Trick, Treat or Transparency – No Financial Tricks This 4th Quarter

by Darren Horwitz, VOLLMER Dallas

Kids, put your costumes on and rush out to get your candy now; it is going to be a long, lean fourth quarter void of tricks and treats.

In the past few weeks we have seen our financial markets crumble as companies like Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch became prey to their own financial hocus pocus. Having purchased investments backed by suspect loans, these institutions lacked the cash to withstand the drop in mortgage investments when the housing market began its downward spiral.

To make matters worse, in just one week, the global markets saw stock losses of $3 trillion and the SEC placed a temporary ban on short selling. Hedge funds and investors have been spooked as government watchdogs are on high alert.
Economists believe that the housing and credit crisis could continue for at least two more years, and the government is struggling to keep our economy from falling into the abyss.

This is no trick.

Dracula has taken a big bite out of Wall Street and threatens to bite even deeper.

Now if that isn’t enough to scare you as we approach Halloween, nothing will.

Here is the quick take. Now is not a time for financial trickery and hocus pocus.

• Financial trickery leads to mistrust
• Mistrust leads to unrest
• Unrest leads to a loss in confidence
• A loss in confidence leads to…

While most organizations will take a wait and see approach, lock their doors, break out the holy water and pray that evil passes them by, thoughtful organizations will take a different path.

As retail and institutional shareholders, employees and clients now live with the specter of lies and mistrust in the financial markets, organizations that communicate consistently and effectively will survive the scare.

Companies that practice true transparency using vehicles to provide investors with greater access and availability to information have a unique opportunity to strengthen shareholder loyalty, when loyalty is hard to come by.

Here are a few things you can do keep your investors happy while you survive the scare.

• Create a perception survey to determine what your biggest institutional investors are thinking. You will be surprised what concerns may exist about your business and your ability to grow.
• Develop metrics and proof points to ensure your company’s strategy and performance are highly visible and accessible to investors.
• Take a proactive approach as we move from GAAP to international financial reporting standards (IFRS). IFRS promises to be the largest change in reporting since Sarbanes Oxley. Asking questions and preparing for these new standards will demonstrate an openness to these new requirements that will support customers, employees and shareholders.