It is a fundamental tenet of capitalism that an investor should be fully informed of all matters relating to his investment. Over the years, regulatory authorities have been increasing disclosure requirements so that there is as much transparency as possible. But has this gone too far ? And has the overreaching legal recourses, especially in the US, led to the purpose being defeated ? No this is not a boring, dry post. Read on.
Take the case of Manchester United's IPO filing (if you ask what Manchester United is, I'll clobber you). IPO filers are required to disclose the risks associated with their business. Fair enough. But look at Man U's risks disclosed. They have listed 51 risks. Amongst them are such gems as
- There could be a decline in the popularity of football (beggars belief)
- To service our indebtedness, we require cash, and our ability to generate cash is subject to many factors beyond our control. ( Ha Ha)
- We are dependent upon the performance and popularity of our first team. (Really ?? - this is like a company saying that we are dependent on the popularity of our products)
- If we fail to properly manage our anticipated growth, our business could suffer. (this is supposed to be an earth shattering revelation)
- Our international expansion and operations in foreign markets expose us to risks associated with international sales and operations (brilliant insight which we otherwise did not have).
There are 51 such gems and monuments to inanity. Obviously lawyers have written this piece of garbage, including everything they can possibly think of. I am surprised that they did not add the following, which I will freely offer for inclusion in the filing
- Wayne Rooney (Man U's star striker) might develop a pimple on his ass that might prevent him from scoring goals
- An asteroid might hit the earth tomorrow
- All other teams in the league might gang up and refuse to play Man U saying that they are fed up of getting thumped.
- The queen might die and Prince Charles might succeed her (Prince Charles is a known Burnley supporter)
- China may pass a law banning the Chinese from wearing Man U T shirts on the grounds that the Dalai Lama visited Old Trafford for a game.
This disclosure business has gone too much. To cover their asses, lawyers disclose a mountain of irrelevant stuff. Any sane follower is buried under a ton of garbage. Take Annual Reports of companies. They have become so bulky and big, that nobody reads them anymore. They are also written in such complex legalese that they are largely unintelligible to anybody. The only thing that anybody even sees , if they ever open one of them, is the constipated faces of the pompous Board. So much for the riveting reading annual reports make.
The purpose of full disclosure has been completely thwarted. Only three classes of people read these things these days. Lawyers who wrote the gibberish in the first place (I am not entirely convinced that they read it, but we shall give them the benefit of doubt). Lawyers looking for ways to sue. And finally a few unemployed bloggers like yours truly.