Disclosure\u27s Purpose

The United States securities regulatory infrastructure requires disclosure of a wide array of information both by and about covered companies. The basic purpose of the disclosures is to level the playing field – for investors, for issuers, and for the public. Although investor protection is the disclosure goal often touted, this article develops the purposes of disclosure extending beyond investors to issuers and the public. Indeed, the disclosure system is designed to level the playing field for issuers— addressing confidentiality concerns, for example. In addition, the system helps to promote confidence in the markets, which, in turn, enables growth and innovation by creating access to capital – goals important to issuers. Yet, as importantly, the system also protects the public more broadly. After all, the harms of market crashes and other disruptions are not confined to investors and issuers – despite the fact that writing in this space focuses largely on them. Disclosure’s purpose, then, is to diminish asymmetries and the space for fraud, both for those within the entity and for the public affected by the entity. To achieve these purposes, the system depends on gatekeepers, like corporate directors who are assigned a role in effectively managing the purpose and consequences of disclosure. Doing so requires them take ownership of both the ensuing internal discourse between the entity, its insiders, and its owners, as well as the external discourse with the entity’s public stakeholders and the public more generally. When directors do so, the resulting discourse and candor helps to ensure the purposes of disclosure are met. This article examines the purpose and regulation of this discourse, emphasizing the role of the board of directors and its attention to public stakeholders and the public, with a particular focus on omissions. The article proceeds as follows. Part I explores the purposes of disclosure in corporate discourse and how disclosure requirements are designed to transmit information. As we will see, the securities disclosure regime aims to address a broad range of issues -- from fairness to market competitiveness. Part II develops the omissions theory in the context of the purposes of disclosure, as well as explicating their role in corporate discourse. Part III turns to the board and its responsibilities with respect to the purposes of securities disclosures and corporate discourse, with a particular emphasis on omissions and candor, and deployng some case studies to develop the theories further. Part IV analyzes the relationship between directors, disclosure (and its purpose) and omissions, and publicness, tying the information-forcing-substance theory to director gatekeeping and explicating how it can result in more thorough disclosure outcomes for investors, issuers, and the public – and thereby, fulfill disclosure’s purpose

The Corporate Purpose of Social License

This Article deploys the sociological theory of social license, or the acceptance of a business or organization by the relevant communities and stakeholders, in the context of the board of directors and corporate governance. Corporations are generally treated as “private” actors and thus are regulated by “private” corporate law. This construct allows for considerable latitude. Corporate actors are not, however, solely “private.” They are the beneficiaries of economic and political power, and the decisions they make have impacts that extend well beyond the boundaries of the entities they represent. Using Wells Fargo and Uber as case studies, this Article explores how the failure to account for the public nature of corporate actions, regardless of whether a “legal” license exists, can result in the loss of “social” license. This loss occurs through publicness, which is the interplay between inside corporate governance players and outside actors who report on, recapitulate, reframe and, in some cases, control the company’s information and public perception. The theory of social license is that businesses and other entities exist with permission from the communities in which they are located, as well as permission from the greater community and outside stakeholders. In this sense, businesses are social, not just economic, institutions and, thus, they are subject to public accountability and, at times, public control. Social license derives not from legally granted permission, but instead from the development of legitimacy, credibility, and trust within the relevant communities and stakeholders. It can prevent demonstrations, boycotts, shutdowns, negative publicity, and the increases in regulation that are a hallmark of publicness — but social license must be earned with consistent trustworthy behavior. Thus, social license is bilateral, not unilateral, and should be part of corporate strategy and a tool for risk management and managing publicness more generally. By focusing on and deploying social license and publicness in the context of board decision-making, this Article adds to the discussions in the literature from other disciplines, such as the economic theory on reputational capital, and provides boards with a set of standards with which to engage and address the publicness of the companies they represent. Discussing, weighing, and developing social license is not just in the zone of what boards can do, but is something they should do, making it a part of strategic, proactive cost-benefit decision-making. Indeed, the failure to do so can have dramatic business consequences

