Out of a negative always comes a positive. As I watched WorldCom’s John Sidgmore lurch from one disastrous revelation to another in his webcast in late June, a little part of my brain was noticing that the picture and sound were being carried to my screen with wonderful clarity. These guys really know how to handle the technology, I thought. You know what? If it wasn’t for these darned annoying accounting blips, they might just make a good investment.
That just about sums up my investing experiences over the past few years. I always arrive at the party a little too late, usually because I hear the good news a little too late. I then proceed to take twice as long as anyone else to reply to the invitation.
I recognize that my investing downfall is largely an element of slackness, a failure to run with a good idea, and, being but a poorly-paid journalist, a regrettable lack of ready cash. But the timeliness of information – getting those invitations to the party at the right time – is a constant issue for investors of all shapes and sizes. Unfortunately, by the time most companies get around to releasing information to the market, it is already out-of-date. Hence the pressure for more forward-looking, strategic information so investors can look to the future.
Enron, WorldCom, Xerox and the like bring these issues to the fore. In case you hadn’t noticed, there hasn’t been a whole lot of trust in the market of late. Investors doubt every number you put in front of them, question every bit of information you send out, and generally think that you’re the front man for the next WorldCom.
While there is little anyone can do to stamp out determined fraudsters, there is a lot everyone can do to try and bring a bit more confidence back into the equation.
For starters, start disclosing more, more often and from now. Many European companies still hold a ridiculous objection to the idea of quarterly reporting, claiming that it is too onerous, too expensive, too everything. Everyone knows what’s really going on. It’s all about accountability of managers. The idea that some western European listed companies – of any size – cannot somehow get it together to release information on a quarterly basis is, frankly, laughable.
In any case, best practice has moved on. Best practice is now moving towards monthly sales statements, towards constantly rolling film instead of periodic snapshots. An increasing number of leading companies are releasing monthly updates to help smooth market jitters. It also allows them to talk more openly to investors and analysts about potentially price-sensitive matters such as business conditions in-between quarterly results. The alternative is to shut down some communication lines. But this is the last thing any company should be doing in the current environment.
Last, but not least, there is a growing trend in the US and Europe towards cash, towards the hard reality of what is actually going on in your company’s coffers. Not surprisingly, investors have become somewhat reluctant to trust accounting jiggery-pokery. They want to know the real story, not how the past has been distorted by various accounting treatments in each market. As one investor relations officer recently put it to me, ‘Cash is cash is cash. It takes it all to the same level.’
Still, there are plenty of others willing to point out that cash-based measures have their own weaknesses and that knee-jerk reactions to accounting scandals are never the best route to take. After all, pay your suppliers on one day instead of the next and it can make an awfully big difference to your reported cashflows.
That being said, the demand for greater cash-based measurement is certainly out there as investors desperately try to avoid being left at the mercy of the subtleties of accounting policies. Companies that attempt to be transparent with that cash-based information rather than play around with, say, reporting timings, could find that it has a major part to play in bringing some confidence back into their stock.
