Labrador (US)

New to SEC Disclosure? Be Prepared to Be Overwhelmed https://lnkd.in/eUwZ2qNb

Digging further into Laurent Rouyrès’ book entitled “Information Wants to be Free: From Moral Transparency to the Transparency of Publicly Listed Companies” (see our blog about the need for trust), this blog gets into the challenges of defining what “transparency” means. In his chapter entitled “The Big Bad Word,” Laurent notes: “It is true that transparency is still a fuzzy notion ? which is unfortunately ironic. Inspired by optics, the metaphor of transparency is commonly used today in the political and economic spheres. The price of success: the meaning of the word “transparency,” outside its original domain, is in the making. Multidisciplinary, transparency does not have a universal definition. And its definitions are at best not very clear or are, at worst, tautological. We totally understand any confusion or hesitancy to embrace the concept. When we were first approached about taking on the mantle of a “transparency champion,” we spent a few weeks pondering and digging into what it was all about. We had to educate ourselves as it was not readily apparent from its face. After all, isn’t disclosure transparency by definition? You’re disclosing, right? And the answer to that is “Sure, it is for some purposes.” But they are not the same thing when you consider what our definition for #transparency is in the corporate disclosure context. There’s a lot more to it. #corpgov https://lnkd.in/endxwVVz

Should Transparent Disclosure Be “Engaging”? This is an interesting question because the definition of “transparent” in the context of corporate communications to investors can indeed be a little complex. Is “engaging” part of that definition? Probably if a company wants an investor to act a certain way (either buy more shares or at least maintain their equity position in a company; or vote a certain way for a shareholders meeting). Here's what Broc says: I have to admit that I don’t recall any training for disclosure lawyers to make their content engaging. But this article – “What Holds Attention? Linguistic Drivers of Engagement” – makes it clear what marketing people have known for a long time. After an experiment with 600,000 reading sessions drawing from over 35,000 pieces of content, they found that what works best for readers is processing ease (e.g., concrete or familiar words) and emotion. “Processing ease” is all about plain language and making it easy for people to understand what you’re saying. To be honest, I’m far from being a brilliant writer – but I’ve found that people generally like what I write because I keep it fairly straightforward. As disclosure drafters, I think that approach keeps investors happy. This is where proxy design can play a role too. Using charts, graphics and other elements, companies can more easily tell a story rather than multiple paragraphs of straight text. But when it comes to writing with emotion, that’s when my legal antenna stands on its hairs. Too much emotion in a disclosure document that also serves a compliance function seems to invite room for litigators to pounce if one goes too far. Of course, it depends on the circumstances – that’s why you see “fight” letters in a proxy context go quite a bit beyond what otherwise is disclosed compared to a relatively staid Form 10-K… #corpgov https://lnkd.in/ewjWKH_4

Here's the intro for something Broc just blogged: As part of my journey to learn more about Transparency, I dug into Laurent Rouyrès’ fascinating book entitled “Information Wants to be Free: From Moral Transparency to the Transparency of Publicly Listed Companies.” Laurent is the founder of Labrador and a fascinating man. As he describes at the start of the book, his career started as a professional rugby player. Laurent’s first chapter delves into the erosion of trust in society and the need to build that back up. In the next chapter – called “Fiat Lux” (French for “Let there be light”), Laurent pens: If there is a “principal” / “agent” couple for which transparency is fundamental, it is the one formed by the shareholder, who invests, and the executive, in whom the shareholder entrusts the mandate to manage. Shareholders cannot expect the executive to show the same “exact and careful vigilance” of their interests as they would. This is why shareholders appreciate being able to easily read about the company in which they have invested. The more transparent a company’s governance, the more it creates the conditions for investor confidence. Conversely, opaque governance is not likely to stimulate a desire to invest. Laurent’s use of used cars as an analogy for why the market needs transparency made a lot of sense to me: “By definition, sellers know more than buyers about the quality of the cars they offer. In the absence of clear quality signals, which would enable buyers to differentiate between offers, this information asymmetry weighs on their confidence in sellers; it therefore also weighs on the price they are willing to pay in the market. This downward pressure on prices tends to drive out the “good” sellers: those who have a quality offering. So that in the long term, all that remains on the market are lemons: old wrecks, sold at a price low enough to convince suspicious buyers. And this is how a market self-destructs.” #transparency #corpgov #proxyseason https://lnkd.in/emrxcNPD

