The Right To Know
COMMENT by Mark Lacter
Not material.
To anyone who has tried to get detailed financial information from a public company, them’s fighten’ words. It means that the desired material be it disclosures of litigation or buyout agreements or profit statements involving a subsidiary is not considered relevant enough to affect the bottom line and therefore unavailable for public consumption.
Considered by whom? Why the company, of course.
And what if you disagree? Good luck. The Securities and Exchange Commission, the agency supposedly monitoring public companies, has neither the means nor the interest in making a federal case over what companies deem material. So, outside major financial line items, the decision to divulge or not divulge is pretty much left to the whims of the company. Walt Disney Co. will not tell you how profitable its ESPN unit was last quarter, for example. Nor will AOL Time Warner tell you how much some movie star was paid to appear in one of its films.
At Enron, a remarkable amount of data was never revealed and whatever did come out was so polished and pre-spun that it became almost impossible to get the straight story. But non-disclosure goes well beyond those creeps at Enron. The Washington Post Co., one of the more well managed and upright companies you’ll ever come across, is notoriously tightlipped about their financial condition and not at all apologetic about it. Last year I asked Donald Graham, the company’s well-regarded chief executive, whether he ever considered going private, given the reluctance to be in the public eye. No, he said, because the advantages of being public are just too compelling.
Which, of course, is the point. Publicly held companies manage to have the best of both worlds: access to the financial markets (and with it, all those investor dollars in search of a home), plus tacit approval from federal regulators to reveal only certain kinds of information about their businesses. Too bad such an arrangement is not always in the best interest of the shareholders they presumably work for.
If Enron has demonstrated anything, it’s that public companies must be open and accountable at all levels, not just the ones that suit them. That means every nickel earned out of every operating unit, regardless of size, must be reported. Cash flows, receivables, inventories, partnerships it should be laid out for investors, analysts, reporters or anyone else.
Naturally, there would be snickers of protest about such a drastic move. The chieftains would point out that releasing everything would put them at a competitive disadvantage over privately held and overseas-based companies not obliged to file with the SEC. They also would note that for companies of any size say $500 million in revenues and up line items involving employment agreements and minor litigation are either private affairs or inconsequential when determining overall performance. (Mel Gibson’s $20 million per picture is, relatively speaking, chump change if measured against the operating costs of a Disney or Viacom.) A few companies, fed up by the paperwork, might even decide to leave the public markets.
These are not ridiculous notions. But they are not deal-breakers either. At issue, quite simply, is respect for the marketplace and within it, the people and institutions that are willing to take a chance on the thousands of publicly held businesses whose executives always seem to promise the moon. Getting the straight skinny on whether those promises are likely to be kept is not asking for much.
Mark Lacter is editor of the Business Journal.
