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A goat and a visionary

August 15, 2009


Some guys are plain unlucky. Chris Cox, former Chairman of the US Securities and Exchange Commission (SEC), is one of those guys. Heading the main US investment regulatory agency in the period preceding the worst financial crisis since 1929 automatically designated him as a culprit. He’s best known for the fact that John McCain, Republican presidential candidate in 2008, wanted to fire him … until he realized the Chairman of the SEC is not a Presidential appointee. Many have argued that Cox’ proclivity toward deregulation made him “the wrong man at the wrong time” at a time of great financial excess on Wall Street.

I will leave to history the task of judging Chris Cox performance, but there’s one thing that always impressed me about the man. He was a crusader for financial transparency. More specifically, he believed that by making financial statements interactive, one could unleash powerful forces of dialogue between investors and companies. The problem with traditional financial statements, he argued, is that whether in hard copy or Internet-delivered form, the information is glued to the page, i.e., you cannot search or dump the data into a spreadsheet. You’re like a medieval monk: you have to copy the data by hand.

Say you’re a financial analyst wanting to build a model of a company’s performance over time and create a sample of 20 companies in the same business. Your only practical choice is to go buy that data from an expensive data house, given the tediousness involved. As a result, you’re unlikely to have a large number of amateur investors digging at the company data and challenging her CFO. This failure to democratize access to financial information is a giant opportunity lost, particularly given the cozy relationship that periodically develops between professional analysts and securities issuers.

The first batch of interactive statements has just been filed with the SEC. Chris Cox is no longer there to see it, and his successor, Mary Schapiro, is understandably focused on other issues, such as developing stopgap regulation to prevent a recurrence of the recent global crisis. Very little has been written in the press about the new interactive disclosure prompted by Cox, perhaps because of the nerdy nature of the initiative (for geeks out there, the underlying technology is called XBRL tagging). There is however a nascent eco-system of academics, technology companies, service providers and other vendors who see co-creation through interactive disclosure as a major transformational opportunity for capital markets. Some of them even argue that interactive disclosure would have prevented Enron’s or Worldcom’s shenanigans because empowered individual investors would have demanded that new light be directed at the strange things that grew in the dark at those places.

The scapegoat that is Chris Cox may yet turn into a posthumous visionary.

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