To those who might remember this column that ran for more than 20 years, and to those who don't, it took something especially egregious to bring me back.
Seemingly out of nowhere, a bizarre
It doesn't take a genius to realize that some lobbyists leaned on members of Congress on behalf of their disgruntled clients from the ranks of public company managers and their auditors. Their complaint seems to be that they don't like having to tell the truth, the whole truth, and nothing but the truth with clarity.
There is so much wrong here on so many levels including these topics: (a) funding an independent regulatory agency, (b) the SEC's role in setting standards, (c) the FASB's due process, (d) the role of useful information in promoting efficient capital markets, and (e) the role of capital markets in producing an efficient and growing economy.
This effort has produced a new low bar by being the most misguided self-seeking but self-destructive action by the lobbyists' clients in the history of financial reporting standard-setting. It eclipses even the clumsy efforts by the Business Roundtable in 1988 to cajole the SEC into giving it full control over FASB's standard-setting agenda to bring an end to what the CEOs considered to be misguided efforts to reform practice.
Let's look at these five levels to see how transparently unwise this effort is:
Funding the SEC
Apparently excluding these empty-headed folks, most people involved in public financial reporting know the SEC is an independent agency that is not a part of either the executive or legislative branch. This arrangement was established in 1933 to keep politicians' hands off the capital markets so they can function as efficiently as possible for the benefit of the entire economy and thus the entire population.
Yes, the SEC does receive funding from Congress, but it also relies heavily on fees paid by those it regulates and protects. I'm hard-pressed to find a weaker-minded scheme to allow a few members of Congress to short-circuit this established process with a goal that is directly contrary to achieving efficient capital markets.
In a few words to them — keep your soiled hands off the Commission's budget. It's far more important to the rest of us than to all of you.
The SEC's role
It has taken many decades with many false starts and failures as well as many good intentions and decisions to arrive at the present system for setting financial reporting standards. No one should confuse it for the best possible system, but it is far better than anything else has been.
To explain, the SEC relies on independent experts at FASB to sift through the possibilities to produce suitable standards through an extensive unbiased and open due process that provides for substantial analysis and comments. Once that process is completed and standards are issued, they become essentially the "law of the land" with regard to public company financial statements.
In a few words to these misguided politicians — keep your self-serving hands off the SEC's reliance on this crucial system.
FASB's due process
These turkeys seem to believe their opinions should supersede all the effort and thinking that went into FASB's due process that led to the standard.
They had their chance to plead their case in hearings, comment letters and other ways. I haven't looked up the record, but I'm confident they either did not participate at all or simply complained that they didn't like the idea of telling the markets more about corporations' tax-related outcomes.
It's obvious they're trying to cover up the truth about taxes to keep the capital markets uninformed. What's equally obvious is they have no idea how that outcome actually affects them negatively.
I say this to these whiners — keep your ignorant hands off this carefully built process that has allowed you an opportunity to make reasoned arguments, not political threats, to support your goal of keeping useful information away from the capital markets. You lost and now need to live with the outcome without trying to change the rules.
The role of useful information in the capital markets
A decades-long consensus holds that capital markets are driven by three things: information, information and information.
In the face of all the uncertainty about the possible outcomes in the markets, more investors' money flows more readily to where the best information is available. The explanation is simple: useful information produces more certainty, more certainty reduces risk, less risk reduces a company's capital costs, and lower capital costs lead to higher stock valuations.
Why, then, would these Congress members make inane threats to increase uncertainty by providing the markets with less information about taxes when the results would be greater uncertainty, more risk, higher capital costs and lower stock prices? I'm sure I'm not alone in recognizing the absurd outcomes of the actions they're threatening to take.
In a few words to these economic boneheads, put your uneducated hands on some good books that explain how greater amounts of useful information provided more often and with more clarity will drive stock prices through the roof. Instead, they cling to the foolish notion that reporting less information will lead to higher stock prices. They are totally wrong. And wrongheaded to boot.
The role of capital markets in the economy
Finally, everyone should know that economies that have access to efficiently priced capital are able to function at their own higher level of efficiency. Simply put, lower capital costs are key to market participants' being able to acquire productive assets and put them to use throughout the entire economy to lower costs for the producers while generating greater profits. In short, everyone would gain if the capital markets were to be inundated with more information that is understandable, trustworthy, timely and readily consumable.
Instead, these members of Congress who have threatened the SEC's budget and FASB's standards are essentially seeking just the opposite outcomes of inefficiency through higher capital costs, higher prices for goods and services, lower profits and lower stock valuations.
How low can they go?
It seems to me the members of Congress and the lobbyists are not the dumbest actors in this play, however. In fact, I'm certain that this adjective applies best to the managers who hired the lobbyists to produce results that are just the opposite of what is actually good for themselves. How misguided can you be to spend money to end up worse off?
Finally, I say to them, keep your sleazy hands off the economic system that's designed to produce a rising tide for all boats, even theirs. If they had a lick of common sense and honesty, they wouldn't have gone down this road.
