Wall Street has been abuzz by an op-ed piece by Citibank CEO Vikram Pandit. We all know of the financial problems the bank is facing, but the chief executive’s call for added market transparency rings somewhat empty after the fact. (NY Times article).
The problem with transparency is that when everyone has the same information in the marketplace, there is little chance for anyone to make money, and the only winners are those with scale. The NY Times article points out that Mr. Pandit’s call seems to be a self-serving exercise to keep innovative products out of the market place so that the larger banks, like his, would win.
In the 1980s, when we rode the real estate bubble, both in Japan and in the US, transparency was often a problem for US realtors selling properties to the gullible Japanese. Even though land was a bargain in the States compared to that in Japan, the availability of market information made it difficult for the real estate agents to make a killing. For example, even if land in Japan was sold at thousands of dollars a square foot, and people were happy with returns of 1%, it wasn’t easy to sell a piece of condo or apartment building at similar prices or returns when the investor could read the papers and find out what the market prices were.
Then the industry got smart, and started putting together all sorts of goodies so that the comparisons were never apples and apples. Condominiums came with special concierge services. Airline tickets were added. Special faucets were designed just for the buyers from Japan. A translation service came with the package. By lumping all these variables together, which usually cost very little, the sellers were able make comparisons impossible.
Similarly, Japanese trading firms used to make money by owning information—information on sales channels, profit margins, local market knowledge, exclusive deals, and customs. The arrival of the Internet and free information almost killed off their business model before they found a way to reinvent themselves.
In today’s rapidly moving knowledge-based world, leaders have to assume that their advantage in information is fleeting, and that sooner or later, everyone else will know. And with more and more transparency, businesses will need to continue transforming or relying on more traditional means to stay ahead—like delivering better quality, hiring talented people, giving excellent customer service, and most importantly, being transparent in their management.