Transparency – a word that people in the oversight business love to use. It even appeared in Pelosi and Reid’s letter to the automaker. The idea, I guess, is that the public should be able to see right through the layers of information that corporations spew out and so that everything happening within an organization is clear. So that as an investor (or a citizen or a taxpayer), we can all say, “I can see clearly now,” just like the Johnny Nash song.
I am a true believer in transparency. But transparency without clarity is meaningless. We’ve learned recently that all the disclosures in the world and all the new regulations imposed post-Sarbanes-Oxley did nothing to stop the financial mess we are in today.
Let me tell you a story (yes, I love to tell stories). My wife just returned from Japan today. Every time she comes back, she floods me with episodes of new things that she discovered. This time, she commented on the quality of high definition television programming in Japan. One of the most popular TV personalities is Mr. Samma Akashia. “You can see all his freckles and wrinkles on his face with the new digital TV,” she noted. With the advent of HD-TV and digital programming, everything seems clearer. Talk about transparency, you can’t get any more transparent than that.
At Best Buy, a sales person joked, “With Blue-Ray and the new HD-TV’s, the special effects that looked so great before don’t look so real anymore.”
Sometimes, there is a such a thing as too much clarity. When the details are so clear, we focus on those details, and forget about the big picture. We notice the freckles on the faces of our favorite actors or on the unrealistic corkscrewing of Spiderman’s figure. Because we can pause and freeze-frame every scene, the details stand out even more.
As Congress addresses additional governmental oversight, new rules will be established in the name of more transparency and accountability. More details will be drafted by accountants, lawyers, politicians, and technocrats. Would any of it enhance our understanding of the core issues? Probably not.
We’ve learned that technology can bring so much into our living room. The NFL games look crisper, and a viewer at home can practically read the text messages showing up on the Blackberry of a spectator sitting behind home plate in a MLB game. Movies at home can now seriously compete with those in the theaters. I eagerly await for the special limited edition of Disney’s Sleeping Beauty to arrive (of course, I have to order it first), wondering if the colors will be richer and the music livelier than the VHS tape copy I own.
But inevitably, I am reminded that no matter how many lines per inch of resolution or scanning or screen-rewriting speed the LCD TV boasts, a bad NFL game is just that, whether watched on a black and white set or a 52-inch HD-TV with Bose Home Theater. I loved the Blue-Ray version of Phantom of the Opera, but wouldn’t pay a dime if someone offered Rocky Balboa in Blue-Ray.
I’ve come to the conclusion that transparency (and for that matter, clarity) matters only if we get the bigger picture. Transparency in business matters only if it helps us understand the whole. Auto executives flying into Washington DC on their companies’ private jets was a stupid act, but if that is the criteria by which we judge whether the industry needs to be saved or not, perhaps we should return our big screen TV’s to Best Buy because we didn’t like the thrashing our favorite team took from its archrival.
Transparency is not about complex rulemaking where only the most technical can understand how collateralized debt obligations are to be valued. If a CEO doesn’t understand his own financials, he should be held accountable. If a CEO buys assets she doesn’t know how to value, she should be fired. If an auditor cannot identify these types of risks and communicate them to shareholders, it should be replaced. If the Board cannot remove a CEO for his/her incompetence, the entire Board should resign. Our understanding of the process is not enhanced by more rules, but by demanding that management tell us (shareholders) what is happening, using language that is drafted not by lawyers or accountants, but by smart business people.
Take a look at your business and your financial reports. Read Warren Buffet’s letter to the Berkshire Hathaway shareholders (any year). Compare.
Now, start singing I can see clearly now the rain is gone…
Joseph Lee is an independent consultant and executive coach. He is also an Adjunct Professor at the Peter F. Drucker and Masatoshi Ito Graduate School of Management where he teaches a second-year MBA course in Management Consulting. In addition, Mr. Lee is an author, writing International Business Thrillers, including his debut novel The Sky Burns Red (赤く燃える空) which was published in Japan last year. He is currently working on the sequel.