public Dialogue: Charlotte, NC
Management's desire and ability to report meaningful, clear, reliable and credible information to investors and the markets was one of the central themes of the second public dialogue held in Charlotte on May 15. The event brought together leaders from all parts of the capital markets to discuss the future of financial and business reporting at a time when technology and globalization have challenged its content and impact.
Moderated by Yale professor and former Dean of the Yale School of Management, Jeffrey Garten, the forum featured a diverse group of stakeholders who provided their views about modernizing financial and business reporting to fulfill investors' needs — investors of many different kinds. The participants included institutional investors, individual investors, regional business leaders and board members, local government officials and academic experts.
One of the prevailing ideas of the day was defining the problem inherent in modernizing the system. As Claude C. Lilly III, Dean of the Belk College of Business at the University of North Carolina at Charlotte, said, "There are two big issues: the sheer mass of information now available and the wide range of investors now in the market. How does management know what the investors want? And how do different investors see themselves and what they need?"
Peter Browning, Former President and CEO of Sonoco Products Company and Former President, Chairman, and CEO of National Gypsum Company, echoed this challenge. Long-term holders, short-term holders, everyone in between, and analysts — they "all have different requirements and needs in terms of information," he said. "Companies are doing the best job they can to provide the best update on what is going on in the business." He added, "There is this tension between trying to provide insightful and useful information and being careful about not getting too far out ahead of yourself." A number of participants focused on how reporting could serve the needs of a very diverse audience in an environment in which new measures are released into the marketplace both by companies and those who interpret their results.
Ronda Deitch, Associate State Director of Community Outreach, AARP North Carolina, said that simplifying company financial reports would benefit many of her members who currently turn to AARP to aid in digesting complicated financial data. Other participants representing individual investors voiced a desire for simple, summarized information that an average investor could understand, recognizing that, on the other hand, more sophisticated users may want more.
Many who participated said the Sarbanes-Oxley Act has led to improvements in the quality and quantity of financial information investors receive. "Information that has been coming out has improved since Sarbanes Oxley," said Lisa Schneider, Director of Policy and Corporate Governance for the North Carolina Department of State Treasurer. "Some have likened this information to reading War and Peace. But, I would still rather see the information out there, presented, so we have the opportunity to peruse it and evaluate it on our own."
Brian Moynihan, President of Global Wealth & Investment Management at Bank of America, indicated that, "investors want to see what management's making its decisions on and what the results are." He recognized the challenges of presenting this kind of information in formal reporting and said that, in many industries, crucial data is not presented by the companies, but by financial analysts and other sources who help interpret what is available.
"In today's world," added Lilly, "with Sarbanes Oxley, I find that management feels the moral imperative to give you everything they have. In fact, it's been my experience that boards and management agonize over making sure they provide accurate information to the public. One of the challenges is to make sure that management knows what the public wants."
Jim Rogers, CEO of Duke Energy, summed up the challenge in saying: "In almost nineteen years as a CEO, I see a real evolution in terms of the amount of information supplied and the complexity of information supplied — it is far more complex — far more information."
Participants presented wide-ranging views about the benefits and risks of presenting too much or too little information, at what level of complexity and timeliness, through what intermediaries, and ultimately to serve what group(s) of investors. The Center for Audit Quality believes that issues identified here in Charlotte add tremendously to the framework for continuing this important dialogue and go to the heart of the discussion around modernizing the financial reporting system.