Commercial Litigation and Arbitration

Securities / Fraud / Disclosure – “Just because something is disclosed doesn’t mean it wasn’t lost in a mass of detail” (Good Quotes from FT)

From Financial Times, Lex column, Nov. 13, 2014 (

Financial reporting: short is sweet  

Be honest, be clear, be done with it. As columnists know, a word limit focuses the mind and helps the reader.

Lehman Brothers’ 2007 annual report was a long, but not Proustian, 132 pages. Then the bank went bust. And most banks’ 2007 reports contained little hint of their exposure to the US housing market, or indeed their true leverage. Regulation rightly changed to increase transparency. And banks added pages, hoping to placate both investors and lawyers.

So annual reports have inflated prodigiously. Some of the new information is useful – disclosures about financial instruments and board remuneration are better now. But a 598 page report (HSBC’s last annual report/bludgeon, for example) is a barrier to understanding. Just because something is disclosed doesn’t mean it wasn’t lost in a mass of detail.

Readers should be congratulated (and then resuscitated) if they make it to the end of a modern report. But they still might not understand the business. Keeping an annual report succinct forces preparers to focus on what matters. If a business truly requires 600 pages to describe its operations, then it is too complex for an outsider to invest in (whether it is too complex to manage is a separate question).

Two recent UK Financial Reporting Council projects present recommendations for more concise reporting. The FRC is not proposing new rules, though it recommends cutting clutter and focusing on the audience, but it is short on specific proposals for what should be cut out.

And, indeed, rules cannot solve the problem. What is important varies by company and industry, and knowing what is important requires judgment and cannot be standardised. Setting a limit, of, say, 40 pages in 12 point font would be mad. Instead, regulators and companies must recognise that disclosure does not cleanse all sin. If the crucial point appears on page 423, it is concealed. And the company is accountable for that.

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