Publication Date
4-7-2023
Document Type
Article
Organizational Units
Sturm College of Law
Keywords
Securities law, Corporate law, SEC, Climate change, ESG, Legal ethics
Abstract
Regulation of Environmental and Social Governance (ESG) disclosure is necessary to ensure investors receive the information they want to have. Fortunately, the Securities and Exchange Commission (SEC) is considering adopting ESG rules. Unfortunately, such rules, if adopted, are likely to be ineffective. New ESG disclosure rules are going to fail for the same reason periodic disclosure rules have been ineffective: managers of publicly-traded companies systematically escape liability for failure to disclose material information to investors. Management escapes liability by pressuring securities lawyers to erroneously advise the companies that material information need not be disclosed, only to then turn around and rely on the lawyers’ erroneous advice to justify nondisclosure. Securities lawyers, in turn, escape accountability for their erroneous advice because they face antiquated and underenforced disciplinary rules. Consequently, the enabling role of corporate counsel in management misstatements of material information results in a chilling disclosure problem. The Article starts by documenting the ubiquitous role securities lawyers play in the disclosure process and shows how lawyers’ involvement leads to nondisclosure, which systematically benefits management and harms the public. Next, the Article establishes that the rules of professional conduct are antiquated and poorly fit the practice realities of securities lawyers and that the existing rules are underenforced by state disciplinary agencies ill-equipped to regulate the national securities practice. It also shows why other regulatory tools, such as the threat of civil liability and market controls, do not prevent lawyers’ erroneous nondisclosure advice. Finally, the Article calls on the SEC to solve the chilling disclosure problem by promulgating and enforcing appropriate rules, spelled out in the Article, to ensure disclosure of periodic and ESG material information to the investing public. Importantly, the Article develops a workable solution to address the failure of periodic disclosure and avoid ESG nondisclosure, without getting bogged down in the hired gun versus gatekeeper discourse that has dominated the literature for a while. Proponents of the hired gun ideology of corporate law practice argue that lawyers ought to defer to management unless they know the conduct to be criminal or fraudulent. Critics, vocal especially following expensive corporate scandals, assert that lawyers should act as gatekeepers and dissuade clients from wrongdoing. This Article points out that when it comes to fixing the chilling disclosure problem, theoretical disagreements about the Should – what lawyers should do – can be left for another day. Instead, the Article focuses on the Is – what lawyers actually do. Securities lawyers give advice about compliance with the law and because they face pressure from management to give erroneous advice but no consequences for doing so, they systematically advise nondisclosure. The SEC must promulgate and enforce rules that prevent securities lawyers from giving erroneous nondisclosure advice to ensure companies comply with mandatory disclosure of periodic and ESG material information.
Publication Statement
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Originally published as J. Robert Brown, Jr. & Eli Wald, Chilling Climate Change Disclosure: The Enabling Role of Corporate Counsel in Management Misstatements of ESG Matters, 72 DePaul L. Rev. 585 (2023).
Recommended Citation
J. Robert Brown, Jr. & Eli Wald, Chilling Climate Change Disclosure: The Enabling Role of Corporate Counsel in Management Misstatements of ESG Matters, 72 DePaul L. Rev. 585 (2023).