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Winning back investorsé trust is easy. Just show them everything.
REAL-TIME DATA FOR ALL. CALL IT OPEN SOURCE AUDITING.
Give John Chambers credit. Back in the wild-90s, the Cisco CEO pioneered real-time company management tools. A few mouseclicks gave him a top-to-bottom snapshot of his $20-billion-a-year juggernaut. Apparently he was onto something. Today, any C-level corporate officer worth an options plan has a desktop-executive dashboardé that tracks product-line revenue, head and customer counts, average deal size, the weather in the top 10 sales locations. Even middle managers, customers, and outside suppliers are getting passwords for the business intelligence systems. Everyoneés in on the fun.
Everyone, that is, except the people who own the business. Shareholders and their Wall Street surrogates arenét welcome at the information feast going on inside todayés public companies. Instead of piping-hot fare, they get warmed-over TV dinners — 10-Qs, 8-Ks, and boiled-to-death, single-number earnings forecasts, all served up in a scripted webcast. Isnét there anything else to eat, Mom? No wonder we didnét see the Enron collapse coming.
The current frenzy for accounting reforms addresses how companies count beans, not which ones. Left untouched are the meaty issues: what information the market gets, and — just as important — when. So hereés a proposal: visible companies. Turn the dashboards around and give the rest of us a peek. Let the sun shine in. The vast unwashed hordes of investors, analysts, journalists, and obsessives could pore over every detail of a companyés financials. Call it open source auditing.
Thereés no technical problem with cutting windows into the corporate-info wall.-Web-basedé is a routine marketing boast for business-intelligence software (how else to hook in that supplier in Taiwan?). And prospective users — surprise! — would love to get their hands on the data.-Give me the password, and let me watch your numbers in real time,é wrote Andy Kessler, a former hedge fund manager, in an op-ed piece in The Wall Street Journal.-Like sushi, I like my numbers raw.é
What would get companies to open the curtains? Donét bet on Washington. The SEC is devoting the next three years to pushing up the filing times for quarterly and annual reports to 30 and 60 days, respectively. But that still leaves the lawyers to debate the definition of material, as in-companies must disclose any material changes in their business.é Wow. Meanwhile, a burst of activity from Congress — the Sarbanes-Oxley Act, passed in July — trims the maximum reporting period for insider trades from a month plus 10 days (Pony Express time) to 48 hours.
Competition is a better bet. Webcasts may be canned, but at least anyone can listen in now, an unspeakable heresy barely five years ago.-Are you hiding something?é is a powerful prod in the Darwinian struggle among firms for suddenly scarce investment dollars. Companies that fling open their books might win back investors. The beginning of a trend is already visible: Last year, Intel began doing a regularly scheduled Mid-Quarter Business Update, in effect cutting its reporting period in half; much of the semiconductor industry has followed. This summer, Oracle, responding to Wall Street and customer pressure, began posting its software price list. Microsoft and Reuters report their results in XBRL, the extensible business reporting language that allows analysts to import even footnotes directly into their modeling systems.
But the priests of closely held corporate data will not go gentle into the light. One of the weirder objections to real-time reporting is that outsiders will-misunderstandé highly volatile business models. Yet arenét those precisely the companies that need to disclose the soonest and the most? As for competitive secrets: Industries as different as Hollywood and retail manage to break out near-real time results without the sky falling.-Competitors in most industries typically know one anotherés sales information anyway, so ités investors who are out of the loop,é notes Chuck Phillips, who heads Morgan Stanleyés enterprise software research team.
éARE YOU HIDING SOMETHING?é IS A POWERFUL INCENTIVE
The irony is that although numbers are only part of the equation, they carry with them a dangerous illusion of certainty — look at all those companies with lovely dashboards that drove off the road during the past couple of years. Historical data is useful to the precise extent that the world outside doesnét change. And just because you can see change coming doesnét mean you can manage it. Someday that may be different — valuing intangibles remains one of accountingés hottest frontiers. Until then, weére left with the markets to predict the future. Theyéd better not be flying any blinder than needed. Ronald Reagan said it about arms control: Trust but verify.
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