The Accountable Company
February 1, 2010
Rivel Research has just issued a report about disclosure and transparency, and how they differ. It turns out that most investor relations officers recognize a difference. Most also think that transparency is a more worthy goal than simply being disclosure compliant.
That’s an encouraging sign, of course. Even more encouraging is parallel research that shows CEOs similarly attuned to the benefits of being transparent.
The distinction between disclosure and transparency is a matter of which side of the disclosure window you’re on. Disclosure is what companies choose to put on display for investors to see. Transparency is not just whether investors can see what’s there, but also what they think about it.
Displaying a lot of information, of course, doesn’t make you transparent. Transparency – like beauty – is in the eye of the beholder, so asserting your own transparency is a bit unseemly. You are transparent only when investors say you are.
Transparency, however, is too limiting a standard in today’s content-heavy market, where what you disclose is only a small fraction of what shapes investor perceptions. It simply means that it’s relatively easy for investors to get the information that management wants them to have. But more and more, investors are looking for companies with the courage to invite them in the door for a closer look.
These accountable companies have a culture difference that investors recognize immediately. Transparent companies are politely responsive to investors and aim to disclose about as much as their peers do. Accountable companies exude confidence, set measurable operating and financial performance goals, and invite tough questions from all quarters.
Accountable companies see XBRL not as a burdensome requirement, but as a competitive advantage, knowing it will help shine a light on their financial strengths and expose their competitors’ weaknesses. They regard strong internal control assessments, and an absence of SEC comments, as evidence that the company’s results are presented fairly. And they go out of their way to enumerate their business risks and what they’re doing to mitigate them, instead of dismissing them in boilerplate Safe Harbor statements.
Accountable companies keep the door open even when their performance slips. Their shareholders tend to be more patient and forgiving. And best of all, their IROs are a lot happier.
