There have been some interesting business news items recently. In the Thursday, August 14th Financial Post, there is a story by Barbra Shecter on the state of securities disclosure by Canadian businesses. Even in the polite etiquette and language of regulation, the Canadian Securities Administration declared that “significant deficiencies were found in the disclosures made by one quarter of 854 companies “. Many of the difficulties are associated with ABCP-Asset Backed Commercial Paper – the derivative based instruments similar to the sub-prime loan fiancial paper originating in the US and still wreaking great financial harm. Now this disclosure deficit is occurring in a Canadian market which is already reeling from the accunting embarrassment is Nortel Networks. The Canadian Accounting community is tainted with three years of mis-stated financial returns starting in 2002. The associated legal proceedings continue to this date.
Next there was The Financial Time reports on the same day which describe the dispute between Royal Dutch Shell and the WWF-World Wildlife Federation. This is the same Royal Dutch Shell that is currently paying out $200 million for overstating its oil reeserves. Now the ASA-Advertising Standards Authority in Britain ruled in favor of the WWF and said Shell was guilty of misleading the public in its full page ads touting Shell’s environmentally responsible efforts. The ASA cited the misleading claims of environmental efforts at the Canadian Tar Sands and in the expansion of its Port Arthur Texas refinery. This rebuke does contain possible further legal entanglements; but also shines the light on the Tobacco-company inspired propaganda tactics now being used by the oil and gas industry. Another example is the huge $20++ annual funding of anti-Global Warming dis-information campaigns by Exxon Mobil.
Why is this important ? One can find dozens of stories like this every week in the business press. White collar “venial sins” matter because in the new globalized and faster decision making business environ, it is vital that information flows are credible and not subject to “revisionism” if not bald faced falsehoods. An Open Information environ fostered by the Internet and drawn upon by dozens of financial info companies (think Reuters, Bloomberg, Moodys, Morningstar, Standard and Poors, etc, etc)whose financial data and business interpretations should provide fair and widespread distribution of information. This info is the crucial oil that makes markets so efficient as business champions such as the Economist, Forbes and Fortune are so wont to point out. But if that information is tainted, markets start to build in hedges, delays for confirmation, and greater distrust which can quickly poison and stall markets. This is exactly what has happened in the derivatives/complex financial instruments based ABCP and other financial markets. Hence the intervention of the US Fed several times with unprecedented rate cuts and investment bank bailouts due the US sub-prime loan seize-up which, a year and a half later, is still jinxing world financial markets.
So when one hears business and especially the financial community complaining about regulations and government red-tape(there is a chorus against Sarbanes-Oxley, Basel II Risk Management, FASB Rulings and others), consider that businesses and particularly the Financial community has nobody to blame but themselves. Businesses have proved to be: a)increasingly making deeper incursions across the legal line/limits of business and financial integrity and even more flagrant violations of fiduciary and stakeholder trust; b)almost totally incapable of self-regulation and group discipline (witness the sub-prime fiasco and consequent self-protective but market paralyzing actions), and c)increasingly going to the public bailout trough as self inflicted and ever more frequent financial bubbles explode in their faces “requiring huge public money bailouts”. So the financial markets in particular which say to regulators “stay out of our business” are being calculatedly deceptive. This stay-out notice only applies until they are at self-induced risk of losing money bigtime and stand to bring key segments of the markets and the economy in general to a halt – then you have to rescue us at public expense.
The real policy problem is that the frequency of financial firms coming to the bailout trough is increasing; the size of the bail outs are increasing; yet the financial firms are not establishing any self-discipline with internal regulations nor with self-financed group insurance commitments. Yet in good times these firms find it possible to reward themselves extravagantly with monster pay packets and bonuses. Yet they complain and lobby against the very regulations and controls their own waywardness has caused. But worst of all businesses and financial firms are siphoning capital from admittedly risky necessary industrial capital investments in new energy, water+agriculture, and other innovative ventures for the future.
In short, it is no wonder that developing countries like China, India, Brazil, and even parts of Eastern Europe are besting the US and Western Europe in not just GDP growth but also key emerging industrial markets. Just another wicked problem awaiting the successor to the Still President Bush.