Is Now the Right Time to Mandate Costly Climate Disclosure?

In August 2021, the United Nations Intergovernmental Panel on Climate Change (“IPCC”) found that “unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to [the Paris Agreement’s goal of] 1.5°C or even 2°C [by 2050] will be beyond reach.”[1]  The IPCC’s conclusions, among others, prompted President Biden’s government-wide mandate to advance climate policy, as articulated in a series of executive orders.[2]

The Securities and Exchange Commission (“SEC”) responded with gusto, hiring its first-ever Senior Policy Advisor for Climate and ESG,[3] directing the SEC’s Division of Corporation Finance to enhance its … Read more

Cutting Disclosure Frequency Is the Wrong Solution to the Wrong Problem

President Trump has directed the Securities and Exchange Commission to study whether a public company’s reporting requirements should shift from a quarterly to semi-annual schedule.  Doing so, according to the president, “would make business (jobs) even better in the U.S.” and “allow greater flexibility & save money.”

The president’s views fit within the larger debate over whether public companies focus too much on short-term results.  There can be little harm (or dissension) in studying the current reporting require­ments.  In fact, this may be one of those rare cases when Democrats and Republicans agree.[1]  Nevertheless, specifically directing the SEC to … Read more

Commercial Bank Regulation and the Investment Banks

The conventional story around the Gramm-Leach-Bliley Act is that it was the final blow in bringing down the Glass-Steagall Act wall that separated commercial and investment banking in 1999, increasing risky business activities by commercial banks and inadvertently precipitating the 2007 financial crisis.  But the conventional story is only one-half complete.  What it omits is the effect of change in commercial bank regulation on investment banks.  After all, it was the failure of Lehman Brothers—an investment bank, not a commercial bank—that sparked the meltdown.

My recent article, Size Matters: Commercial Banks and the Capital Markets, fills in the rest … Read more

The Nonprime Mortgage Crisis: Willful Blindness and Positive Feedback Lending

The Wall Street Journal recently reported that federal prosecutors are pursuing criminal cases against bank executives for allegedly selling flawed mortgage securities. The crux of the cases? That the bankers ignored warnings they were packaging too many shaky mortgages into invest­ment securities and failed to disclose the risks to others. The result, they claim, was fraud.

In a recent paper, The Nonprime Mortgage Crisis and Positive Feedback Lending, we collected evidence that the risk of a nonprime housing bubble (not the certainty, but a meaningful risk) should have been obvious to the originators, securi­tizers, rating agencies, money managers, and … Read more

Regulating Bank Executive Pay—Addressing the Wrong Problem in the Wrong Way

The following post comes to us from Charles K. Whitehead, Professor of Law at Cornell Law School, and is based on his recent paper, “Paying for Risk: Bankers, Compensation, and Competition,” which is co-authored by Simone M. Sepe, Associate Professor of Law and Finance, University of Arizona James E. Rogers College of Law.  The full paper is available here.

The financial markets have transformed in the last four decades.  Greater competition among banks and non-banks across traditional business lines has benefited consumers.  But at what expense?

In Paying for Risk:  Bankers, Compensation, and Competition, my co-author, Simone Sepe, … Read more

The Value of Lawyer-Directors in Public Corporations

The accepted wis­dom is that a lawyer who repre­sents herself—by acting as both a lawyer and a director—has a fool for a client.  In our working paper, Lawyers and Fools: Lawyer-Directors in Public Corporations, my co-authors, Lubomir Litov and Simone Sepe, and I explain why the accepted wisdom is outdated.  The benefits of lawyer-directors in today’s world signifi­cantly outweigh the costs.  Beyond monitoring, they help manage litigation and regulation, as well as structure compen­sa­tion to align CEO and shareholder interests.  On average, a lawyer-director increases firm value by 9.5 percent, and when the lawyer is also a company executive, … Read more

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Editor's Tweet: Professor Charles K. Whitehead of Cornell Law discusses the value of lawyer-directors in public corporations