1. Transparency in Financial Disclosure:Beyond the Financial CrisisWilliam LutzClarity 2010Lisbon, 12 October 2010

2. Part I
An introduction, of sorts

3. The Premature BurialEdgar Allan Poe1844

4. What is the question?
The answers we get depend on the questions we ask.
Different questions lead to different answers.

5. How can we make high speed trains stronger so passengers will have a better chance of surviving a crash?

6.

7.

8. How can we make passenger airplanes safer so passengers will have a better chance of surviving a crash?

9.

10. Part II
A list

11. Blogswidgetscell phones
HDTVHuludigital cameras
DVRMySpacesocial media
FlipFace Bookwebcasts
MP3You Tubespiders
iTunesPlaxotext messaging
iPodLinkedInvideo on demand
iPhoneSecond Lifestreaming video
AppsWikipediaemail
WIFIFlickerSMS
GPSYahoocloud computing
KindlPandoracyberspace
BingShazamcrowdsourcing
Wolfram AlphaAndroid
GooglePhotoshop

12. Part III
Data, data everywhere

13. 10-K filings by one company
1996263 pages
1999265 pages
2009 1,376 pages

14. I read a few prospectuses for residential-mortgage-backed securities mortgages, thousands of mortgages backing them, and then those all tranched into maybe 30 slices. You create a CDO by taking one of the lower tranches of that one and 50 others like it. Now if youre going to understand that CDO, youve got 50-times-300 pages to read, its 15,000. If you take one of the lower tranches of the CDO and take 50 of those and create a CDO squared, youre now up to 750,000 pages to read to understand one security.
Warren Buffett, Fortune Magazine, April 8, 2008.

15.

16. A weekday edition of The New York Times has more data than the average person in 17th-century England would encounter in a lifetime.
The Nov. 13, 1987 edition of The New York Times contained over 12,000,000 words and weighed 12 pounds.

17. In 2006, companies used 301 forms to file 740,995 copies of required disclosure with the U.S. Securities and Exchange Commission.
Of these 301 forms,14 accounted for 77% of all filings.

18. Part IV
What do you know?

19. What is information?

20. Information is that which
reduces uncertainty.
Claude Shannon and Warren Weaver, (The Mathematical Theory of Communication, 1949)

21. Information is that which leads to understanding.
That which is not information is NOISE.

22. What is information to one person may be noise to another.
What is noise in one context may be information in another.

23. Information is created by each user of data.

24. Data are facts.
Information is the meaning that we assign to the facts.

25. Knowledge is using information to accomplish a task or achieve a goal.

26. Data ->
Information ->
Knowledge

27. London Underground - 1913

28. London Underground - 1932

29. London Underground - today

30. New York City Subway Map - today

31.

32. Field 9 production increased by 10,000 barrels per week.
Profits increased 4.6%.
Interest expenses declined 3.2%.
What do these mean?
Answering this question produces information. Using that information produces knowledge.

33. This is a financial statement from ca. 2270BCE.

34.

35. The Library of Alexandria

36. Part V
A world of 1s and 0s

37. See Part II.
We are moving from a top-to-down world to a bottom-to-up world.
Digital music: create your own albums
DVR: no scheduled television
Netflik: movies when you want
Pandora: create you own radio station

38. Once you have reduced something to 1s and 0s, you can do anything you want with it.
And just about anything can be digitized.
We are living in a user-created world.

39. Part VI
People are changing.

40. A 2005 study by the Consumer Federation of America found that
Over 70% between the ages of 18 to 44
61% between 45 to 54
45% between 55 to 64, and
24% of those over 65
use the Internet to carry out transactions.

41. Part VII
What do investors want, anyway?

42. What is the question?
It is NOT what information we should require to be disclosed.
The question is, how do we provide data so investors can get the information they want?

43. Part VIII
What is transparency today?

44. Disclosure today is top down and paper-driven in a bottom up, digital world.
Too many investors are driving a Model T in a Formula One race.

45. New Premise
Transparency is data in a format that investors can use to create the information they want.

46. We should move from a paper-based to an electronic-based disclosure and data system.
It should provide investors with tools so they can use that data to create the information they want.

47. Interlude 1
Data and capital have been reduced to 1s and 0s.
Data and capital are boarderless. They flow everywhere.
The world capital markets now function as one market.

48. Financial data is being standardized with the merging of GAAP and IFRS.
Data must be interactive.

49.

50.

51. Interlude 2
In 1946 0.005% of US households had a TV
In 1962 90% had a TV
From 1997 to 2007, there were 97 cell phones per 100 inhabitants in the developed world.

52. 1997 48,000 PCs manufactured
2001 125 million
2007 264 million

53. In 2009, North American wireless networks carried about 17 petabytes every month, equal to 1,700 Libraries of Congress.
By 2014, this amount is projected to be 740 petabytes per month.
A petabyte is one quadrillion (1,000,000,000,000,000) bytes.

54. Number of apps for the iPhone:
250,000+
Number of apps for the Android system:
70,000+

55. Around 1439 Gutenberg developed moveable type.
By the end of the 15th century there were 217 printing presses in 6 countries.
An estimated 8 million books were printed in the first 50 years.

56. Part IX
Ready or not,
the revolution is here.

57. The shift from paper and printing to digital and electronic is as profound, fundamental, and far-reaching as the shift from oral to print in the 15th century.
It took about 100 years for society to absorb that change. The change today will be much quicker.

58. Interlude 3
The defendant says, and the SEC agrees, that the information was disclosed in public documents, yet the SEC maintains that this disclosure did not meet the legal requirements for disclosure. The SEC says those documents were too obscure and difficult to understand to qualify as adequate disclosure.The Wall Street Journal, September 3, 2010

59. Disclosure isnt disclosure if it doesnt communicate.
Arthur Levitt, Chairman
U.S. Securities and Exchange Commission
1993-2001

60. Part X
A non-conclusion

61. What does all this mean?
What do we do?
Where are we going?
How do we get there?
And what does this and there mean?