REALLY fast disclosure…


Jonathan Schwartz is writing about Regulation FD, which governs the release of material information by companies in the United States (and, in Europe at least, the rules are pretty similar). He points out, (with Sun General Counsel, Mike Dillon talking the same point up yesterday) that for most individuals, the internet is far more accessible than an audio-conference or press release. The problem is the notion of simultaneity.

It's absolutely true that if I, as an individual, am considering investing in Sun or any other company, subscribing to company blogs would be a great way to understand the business. As long as I know which of the 4000 or so blogs at Sun I should concentrate on (and I realise that Eve and her fellow identity experts can ensure that I know with complete certainty which they are), presumably it would be a great way for me to notice material statements.

With Atom or RSS, I'd be pretty sure of getting that information within a minute… or at least minutes of the announcement. Depending on latency.

Within a minute? Pretty sure? Depending on latency? Hang on!

That might be fine for individual investors. But what about professional investors? If a professional investor in a mutual fund, a hedge fund or proprietary trader on Wall Street or in the City was faced with the mere possibility that they will probably get the information at probably the same time as their competitors…

Well. Ummm. There might be a few problems with that.

The thing about the "anachronistic press release" is that it can get information to thousands of media outlets, professional investment houses and investment infomediaries absolutely simultaneously. And I mean simultaneous… which is to say, within a tick or so of an atomic clock.

So, if a trader (or her algorithm) is sitting next to a terminal watching material news flash by, she can be totally confident that the only difference between her and her competitor is the time it takes to act on the news. All market participants get the news at exactly the same time.

In the interests of full disclosure, I should mention that we are part owned by Business Wire, who run the proprietary NX network that drives nearly half the press releases that contain material news in the United States and a big chunk of the rest around the world. They are great people, who take their role in the information supply chain very seriously, and run a bunch of smart technology that ensures that simultaneous disclosures really work.

I believe that in a world that is increasingly transmitting material information in computer readable form, especially XBRL, the need for true simultaneity is only increasing. So I, for one, just don't see how the rules can change to allow what Jonathan is asking. Not that it isn't an admirable goal. Just that the internet can't deliver on it just yet. Thoughts? john DOT turner AT corefiling DOT com

[Updated] Tim Bray weighs in.

Making Sun (Even More) Transparent

Jonathan Schwartz’s post about the problems with transparency was interesting. There is a simple answer of course – stop innovating and then performance reporting can stay absolutely static 😉

Specifically though, Sun’s admirable drive for transparency could be pushed along with some hard numbers, internet style. The SEC’s voluntary filing program for XBRL (which got a huge push earlier this week) is the perfect opportunity to experiment. You don’t have to publish your interactive data at the same time as your earnings release, or your 10Q/10K. You can start and stop when you like. You do need to make sure you publish valid information, but that’s not so hard. You can even make it accessible (needs Acrobat 7.0 or better) to the masses.

It seems to me that blogs like Jonathan’s go down incredibly well with customers, prospects and partners. And probably makes competitors green with envy.

But will they make an impact with Wall Street analysts? Certainly. For the tech-savvy ones. To get the rest it is important to connect the strategy (that Jonathan is articulating in a very clear manner) with performance metrics. Obviously, not all of those metrics are in the financial statement — they are more the preserve of the MD&A. And, as Jonathan points out, the market shifts and the technology changes, which means that KPIs that were relevant yesterday are far less so today.

One approach, which seems like a step forward, is EBR. An initiative of the AICPA, the Enhanced Business Reporting Consortium seeks to provide a market, rather than regulatory, framework for the agreement and publication of standards for performance reporting. The EBR goals seem commendable:

  • Give the capital markets relevant information
  • Eliminate stale and redundant disclosures
  • Make information easier to use
  • Collaborate with users and suppliers of capital; and
  • Enhance the integrity of the capital markets.

And are fully in line with the common sense of one of our main ultimate shareholders:

"At Berkshire, full reporting means giving you the information that we wish you to give us if our positions were reversed. What Charlie and I would want under that circumstance would be all the important facts about current operations as well as the CEO’s frank view of long-term economic characteristics of the business. We would expect both a lot of financial details and a discussion of any significant data we would need to interpret what was presented." Warren Buffett, Chairman, Berkshire-Hathaway, Inc. 2000 Annual Report

Overall, one of the main ideas of EBR is that industries should come together to agree clear, comparable definitions of industry-wide metrics, and individual companies should define more specific value drivers and describe how they can be measured. Then publish those results, in timeframes that make sense, using XBRL. The market gets clear, unambiguous messages about what management is driving towards over the long term and sees how it is measuring itself.

The EBR consortium hasn’t really taken off at this stage. The accounting industry has been a bit preoccupied with the present, rather than defining the future, and in any event, the leadership should probably really come from Corporates rather than their advisers and auditors. But it’s a worthwhile goal. The process of getting a taxonomy together for these types of disclosures is something that individual companies, or entire communities, can collaborate on, whether or not they wrap it up in consortium tape.

The specific problem of a new product not fitting into a well-defined existing segment is something that XBRL handles really well by the way (it reflects accounting 😉 ) — you can disclose metrics split out across multiple segment hierarchies. So disclose information using the "old" splits, and, if it helps improve the way that performance is described, also disclose using a new set of breakdowns that better reflect the way the market is changing. If you want you can even use the new dimensions capabilities of XBRL to neatly constrain these splits.

By the way – Tim Bray gave a great talk about standards adoption (and, yes, provided another hint to us to keep things simple) at a conference run by XBRL-US in January.

Sun participating in the VFP is a natural next step.
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