Candor. No, I’m not talking about condor, a bird. I’m talking about clear and unbiased communication. The Merriam-Webster definition uses the words fairness and honesty.
Do some corporate communications appear to contain more candor than others? Yes, based on a proposed metric. Does this appearance prove their candor? Those on the outside will never know. I’ve sometimes heard that the best corporate policy is the appearance of honesty.
Rittenhouse Rankings attempts to measure candor in corporate shareholder letters for a sample of 100 companies selected from the S&P 500. The sample group “was selected ten years ago based on industry grouping, capitalization size and financial reputations. Candor is quantified systematically by awarding points for informative, relevant disclosure and deducting points for jargon, confusing statements and clichés.”
Recently, the Rittenhouse Rankings 2012 Candor and Corporate Culture Survey™ was released. In the release, it is claimed that the ten most candid companies as a group earned a greater return on a stock investment than the ten least candid companies as a group. The difference in return appears to be large.
Does candor in the corporate shareholder letter prove anything about honesty in financial statements? No, it doesn’t. Form inferences at your own risk. But the list of ten companies with least candor (as defined by Rittenhouse Rankings) is interesting. You can find a list of these companies at the right IN RED. Two or three of these companies have been mentioned in the press for alleged financial reporting difficulties.
I, of course, recommend honesty in all things.
Wouldn’t it be great if all corporate financial statements were honest and free from bias and manipulation? What a wonderful world it would be.
Debit and credit – - David Albrecht