Green Eyeshades Present Gift to Trial Bar
August 18, 2010
Think that companies are going to be straining under the weighty disclosure requirements and regulations of the new Dodd-Frank financial reform? Or that our nation’s employers will be bogged down with the new health care reform law and its mandates? Afraid to consider the impact Cap and Trade legislation might have on the private sector…not to mention on the length of the Federal Register?
Ah, but wait – there’s more! The green eyeshade army is preparing to unleash a set of rules that not only ratchets up publicly traded companies’ compliance costs, but also opens the floodgates to a torrent of new litigation.
How’s that for a double whammy?
Today’s Wall Street Journal lifts the rock on a proposal by the Financial Accounting Standards Board (FASB). As the Journal editorial explains, FASB’s proposal will require companies to account for the potential cost of ongoing litigation. The proposal is dressed up in pleasing terms like “transparency” and “full disclosure” – but actually serves as the trial bar’s roadmap to new lawsuits and maximum settlement payouts.
The proposal requires companies to disclose their liability insurance coverage, something that currently occurs only when judges demand it – and under an order of secrecy. As the Journal writes, “Lawyers would be able to target their damage requests to the coverage maximum or launch new lawsuits in the knowledge that more insurance dollars remain.”
FASB’s rule would also helpfully provide trial lawyers another giant “X” on the litigation treasure map by requiring companies to publish the average settlement amount in various lawsuits. The WSJ predicts that this will simply serve as the floor for future legal settlements and that trial lawyers will “seek to meet or exceed that figure in each of its demands.”
The US Chamber of Commerce has submitted a letter to FASB protesting these and a number of other provisions in the proposal and demanding the proposal be withdrawn. The Chamber letter asks that FASB consider the economic and regulatory context of this trial bar wish list - has the Accountant Crowd forgotten that we’re facing the most severe economic crisis in a generation? From the Chamber letter:
“Especially in the context of the current economic crisis – in which business investment is critical to job creation – the Board, and the country as a whole, simply cannot afford to ignore the total amount of financial resources being diverted away from investment to fund compliance with new disclosure requirements.”
Given the extreme costs of such a proposal - why is FASB moving forward? It claims to have received “strong and extensive input” from investors who believe the new rules would be beneficial. And just who are these investors? That remains a mystery. FASB is apparently stonewalling. According to the Chamber letter, “[FASB] has not revealed which investors – or even which categories of investors –were consulted and the interests that supposedly are being addressed.” The WSJ speculates that labor unions are behind FASB’s effort.
Duh, do you think?
While President Obama tours the country, tilting at windmills, spinning dreams of green collar jobs and clean energy investments, the unemployment rate in my homestate of Michigan remains stuck above 13%. While government subsidies for electronic battery plants may play well with the enviros, they do nothing to clear away the overwhelming economic uncertainty that’s sidelining capital investments and holding back job growth. FASB’s burdensome set of rules and requirements is just one more stack on the enormous pile that’s currently blocking private investment in our economy.
Sadly, rather than rethink its proposal in the face of such overwhelming business opposition, FASB is likely to continue to plow ahead. As both the Chamber and the Journal admit, once FASB gets its teeth into an idea, it is hard pressed to give it up.