In the paper, “Unicorniphobia,” Alexander I. Platt counters the viewpoint held by many legal scholars and regulators, including the SEC, that unicorns pose regulatory, financial, and social risks. Many recent articles argue that unicorns pose concerns because: they are not subject to SEC reporting and SEC scrutiny and oversight; unicorn CEOs/founders are usually innovative but inexperienced risk takers; and venture capital backers may encourage risky decisions and ignore bad behaviour in order to remain founder-friendly. Platt, however, takes a different view. He argues that forcing unicorns to become public companies earlier in their life may make them more prone to taking risky behavior, and he argues that unicorns provide benefits to society at large.
Platt addresses a number of potential reforms proposed by legal scholars but outlines why he believes these would not have their intended effects. These reforms include the following proposals: forcing companies to go public either when they pass a specified valuation or when their “public float” crosses a certain threshold; adopting a “hybrid” disclosure regime for any private company within 90 days of closing a financing valued at $1 billion or more that would require periodic disclosure in plain English on some scaled basis; proposed new mandatory disclosures for companies with a market capitalization above $35 million or with more than 100 beneficial owners, unless the company either maintains strict restrictions on the transfer of shares or commits to an alternative public disclosure regime; and a new set of mandatory disclosures for all companies, public and private, that address social and financial information.
Platt argues that these reforms would not reduce the dangers associated with unicorns because they are characteristics of all public companies, which he asserts may not be less likely to engage in risky or socially harmful activities than unicorns. He supports this claim by demonstrating public companies are often too focused on short term prices (short-termism) at the expense of long-term goals, face the pressure of meeting quarterly goals, face activist threats, may adopt harmful corporate governance practices, and may have a corporate culture that leads to excessive risk-taking. Unicorns are not subject to many of these harmful factors that affect public companies.
In the recent literature on the dangers of unicorns, Platt notes that that the authors often use the examples of “bad” unicorns to justify the need for reform. However, the advocates for reform do not provide explanations for, or provide faulty explanations for, how their reforms would have deterred the behaviour they criticize. Platt presents Moderna as an example of how unicorn status can be beneficial to companies and society at large. He applies the proposed regulations on unicorns to Moderna to demonstrate how such reforms, had they been in place, would have been an impediment to the company and its efforts to develop its Covid-19 vaccine. For example, disclosure requirements may have forced Moderna to share its scientific failures that may have prevented investment and could have led to the company’s failure. Platt presents a side of the debate against regulating unicorns that should be considered as regulators evaluate amendments to the Exchange Act Section 12(g) threshold and other changes. The full paper can be read here.