More Walk, Less Talk: Comment on How Cheap Is Corporate Talk?

• Date: 01 August 2017

8-2017 NEWS & ANALYSIS 47 ELR 10689

C O M M E N T

More Walk, Less Talk: Comment

on How Cheap Is Corporate Talk?

by Alan Horowitz

Alan Horowitz is the former Vice President of Global Safety, Health & Environment

at AstraZeneca Pharmaceuticals.

Life in a public company can, at times, feel schizo-

phrenic. Capital investments compete with cash ow

targets; stretch performance goals compete with per-

sonal development and wellness initiatives; and short-term

protability expectations compete with long-term value

creation opportunities. Perhaps not surprisingly, these ten-

sions often manifest into wicked challenges and, at times,

contradictions: Ambitious public nancial, social, and

environmental targets belie the nervousness and uncer-

tainty that dominate board room discussions. A CEO’s

morning email to sta sounds curiously dierent from the

answer to an analyst’s “dicult” question during a quar-

terly earnings ca ll. A nd yes, company statements in SEC

10-K lings about t he potential implications of emerging

public policy developments can sound quite dierent than

contemporaneous comments on proposed rulemak ing.

Surprising? No. Resolvable? Perhaps.

James Coleman’s illumination of one specic mani-

festation of this corporate dilemma—the “two audience

problem”—is timely and important. Using the notice and

comment process behind the Renewable Fuel Standard

as his data source, Coleman observes that public compa-

nies c an on the one hand raise erce objection and even

doomsday-like concerns during the rulemaking process yet

remain sanguine in the context of SEC securities lings.

Similarly, companies may convert a rule with modest—

and even uncertain—upsides into compelling statements

of long-term opportunity for investors. His conclusion,

using carefully coded d ata comparing ru lemaking com-

ments with contemporaneous SEC documents, is that the

truth is at best ha rd to discern and at worst, masked by

“cheap talk” and even bad faith.

Yet, what Coleman exposes is more a manifestation

of organizational complexity and conict tha n rampant

misdirection or duplicity. In fact, instead of relying exclu-

sively on the presence of inconsistency between SEC lings

and rulemaking submissions to gauge the credibility and

trustworthiness of public companies, we should look more

deeply into the way a company recognizes, navigates, and

reconciles these natural organizational tensions. Reputable

companies make decisions in a transparent and principled

manner, informed by the entity’s core purpose, values, and

long-term strateg y. ey are g uided by authentic leaders

who acknowledge complexity and reduce it to its simplest

forms. ey are governed by formal structures and informal

networks that tackle these issues openly and constructively.

And they recognize that their ability to create long-term

value will be dictated by the company’s willingness to bal-

ance and reconcile business growth opportunities with the

needs of society and the limitations of our planet. Simply

put, legitimate questions arise when these internal business

management conicts spill into the public domain, and

it is incumbent upon companies who want to eectively

engage in the policymak ing process to resolve the sources

of these discrepancies.

In a very recent study that in some ways parallels Cole-

man’s work, the World Business Council for Sustainable

Development (WBCSD) examines the frequent discon-

nect between company sustainability reports and risk state-

ments in their Annual Reports.1 WBCSD identies several

factors behind what it ca lls the “breakdown” in sustain-

ability risk management, including: limited knowledge of

sustainability risks within companies, longer time horizons

for sustainability risks, and diering purposes for sustain-

ability compared to risk disclosures. Some of these chal-

lenges or hurdles can be extrapolated to the “two audience”

problem exposed by Coleman and could oer a roadmap

for mitigation, if not resolution.

(1) e Organization Hurdle: Much of the complex-

ity that is found in large public companies is associated

with t heir size, their organizational structures and, to be

sure, the big, and often competing, personalities, perspec-

tives, and ambitions of their people. For example, Envi-

ronmental, Health & Safety technical professionals tasked

with evaluating the costs and benets of proposed rules

are disconnected from the Corporate Secretary a nd Inves-

tor Relations teams. Lawyers drafting the comments do

not coordinate their work with their colleagues in the

1. W B C  S D, S-

  E R M: T F S T

I (2017), available at http://www.wbcsd.org/Projects/Non-

nancial-Measurement-and-Valuation/Resources/Sustainability-and-enter-

prise-risk-management-e-rst-step-towards-integration.

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