by Shira Cohen, Igor Kadach, Gaizka Ormazabal, andStefan Reichelstein
Recent years have witnessed a rapidly growing interest in the role that
Environmental, Social and Governance (ESG) criteria play in shaping the
decisions of major corporations. In a recent paper,we provide initial
systematic evidence of the use of ESG performance metrics in executive
compensation contracts in a broad international sample.
by Eric R. Dinallo, Avi Gesser, Marshal L. Bozzo, Anna R. Gressel, and Scott M. Caravello
On June 30, 2022, the California Department of Insurance (the “Department”) released Bulletin 2022-5 (the “Bulletin”), which places several limitations on the use of Artificial Intelligence (“AI”) and alternative data sets (“Big Data”) by the insurance industry. The Bulletin states that the Department is aware of recent allegations of racial discrimination in marketing, rating, underwriting and claims practices by insurance companies and reminds all insurance companies of their obligations to conduct their businesses “in a manner that treats all similarly-situated persons alike.”
by Aaron Lewis, Donald Ridings, Jennifer Saperstein, Adam Studner, and Ishita Kala
An official in the Fraud Section of DOJ’s Criminal Division confirmed that CEOs and Chief Compliance Officers (“CCOs”) will “most likely” be required to provide compliance related certifications in future corporate resolutions. Other senior DOJ officials had foreshadowed this requirement, and a recent corporate enforcement action imposed such a requirement.
Requiring executive compliance certifications is yet another signal from DOJ that companies need to empower compliance professionals. Companies would be well advised to prioritize compliance program enhancements and effectiveness testing before they are under investigation and to double down on such efforts during a government investigation and thereafter.
Although DOJ officials have stated that compliance-related certifications are not intended to be a “gotcha game,” false statements can subject CEOs and CCOs to criminal prosecution. We assess that these developments should be taken seriously.
by Avi Gesser, Robert Maddox, Anna Gressel, Mengyi Xu, Samuel Allaman, Andres Gutierrez
With the widespread adoption of artificial intelligence (“AI”) and other complex algorithms across industries, many business decisions that used to be made by humans are now being made (either solely or primarily) by algorithms or models. Examples of automated decision-making (“ADM”) include determining:
To surprisingly little fanfare, on June 15 the U.S. Supreme Court issued a decision that took square aim at the federal administrative state, fulfilling in part the promise of a newly conservatized supreme bench and realizing in part one of the federal bureaucracy’s perennial fears. The facts of the case, American Hospital Association v. Becerra, weren’t sufficiently sensational to attract much attention; the underlying dispute involved routine payments made to hospitals by the federal government as part of its Medicare reimbursement program. But the knock-on effect the decision will have in other areas of administrative law, and its long-range political implications, should have made government watchers sit up and take note.
by John Joy
According to one survey, almost half (42%) of U.S. workers have encountered discrimination in the workplace. When it comes to issues of discrimination, most companies are prohibited from discriminating on the basis of race, color, religion or sex by Title VII of the Civil Rights Act of 1964. In addition, most states have anti-discrimination laws that go beyond Title VII protections and many major cities also have anti-discrimination laws that apply on top of these.
Even with multiple layers of legal protections, victims of discrimination and racism can often find themselves facing an uphill battle when it comes to enforcing legal rights against a major corporation. These difficulties can be particularly acute if the victim has experienced discrimination at the hands of a publicly traded company.
Public companies are the driving force of the U.S. economy. Not only do they employ up to one third of the non-farm workers in the U.S., they comprise some of the largest, most profitable and most visible brands in the U.S. It’s no surprise that for most private companies and start-ups, the ultimate goal and measure of success is to ‘go public.’
When it comes to discrimination at public companies, victims can avail of all the anti-discrimination laws mentioned above. However, federal securities laws applicable to public companies may provide an additional and alternative way for anti-discrimination advocates to hold corporations to account.
by David Gilberg, Colin Lloyd, Rebecca Simmons, Aaron Levine, and David Schulman
On June 2, the Commodity Futures Trading Commission (“CFTC”) voted unanimously to release a Request for Information (“RFI”) to solicit comments to better inform its understanding of climate-related financial risks to commodities and derivatives markets. The RFI states that the CFTC intends to use this information to inform potential future actions, which could include new or amended guidance, new regulations or other CFTC action pursuant to its existing statutory authority. The RFI notes that such actions could apply to any CFTC-registered entities, registrants or other derivatives and commodities market participants. The RFI follows action by a number of other U.S. and international regulatory bodies concerning the mitigation of climate-related financial risk. The CFTC seeks comment on all aspects of its existing regulatory framework and market oversight function as they may be affected by climate risk, and such comments are due on August 8, 2022.
by Jacob H. Hupart, Megan N. Gates, Douglas P. Baumstein, Pete S. Michaels, Courtney O. Taylor, William F. Weld, Thomas R. Burton III, and Sahir Surmeli
On May 25, 2022, the SEC issued two new sets of proposed rules: “Investment Company Names” (“Names Rule”),[1] and “Environmental, Social, and Governance Disclosures for Investment Advisers and Investment Companies” (“ESG Disclosure Rule”).[2] Taken together, these two proposed rules are intended to combat “greenwashing.” The practice of “greenwashing” refers to when firms or companies claim they are abiding by ESG principles, especially environmental, when in fact they do not so comply.[3] Here, the newly proposed rules provide that only funds with an ESG purpose would be permitted to label themselves accordingly, and a new set of mandatory disclosures for ESG-focused funds would enable outside parties to confirm whether such a purportedly ESG-focused fund is in compliance with its stated investment purpose. As the SEC stated in an accompanying press release, these “proposed amendments to rules and reporting forms [would] promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of environmental, social, and governance (ESG) factors.”[4]
by Satish M. Kini, Jane Shvets, Karolos Seeger, and Konstantin Bureiko
by Jenness E. Parker and Elisa M. Klein