Legal Regimes and Corporate Transparency: How Thomas Lee's Challenge Shapes Investor Trust in a Fragmented Global Market

In the evolving landscape of corporate governance, the legal regime under which a firm operates has emerged as a critical determinant of transparency, investor trust, and long-term value creation. This is exemplified by the legal challenge led by Thomas Lee, counsel for National Small Business United (NSBU), against the U.S. Corporate Transparency Act (CTA). Lee's argument—that the CTA overreaches federal authority and infringes on privacy rights—has sparked a broader debate about the balance between regulatory oversight and corporate autonomy. The outcome of this case, pending in the 11th Circuit Court of Appeals, could redefine the scope of federal power in corporate transparency and set a precedent for global financial reporting standards.

The Canadian Bilingual Framework: A Case Study in Legal Regime Influence

Canada's unique bijural system, where firms operate under either common law (CL) or French civil law (FCL), offers a compelling lens to analyze how legal regimes shape strategic business model (SBM) disclosures. A 2024 study in The British Accounting Review revealed that Quebec-based firms, governed by FCL, produce shorter but more impactful SBM disclosures compared to their CL counterparts. This is attributed to the higher legal liability risks in FCL jurisdictions, which incentivize firms to prioritize quality over quantity in their disclosures. For instance, Quebec's Act Respecting the Legal Publicity of Enterprises (ARLPE) mandates the public registration of ultimate beneficial owners (UBOs) and enforces third-party audits for ESG metrics, reducing information asymmetry and greenwashing risks.

In contrast, common law jurisdictions, such as those in the U.S. and parts of Canada, often rely on self-reported disclosures. The 2019 collapse of Burford Capital, a U.S.-based litigation finance firm, underscores the vulnerabilities of this approach. Burford's speculative litigation valuations, shielded by attorney-client privilege and unverified by third parties, led to a 50% single-day stock price drop. Such incidents highlight the governance risks inherent in self-reported data and the need for enforceable transparency laws.

IASB's Role in Harmonizing Global Standards

The International Accounting Standards Board (IASB) has recognized the influence of legal regimes on disclosure practices and is adapting its standards accordingly. Recent amendments to IAS 1, IAS 8, and IFRS 7 emphasize enhanced connectivity between financial and non-financial disclosures, requiring firms to provide context-specific information about liquidity risks, segment performance, and equity structures. For example, the 2024 agenda decision on IFRS 8 mandates segment-specific revenue and expense reporting, aligning with the strategic decision-making frameworks of firms in FCL jurisdictions like Quebec.

The IASB's 2025 guidance on equity instruments with characteristics of equity further underscores the importance of legal regimes. Firms with complex capital structures must now disaggregate profit or loss attributable to different equity classes, a requirement that mirrors the transparency enforced by Quebec's civil law system. These updates reflect a global shift toward investor-centric reporting, where legal frameworks play a pivotal role in shaping the quality and relevance of disclosures.

Investment Implications: Prioritizing Jurisdictions with Enforceable Transparency

For investors, the legal regime of a firm's headquarters has become a critical due diligence factor. Firms operating under civil law systems, such as Quebec-based fintechs and resource companies, demonstrate higher-quality, verifiable disclosures that align with global ESG standards. The Fidelity's Wise Origin® Bitcoin Fund (FBTC), for instance, leverages Quebec's legal framework to provide audited ESG metrics on energy consumption and supply chain sustainability, attracting ESG-conscious investors.

Conversely, firms in common law jurisdictions face greater scrutiny due to the prevalence of self-reported data. A 2023 study of 103,986 Belgian private firms found that common law entities are 30% more likely to delay XBRL filings, signaling governance inefficiencies. This delay can erode investor trust, particularly in sectors like mining, where long-term capital commitments require transparent risk assessments.

Conclusion: Navigating Legal Regimes for Sustainable Value Creation

As global ESG reporting standards evolve—such as the Canadian Sustainability Disclosure Standards (CSDS) and the EU's Corporate Sustainability Reporting Directive (CSRD)—investors must prioritize firms operating in jurisdictions with enforceable transparency laws. Quebec's civil law system, with its codified disclosure requirements and third-party audits, offers a blueprint for reducing governance risks and enhancing investor trust.

Thomas Lee's legal challenge against the CTA, while rooted in U.S. constitutional law, resonates with the broader global debate on corporate transparency. The outcome will likely influence how legal regimes shape disclosure practices, investor perceptions, and the effectiveness of international accounting standards. For investors seeking to future-proof their portfolios, the lesson is clear: legal regimes are not just regulatory frameworks—they are foundational to corporate accountability and long-term value creation.