Building Public Trust: The Future of Corporate Reporting [Englisch] [Gebundene Ausgabe]

There is a risk that this thoughtful proposal for a new way of formatting business disclosure will be overshadowed by the spectacular bankruptcies and accounting scandals of the day. What the market appears to be looking for in the summer of 2002, with headlines of business disasters at Enron, Global Crossing, Adelphia Communications, and WorldCom, are corporate wrongdoers in orange jumpsuits and silver bullet solutions from the SEC and Congress. But "building public trust" requires a more patiently developed strategy as well as immediate action. The underlying issue here is a spirit of transparency, a charged word for anyone in the "corporate reporting supply chain" (viz., corporate captains, accountants, security analysts, investors). Transparency is nothing less than a legal and ethical obligation to make available sufficient information on which to base an investment decision. More transparency will not prevent business failure, the capitalist's place of Hell, but it does offer the promise of fewer shocks, less investor pain, and a more efficient deployment of capital. Samuel A. DiPiazza Jr and Robert G. Eccles call for a three tiered approach to reporting this information. It is a holistic approach in search of the "real economic entity" and an attempt to move away from the obsession with quarterly earnings numbers, the so-called "earnings game". Is there a place for pro forma earnings? Pro forma earnings, so maligned, may have a useful role for highly acquisitive companies where unusual events are a pattern. But pro forma should be supplemental to GAAP [Generally Accepted Accounting Principles] not a substitute. At the base of the authors' three tiered model is a reconciliation of GAAP with other country-based standards to achieve a Global standard. At a second level of disclosure industry specific issues need to be reported and evaluated. It makes sense that an R&D pipeline of new drugs is critical to a pharmaceutical company, while inventory turnover is paramount to a warehouse retailer, and market share gains the key value driver for a computer manufacturer. While progress has been made on setting global accounting standards, much work is needed by industry associations to define and measure values especially important within their sector. Tier three information would also report on many nonfinancial issues identifed by a company as important to them in particular such as initiatives on product and service quality, customer loyalty, employee satisfaction, etc. If these matters are, as surveys show, a high priority with companies, they should be reported, evaluated, and factored in investment decisions. The internet offers an opportunity to make this information available on a continuous basis. The use of XBRL (Extensible Business Reporting Language) by Microsoft, Morgan Stanley, and a few other companies allows information to be 'tagged' with a contextual description for retrieval wherever it is buried. Accessibility is just another aspect of transparency. This is a slim book with an ambitious agenda that should be read by board members of publicly reporting companies.

This book is not what I expected. A friend who knows I occasionally sit on boards passed it along. I was suspicious--most books by consulting firms are really pamphlets on steroids, a cute idea puffed up by a bit of bombast, some ambiguous examples, and a metaphor that the author thinks is profound but really reads like something from the margins of a high school year book. Still, you have to read your friends' book recommendations, so I did. Bottom Line: It's pretty good, and worth a read.

I found it a thoughtful and useful take on a very difficult problem. Over my career, I've worked in forty countries. The one difference I have found between those that work and those that don't is public confidence in the institutional fabric. The current loss of faith in the U.S.stock market therefore, is a really, really big deal.

This book tackles that issue head on, and offers some good ideas to fix it. Several pieces are particularly good. Directors of Boards should take a look at the Information Supply Chain framework, which is very good. CEO's and CFO's should look at Chapter 4 on metrics. Regulators should seriously tackle this issue of global gaap raised in Chapter 2. (Most large companies are no longer based in just one nation, and having different sets of rules encourages all sorts of gaming that is counterproductive.) Etc.

I docked it one star, perhaps unfairly, because of chapters 5 and 6, which I suspect were written by committee. At any rate, they were much less clear and the writing more convoluted than the first four, which were just plain well written.

At any rate, it is a well intentioned, honest and well thought out effort. I found it useful enough to put a few yellow stickies here and there, and will keep it on my bookshelf.

In the wake of the Enron bankruptcy, there has been plenty of teeth-gnashing about what went wrong, but far too little analysis of what we can do to make things better. Samuel A. DiPiazza, Jr., CEO of PricewaterhouseCoopers, and Robert G. Eccles, a PwC fellow and former Harvard Business School Professor, take a brave stab at addressing the fundamental shortfalls in the process through which companies report their performance. By proposing a new vision of corporate transparency, the authors take an important first step in reforming the corporate reporting system and restoring investor confidence. We from getAbstract highly recommend this book to any readers wondering where the financial community should go from here.