Thursday, December 19, 2013
Changing Corporate Law to Make Companies More Sustainable- Perspectives from governments, academics and practitioners
On December 5th and 6th I attended and presented at the third annual Sustainable Companies Project Conference at the University of Oslo. The project, led by Beate Sjafjell began in 2010 and attempts to seek concrete solutions to the following problem:
Taking companies’ substantial contributions to climate change as a given fact, companies have to be addressed more effectively when designing strategies to mitigate climate change. A fundamental assumption is that traditional external regulation of companies, e.g. through environmental law, is not sufficient. Our hypothesis is that environmental sustainability in the operation of companies cannot be effectively achieved unless the objective is properly integrated into company law and thereby into the internal workings of the company.
Members of the Norwegian government, the European Commission, the Organisation for Economic Cooperation and Development (“OECD”), and the United Nations Environmental Programme (UNEP) Finance Initiative also presented with academics and practitioners from the US, Europe, Asia and Africa.
I did not participate in the first two conferences, but was privileged this year to present my paper entitled “Climate Change and Company Law in the United States: Using Procurement, Pay and Policy Changes to Influence Corporate Behavior.” The program and videos of the entire conference (click on the link of the panel discussions) are here. I presented last and my paper, with the others, will appear in a special edition of the Journal of European Company Law in 2014.
Professors David Millon and Celia Taylor rounded out the US delegation. Millon, who I learned first coined the phrase “shareholder primacy,” proposed a constituency statute for Delaware, but acknowledged that his proposal (even if it were passed) might not have much impact because of the twin influence of inventive-based compensation for executives and the role of institutional investors, who also seek short-term profit maximization. Taylor discussed the SEC Guidance on climate change disclosures recommending that they be made mandatory, but cautioned against disclosure overload and potential greenwashing.
Others provided insight on shareholder primacy and board duties from the UK, Norway, and Indonesia, and Tineke Lambooy presented the results of a meta study regarding boards and sustainability. Gail Henderson, from Canada, used the concept of "undue hardship" in human rights law to propose a new burden to reduce environmental impacts. Mark Taylor, who was one of the many attendees who like me came straight from the UN Forum on Business and Human Rights, explained due diligence provisions in EU member state laws and argued that due diligence is emerging as a standard for compliant businesses. Carol Liao discussed "catalytic innovation" and hybrid entities. Her blog about the conference is here.
A number of presenters focused on: auditing; integrated reporting; insurance, bankruptcy, contract, and insolvency law; and the role of sustainable investors (there are 50 sustainable stock indices), particularly large sovereign pension funds. One of the more interesting proposals came from Ivo Mulder of UNEP, who is conducting a study on a sovereign credit risk model. Sovereign bond markets represent 40% of global bond markets but there is no integration of environmental, social or governance factors even though risk mitigation is a key factor in fixed-income investing. He called for a new way of thinking about how bond securities are valued in primary and secondary markets.
Perhaps one of the most innovative proposals came from Endre Stavang, who suggested an “environmental option.” Specifically he and his co-author recommend enacting legislation that will empower certain green companies to transfer a call option to buy a block of its shares to an established company of their choice. He stressed that the option is free and that the exercise price would be the price of the green company’s share at the time of the transfer. The non-green receiving company would have a period of five years to exercise.
The abstracts from all of the presenters are available here. It was an intense two days of creative presentations, but hopefully these kinds of substantive public policy discussions, which include government, intergovernmental organizations, stakeholders and academics will have an impact. It’s the reason I joined academia.
Happy Holidays to all, and to my new Norweigian colleagues, Gledelig høytid.
December 19, 2013 in Business Associations, Corporate Governance, Corporations, Current Affairs, Ethics, Financial Markets, Marcia L. Narine, Science, Securities Regulation, Social Enterprise | Permalink | Comments (0)
Tuesday, October 29, 2013
Last week, I posted a response to the New York Times article criticizing law reviews. A friend pointed me to a cover story from the Economist, How science goes wrong: Scientific research has changed the world. Now it needs to change itself. It's an interesting read. This paragraph jumped out at me:
In order to safeguard their exclusivity, the leading journals impose high rejection rates: in excess of 90% of submitted manuscripts. The most striking findings have the greatest chance of making it onto the page. Little wonder that one in three researchers knows of a colleague who has pepped up a paper by, say, excluding inconvenient data from results “based on a gut feeling”. And as more research teams around the world work on a problem, the odds shorten that at least one will fall prey to an honest confusion between the sweet signal of a genuine discovery and a freak of the statistical noise. Such spurious correlations are often recorded in journals eager for startling papers. If they touch on drinking wine, going senile or letting children play video games, they may well command the front pages of newspapers, too.
The article also calls for more acceptance of what it calls "humdrum" or "uninteresting" work that confirms or replicates other trials, a long-standing practice underappreciated by both journals and those who award grants.
Not all is lost. One interesting suggestion: "Peer review should be tightened—or perhaps dispensed with altogether, in favour of post-publication evaluation in the form of appended comments." The article notes that the areas of physics and mathematics have made progress using the latter method.
We do have some versions of the post-publication evaluation in the law review world, often published as responses to the work of others, or articles that build upon such work. Over at The Conglomerate the post, Bebchuk v. Lipton on Corporate Activism, provides a good example of two papers take opposite views, with David Zaring's post itself serving the role of post-publication evaluator (on a small, but I think important, scale):
Some of the studies cited are quite old, and not all of the journals are top-drawer. But others seem quite on point. Perhaps the disputants will next be able to identify some empirical propositions with which they agree, and others with which they do not (other than, you know, sample selection).
Many blogs do this (including, sometimes, the Business Law Prof Blog), and I think it is a important role. Perhaps it is one the should be more formalized so that the value of such commentary can be more clearly recognized as part of the scholarly realm. For example, perhaps law reviews and other journals should consider publishing updates, major citiations, or critiques from various sources made about articles the review/journal has previously published.
There are many ideas out there, and we should keep looking for ways to keep developing useful scholarship. And by useful, I mean complete, thoughtful, and careful work, including what some people might consider "not novel," if not "humdrum" or "uninteresting." We don’t always need the legal equivalent of studies about drinking wine and letting kids play video games, not that there's anything wrong with either of those things.