Gatekeepers, Disclosure, and Issuer Choice

Disclose, disclose, disclose. Disclose or abstain, disclose or no registration, disclose or be subject to litigation. The securities laws and regulations are full of talk about disclosure that is often mandated by specific regulations detailing what type and amount of disclosure is necessary or mandated by case law making it unacceptable for company officials to tell part, but not all, of the story

Heightened Pleading and Discovery Stays: An Analysis of the Effect of the PSLRA\u27s Internal-Information Standard on \u2733 and \u2734 Act Claims

This Article presents a new model for analyzing securities-fraud claims

Disappearing Without a Trace: Sections 11 and 12(a)(2) of the 1933 Securities Act

The judicially created tracing requirement thwarts the remedial sections of the 1933 Securities Act (the Securities Act ) by requiring shareholders to prove the impossible—that their securities were actually issued in the questioned offering. Since 1967, courts addressing this issue have, without question, adopted a requirement for section 11 that plaintiff-shareholders trace their shares to the offering. Recently, courts have expanded it to apply to section 12(a)(2) as well. For any but the first purchases of a share of stock, this requirement has always been virtually impossible to meet. Courts have also used the 1995 opinion in Gustafson v. Alloyd Co. to eliminate even the possibility of tracing, thereby further eroding shareholders\u27 access to sections 11 and 12(a)(2). Now, many securityholders cannot sue under either section. This Article examines sections 11 and 12(a)(2) and the cases interpreting them. The analysis shows that tracing is almost impossible whenever a company has made more than one offering of securities of a particular type, and as a result, few, if any, shareholders can successfully sue under sections 11 and 12(a)(2) even though the Securities Act arguably provides them with a remedy. This development of the tracing requirement has the potential to defeat the statute\u27s purpose of promoting full and accurate disclosures in public-offering documents through strong deterrence measures. To resolve the problem, the Article argues that the courts should apply the relaxed rules of causation now employed in the toxic-tort context for indeterminate plaintiffs. Increasingly, courts have allowed these indeterminate plaintiffs to use group-derived statistical evidence to meet their buden ofproof. In the securities context, instead of requiring shareholders to prove the impossible, courts should allow them to sustain their burden by employing the best available evidence and proving that it is more likely than not that their securities were issued in the questioned offering. In doing so, courts can both limit the statute\u27s reach and fulfill Congress\u27s purpose in adopting it

Monitoring Facebook

Few companies still in business have a track record as negative as Facebook. Facebook has paid billions of dollars in government fines and paid hundreds of millions in private settlements. Yet, the financial penalties are minimal relative to the actual harm done. Facebook has been involved one way or another in privacy breaches, organized crime, election manipulation, suicide, and even genocide. Mark Zuckerberg, who still controls Facebook, appears to ignore the consequences of his choices, consistently prioritizing profits over people. He disregards the law and operates without integrity or honesty, excommunicating insiders who speak out or challenge him. The evidence is overwhelming; the damage is incalculable. This article explores Facebook’s corporate governance and scandals, concluding that the governance is irreparably flawed. As the article documents, despite repeated scandals, apologies, and fines, Facebook’s board has been unable or unwilling to break the cycle of bad decisions. Facebook’s board members should provide the candor and creative friction to self- regulate the company and ensure legal compliance; they do not. Accordingly, this article proposes an outside-monitoring model that would provide appropriate friction and counterbalance the otherwise weak governance at the company. Using other monitoring programs as examples, the article explores the mechanisms that are key to effective monitoring. As the article reveals, corporate monitors have the capacity to reduce recidivism and improve corporate culture over the long term. They do this through independence, oversight, disclosure and transparency, engaging with the public and contributing to the development of the company’s social license. Of course, monitors are not a solution for every company, but when the governance flaws are as sustained and systemic as those at Facebook, additional outside governance is appropriate and, arguably, even necessary