I read an article late last week that brought echoes of the late nineties to mind. The article was reporting that a lot of tech companies were leaving off certain expenses on the financial statements because such expenses were deemed irrelevant to the operating results. They still report the proper financials to the SEC but they advise shareholders that the such costs were not relevant. At least, I think that is how the story is told. The article talks mainly about costs associated with stock options, or anything related, disbursed out to senior executives.
Oh boy, here we go again. The last time we had such tech bubble was in the late nineties and we had the same problem with the financial reporting. That tech bubble ended badly. Will the shareholders rise up and demand proper accounting so that they can better assess the health of businesses? I hope so but I’m kind of dubious they will. In order for the good times to continue rolling, they have to turn a blind eye. That’s pretty much what they did during the last tech bubble, during the Enron fantastical rise, during WorldCom impressive feat, and during the Madoff reign. No, shareholders are part of the problem in that they want to continue to hear the good news and will punish heavily if they hear bad news, even if it is the truth. And those folks are probably the ones who are getting the bulk of the economic gains (although not 100% certain of this but I’m inclined toward this belief).
Maybe if we didn’t cater to the shareholders so much, we would have some checks and balances, in the form of customers, communities and employees, on the bubbles and on the fantasy financial reporting. If companies were to also pay attention to other stakeholders, such game playing would be reduced (not eliminate) because it would be so much harder to play multiple games. Right now, companies just pay attention to the shareholders which means only one thing to think about: the shareholder bottom line. And that makes it much easier to doctor results to what they want.