How Cheap Is Corporate Talk? Comparing Companies' Comments on Regulations With Their Securities Disclosures
| Date | 01 August 2017 |
| Author |
8-2017 NEWS & ANALYSIS 47 ELR 10681
A R T I C L E
How Cheap Is Corporate
Talk? Comparing Companies’
Comments on Regulations With
Their Securities Disclosures
by James W. Coleman
James Coleman is Assistant Professor at the Southern Methodist University Dedman School of Law.
“[T]his bill could prevent continued production of auto-
mobiles . . . [and] is a threat to the entire A merican econ-
omy and to every person in America.”
—Lee Iacocca, president , Ford Motor Company,
on the Clean Air Act of 19701
“e automobile industry has survived and grown even in
countries where government policies have made the cost of
car ownership several times higher tha n it is in the United
States. We have no doubt that our industry will continue
to grow, because people ever ywhere plac e a high value
on the individual mobility and on the freedom that thi s
mobility makes possible.”
—Lee Iacocca, president , and Henry Ford II, chairman ,
Ford Motor Company, Annual Report 19702
I. Introduction
When a publ ic c ompany describe s t he imp act of a
proposed regulation it mu st consider two audiences:
regul ators and i nvestors. It would like to c onvince the
regul ator to avoid burdensome regulations by emphasi z-
ing how stri ngent regulations could cause job lo sses or
1. Women’s Surage and Other Visions of Right-Wing Apocalypse, T N
R, Dec. 21, 2009, http://www.newrepublic.com/article/womens-
surage-and-other-visions-right-wing-apocalypse (alterations in original);
H B, A’ E R C: A W M-
G 221 (2004).
2. F M C, A R 1970 3 (Mar. 10, 1971).
reduce inve stment. But it may wish to convince investors
that the company will thrive in the face of any plau-
sible regulatory outcome . ese conicting inc entives
may lead to inconsistent messages and fuel a perce ption
that industry submission s to regu lators and investors are
often “che ap talk.”
Despite the common perception that corporations exag-
gerate the economic impact of regulation, a nd anecdotal
reports of inconsistencies between comments to regulators
and reports to investors, to date t here has been no empiri-
cal study of congruence between submissions to regula-
tors and shareholder letters. is project performs such
a study, comparing comments submitted on the United
States Environmental Protection Agency’s Renewable Fuel
Standard ru lemakings between 2009 and 2013 with con-
temporaneous annual statements from t he same compa-
nies describing their exposure to regulatory risk.
e study empirically demonstrates that oil compa-
nies facing costly regulations t ailor their messa ges to each
audience—emphasizing the cost and economic danger
of regulat ion to reg ulators while telling shareholders that
regulation is merely a cost of doing business with few nega-
tive impacts. On the other hand, corporations anticipating
benecial regulations—the ethanol companies planning
on mandates for their product—present a more consistent
and cautiously optimistic forecast in both fora.
ese ndings suggest that environmental regulators
should monitor corporate securities disclosures to ensure
that they are given a n accurate pictu re of the true regula-
tory risk they may be imposing on companies. It also sug-
gests that the Securities and Exchange Commission and
private plaintis should scrutinize company comments
to determ ine what regulatory risks companies are point-
ing out to regulators without disclosing them to investors.
Finally, it suggests that corporate counsel should align
these two sets of statements to protect public companies
is Article is adapted from James W. Coleman, How Cheap Is
Corporate Talk? Comparing Companies’ Comments on Regulations
With eir Securities Disclosures, 40 H. E. L. R. 47
(2016), and is reprinted with permission. Copyright in the Harvard
Environmental Law Review is held by the President and Fellows of
Harvard College, and copyright in the Article is held by the author.
Copyright © 2017 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.
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