As a lawyer, Broc worries probably too much about potential liability. Of course, much of it is needless paranoia because lawsuits and regulatory investigations are so rare when it comes down to it. But when lawsuits and regulatory investigations do arise, you realize that you were worried for good reason. The fingers start to get pointed. And as the lawyer on the team, most of those fingers wind up being pointed at you. This is somewhat of an aside for Broc's real point in this blog. One of the most common mistakes these days for ESG reports is not knowing who needs to see the drafts. Sure, there is a liability component to this – you want the right people to review what will be disclosed to ensure its accurate and not omitting anything. Or that there is some disclosure that appears to be out of context. That’s the compliance concern. But there are process concerns as well. You probably have a pretty strict timeline of what gets done when. And if you suddenly need to jam up the works by having some last-minute reviews by parties you forgot about, it can really screw up the planning. Mess with your Time & Responsibility Schedule. Learn more in this blog #esg #sustainability #corpgov https://lnkd.in/ey48av-R

In our recent Labrador (US) Sustainability Client Forum, we welcomed Rob Main, CFA (Jasper Street Partners) to explore The Future of Sustainability Reporting under the New Administration. With his extensive background in investment stewardship, ESG strategy, and regulatory policy, Rob provided valuable insights into how evolving federal priorities, regulations and investor priorities could shape sustainability reporting.? Key takeaways from the discussion:?? ?Hone your strategic awareness?? ?Double-down on regular shareholder engagement?? ?Refine your sustainability strategy and communications?? ?Continue to improve the quality and rigor of your sustainability reporting? Want to know more? Read here: https://lnkd.in/gHDd-urA #Sustainability #SustainabilityReporting #Transparency #Labrador #CorporateDisclosure

Here are five tips about how ways you might consider making your IR content more accessible (beyond our set of 25 criteria that companies can use to make their IR websites more transparent) #investorrelations #corpgov #iros https://lnkd.in/efKewYJF

** BREAKING NEWS ** ? The EU Omnibus Proposal is here with implications for #SustainabilityReporting. Check out the Q&A page: ? https://lnkd.in/dD8SNjHz ? #CSRD #CSDDD #Omnibus

As Broc blogged about recently, he's been using AI more frequently now that the reasoning tools have been available. He's had some remarkable successes using it. And some not so much. Recently, Broc tried the query of “How can a shareholder tell if a company is being transparent in its disclosures?” and he received the following response. Not bad to help a layperson understand the concept, but its too high level for those of us that are skilled in the disclosure field. Read this blog to see what AI said... #corpgov #transparency https://lnkd.in/egsmNfuZ

As a long-time practitioner in the SEC filings space, Broc actually doesn’t have a lot of experience drafting “happy talk” documents. The proxy and Form 10-K have undergone a radical transformation over his 35-year career in gradually evolving from compliance-only documents to ones that tilt towards real communication. It’s a positive trend that should continue. What Broc worries about today are the ESG reports. The CSR reports. The sustainability reports. There’s a tendency for some of these to spend a lot of time on “happy talk.” Which makes them lose their credibility. Not to mention serving as a landmine for ESG litigation. It’s an interesting phenomenon for these reports to be on the marketing side. Broc thinks its due to their progression from the old-fashioned CSR reports that touted a company’s corporate social responsibility. Those reports back in the day were filled with good news. They were expected to be. That’s all now changed. Here’s an excerpt from this blog sharing a note from Nawar Alsaadi: “Over the last few years, I have read through a minimum of 300 engagement reports, and I would say the vast majority of them are nothing more than glossy marketing brochures designed to elicit a feeling of goodwill for the sake of raising AUM. The actual number of asset managers who use engagement as a genuine tool to manage risk and drive sustainability impacts is no more than a handful. Most of us have a pretty good BS filter and happy talk is a trigger for us to doubt its veracity. And if we’re doubting what you’re saying, you’ve lost our trust. It’s not an effective communication tool. You’re losing the battle and the war. Part of transparency is being authentic. And when it comes to the “E” and “S” in ESG, it’s not all good news. Particularly when it comes to climate. So if your disclosure makes it feel like there are nothing but opportunities, you may want to rethink the disclosure.” #proxy #esg #climate https://lnkd.in/eKze7tEV