pub-

lic in matters of “public environmental accountability.”4

International Paper distributed a proxy statement opposing

the resolution, asserting that: the company had addressed

environmental matters “in an appropriate and timely man-

ner” and was in the “forefront” of industry; the Valdez

Principles were not applicable to the company’s operations,

would not provide “any greater protection than now exists”

and could impose unjustiable costs on shareholders; the

company had already adopted comprehensive industry-

specic principles on environmental matters and had

invested heavily in pollution control equipment; a commit-

tee of the Board of Directors had been established to advise

the Board broadly on the company’s diverse environmental

programs and policies.5

e shareholder group alleged that t he proxy statement

included misleading statements and omitted material facts

in violation of Section 14(a) of the Securities Exchange Act

and Rule 14a-9, and relied on statements made in the com-

pany’s 10-K, which revea led that the company had been

accused of numerous environmental oenses, had pled

guilty to felonies, had agreed to pay substantia l nes, and

2. See United Paperworkers International Union v. International Paper Co.,

985 F.2d 1190 (2d Cir. 1993) [hereinafter International Paper II].

3. For example, over 60% of shareholder resolutions for Fortune 500 compa-

nies in 2015 concerned environmental, social policy, or sustainability issues.

4. International Paper II at 1193.

5. United Paperworkers International Union v. International Paper Co., 801 F.

Supp. 1134, 1137 (S.D.N.Y. 1992) [hereinafter International Paper I].

Copyright © 2017 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.