Monday, January 07, 2008

Whaddya Know?

There came a point late last month when my efforts to ignore the holidays (fingers in my ears, singing la la la) left me with insufficient energy to ignore the Presidential race. Then came the Iowa upsets, and next thing you know I'm watching CNN.

Escape is impossible anyway, as this country is so politicized that even a boring subject like SEC disclosure can stir red state/blue state passions. Not long ago I wrote a post for Footnoted wondering why the potential business impact of climate change wasn’t popping up in more SEC filings. Of course, I wasn’t the only one wondering that. But it’s one thing to hear this complaint from the kind of people who tote their own hemp shopping bags to Trader Joe’s, and another to hear it from a regular suit-wearing lawyer.

I stumbled today on this article on climate change disclosure by Peter Gray, a partner at a fancy Washington law firm. Writing in a trade publication, Mr. Gray begins with this disclaimer: "The author is not responsible for fits of rage or physical outbursts that readers may experience.” Exactly what in this scholarly piece is supposed to make people mad? I guess it's his sensible lawyerly conclusion that public companies must consider whether global warming is "reasonably likely to have a material impact on ... future financial performance," and if the answer is yes, say so.

It doesn’t matter, poor Mr. Gray feels obliged to add, “whether you believe human activities … are a cause of global warming.” Nor is it necessary to believe severe climate change is an absolute certainty, like the fact that someone in the Spears family will make a fool of herself in the near future. The MD&A (Management Discussion and Analysis), Mr. Gray notes, is supposed to consider “known material uncertainties.” Indeed, companies mention uncertainties in their MD&As all the time, like the prospect of more terrorist attacks on U.S. soil, or the possibility of civil unrest in the third world country to which they’ve outsourced your job. Yet, Mr. Gray points out, most insurance companies don't discuss the potential financial fallout if they're slammed with more Hurricane Katrinas.

The SEC disclosure rules assume, when speaking of "known uncertainties," that there's some consensus on what the meaning of "known" is. I feel like not long ago there was one, but now we're living in a time when many people scoff at mainstream science and Presidential candidates from a major party quibble with evolution. So some companies may just put their fingers in their ears and try to block out Al Gore for as long as humanly possible. La, la, la.

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