Thursday, 5 July 2012

When "information" equals garbage

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.


Prats said...

Totally agree with the post. The increasing legal language in the documents is a pain to read and comprehend.
Even the same thing has happened with terms of usage of most softwares and privacy policy of the websites. I remember doing the post on Google's privacy polcy and the mess around it.

The fact that they have brought in so much of information and legal jargon around processes that there is hardly anything left which makes sense to the auidience.

Asha said...

No... will not ask you what MU is? coz the merchandize of this team is burning our pockets, thanks to my 13 year old.

Well, the rest of the information as always business musings is my new economic business newspage.

gils said...

!!! IPO for a sports team!!! dividenda kaathu adikaatha football tharuvaangala??

Deepa said...

There is one more person who would read that useless piece of info and for absolutely no good reason- a public accountant! And would go on and put a remarkable comment on it saying, we have no reason to believe these disclosures are unreasonable! :D

Shachi said...

A pimple on Rooney's a$$ - LOL!

I own a couple of technical specs....and I worked out a way with the legal team to only put one paragraph of disclaimer in the beginning and keep the lengthy legal garbage in a separate document. I did read that garbage once though - and some stuff hardly made any sense.....

Appu said...

Saar what is manchester united? is there a womanchester disintegrated? #commentlikegilsu :))

Ramesh said...

@Prats - Thanks and nice to see you here. Didn't know you had this other blog. Very nice. Why don't you give it more attention - won't I love a fellow business blog.

@Asha - Much disappointed in your 13 year old. Tell him its not cool. He should support Liverpool !

@gilsu - Why ? Kaththu adichche kuduppanga !!

@Deepa - ha ha. I stand corrected.

@Shachi - Wow - I bow to thee, O patent holder !

@zeno - Now, that is truly gils style ....

Sandhya Sriram said...

I think the fault is of people like Yours Truly.

because we as a fraternity have to hold ourselves important enough, we keep talking about transparency, true and fair and well its such a big industry, you cant beat us anyways.

what a paradox, at one end, people are having a gala time fooling investors, bankers and committing any imaginable and unimaginable fraud ever possible. and at the end, we are disclosing all sorts of crap. isn't there something fundamentally illogical and wrong in this whole thing.

My child watches a cartoon called "Gon the stone age Boy", a story about a simple life of a stone age family. I think, we must all go back. shut all B schools, shut education. go back to farming, sell and exchange few things that we need on barter and live simple lives. what say.

Ramesh said...

@Sandhya - Since when you have gone all nostalgic for the historical past. You are too young to dream of the old old times :)

sulo said...

ha ha... loved ur usual wit!

Ramesh said...

@sulo - Hey, welcome back. Where have you been ?????

Vishal said...

real garbage it looks like... hahaha!

Pimple on ass of Wayna Rooney... LOL!

Ramesh said...

@Vishal - :)

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