006 The Corporate Truth Serum

· boringthings's blog


The favorite means of putting a corporate executive in prison, or at least fining them personally, is finding them lying to shareholders. Maybe this reveals our society's preferences for whom to protect, or maybe it's a question of looking under the lamppost(*), but documents presented to shareholders are going to be much more frank than when they're talking to general press.

[(*) Standard economist joke:
Person A is looking under the lamp post for their keys.
Person B: Can I help you search? Is there some specific area where you're looking?
Person A: I'm pretty sure I dropped them over there somewhere [gesturing to a dark corner.]
Person B: Then why are you looking here?
Person A: Because there's better light here.
Thusly, "You're looking under the lamp post" is what you tell an economist when their research is driven more by easy data availability than the real problems.
]

Within the USA, your focus is on the annual filing with the U.S. Securities and Exchange Commission, the 10-K. There's also a quarterly version, the 10-Q, and the 8-K about significant events like mergers or CEO shuffles, but they're not as interesting or informative. A corporation talking to the public via statements to the media will spin itself to downplay how much money it's getting out of the public, how little it's paying its labor, the big risks to its existence. A corporation talking to shareholders will brag about how easily it's getting money from the public, how little it's paying its labor, and is under legal obligation to list the big risks it is facing in detail.

If you want to research how a company is behaving on some issue, the 10-K is essential, and easily available. Just google "[name of company] 10-K", and it's likely to be the first hit, and will be full-text searchable. You might have to add something like "site:sec.gov" if you're getting noise in your search results.

Or, go to the web site of the company you're interested in and look for its "investor relations" page. This sometimes gives you a comparable "Annual Report" with a glossy front section, effectively a brochure pitching you on the company which is a little less terse than the 10-K but just as carefully fact-checked.

In the next few entries, I'll give you a few examples of the sorts of things we can learn from 10-Ks.