Tag Archives: Company coverage
by Chris Roush
Micheline Maynard, a former New York Times automotive writer, has started a Kickstarter campaign to fund a new book about why people are driving less.
The journalism project is called “Curbing Cars: Rethinking How We Get Around.”
“Curbing Cars” will be an ebook that will look at bike sharing (think Citibikes and Divvy), car sharing programs like ZipCar, ride sharing projects such as Uber, and people seeking walkable communities, explained Maynard.
“Curbing Cars” also will analyze what this means to the future of the auto industry. “We know many young people are putting off getting their licenses, and student debt means new graduates are delaying the purchase of their first car,” said Maynard.
Her sidekick in “Curbing Cars” is Rick Meier, a historian and communications specialist who’s based in Toronto, so the project has both an American and Canadian outlook.
They’re aiming to raise $10,000 by Aug. 12, and are aiming for the ebook to be published in early 2014.
Here’s the Kickstarter link.
by Liz Hester
The ubiquitous software giant Microsoft announced Thursday a huge internal overhaul in hopes of sparking innovation and putting a stop to the infighting that’s damaging the company.
Here are excerpts from the Wall Street Journal story:
Microsoft Corp. unveiled a broad reorganization Thursday aiming to break down internal fiefs that have slowed product development and caused friction among teams of employees.
In its place, Microsoft is imposing a more horizontal plan with managers who will oversee different kinds of functions—like engineering, marketing and finance—and apply them to multiple product and service offerings.
Microsoft’s restructuring follows a strategic plan, which began taking shape about a year ago, to shift its identity away from being a producer of operating systems and application software. Instead, the company wants to be known for devices—designed by Microsoft itself or by partners—and services that are closely tailored to work with that hardware.
The strategy shift, though it still relies heavily on software development, emulates the way rivals like Apple Inc. and Google Inc. have approached development of products such as smartphones and tablets.
Microsoft had already developed successful combinations of hardware and software, like its Xbox videogame console, but in other cases has been hurt by largely independent product units working in isolation.
The New York Times outlined details about how the company will restructure in an attempt to get divisions to work together instead of against each other:
Microsoft said it would dissolve its eight product divisions in favor of four new ones arranged around broader themes, a change meant to encourage greater collaboration as competitors like Apple and Google outflank it in the mobile and Internet markets. Steven A. Ballmer, the longtime chief executive, will shuffle the responsibilities of nearly every senior member of his executive bench as a result.
“To execute, we’ve got to move from multiple Microsofts to one Microsoft,” Mr. Ballmer said in an interview.
It remains to be seen whether more cohesive teamwork, if that is what results from all the movement, will offer the spark that has been missing from so many of Microsoft’s products in recent years.
The company has been widely faulted for being late with compelling products in two lucrative categories, smartphones and tablets. Its Bing search engine is a distant second to Google and loses billions of dollars a year for Microsoft.
Rivalries among the company’s divisions have built up over time, sometimes resulting in needless duplication of efforts. Microsoft managers often grumble privately that one of the most dreaded circumstances at the company is having to “take a dependency” on another group at the company for a piece of software, placing them at the mercy of someone else’s development schedule.
The Reuters story makes an important point for shareholders to remember, that the internal changes will be a large distraction for the staff:
The moves realign the company that helped revolutionize the personal computing industry in the 1980s into what Chief Executive Steve Ballmer calls a “devices and services” corporation – a nod to Apple Inc, which has surpassed it in profit and market value in recent years.
It is also an implicit rejection of “software”, the business which Microsoft helped pioneer and drove the worldwide adoption of personal computing, but in which it faces stiff competition from new rivals that have popularized Internet-based services.
Executives told reporters and analysts on a conference call they did not plan layoffs for now. But a certain amount of employee disruption is to be expected as the company modifies its device marketing and development strategies.
“It can be a major distraction. The details have to be ironed out, there will be a lot of water-cooler talk and that’s happening as the company has some critical products coming out, like a unified phone, Xbox,” Gillis said.
Microsoft’s shares have gained almost 30 percent this year, helped by a rally that began in late April when the company released strong revenue and earnings during what was one of the worst quarters for PC sales on record.
They closed Thursday up 2.8 percent at $35.685.
The Journal reported that the old structure had been in place since 2005, but the new one might not solve all of Microsoft’s problems:
The current corporate structure had largely been in place since 2005. At the time, Mr. Ballmer had argued that greater autonomy would allow product groups to make decisions more quickly. Now, however, he argued that greater collaboration was a more pressing priority, as devices and online, or “cloud” services, must work better together.
“We will pull together disparate engineering efforts today into a coherent set of our high-value activities,” he wrote in the memo. “We will see our product line holistically, not as a set of islands.”
Analysts and former Microsoft executives noted that the change will require more discussion and negotiation among managers, neither of which are necessarily conducive to speedy action. Once action is taken, however, the results for users could be improved.
This is an important story for shareholders. Despite the stock’s gains made this year this reorganization will likely determine returns for the next several years. Anything that helps the behemoth become more nimble is a good thing for investors. Here’s hoping that it’s not too late.
by Chris Roush
Netflix has decided to eschew its common earnings conference call for its second-quarter earnings for a conversation between its CEO, an analyst and CNBC reporter Julia Boorstin, reports George Szalai of The Hollywood Reporter.
Szalai writes, “‘In lieu of our regular earnings call, Netflix chief executive officer Reed Hastings and chief financial officer David Wells will host a live video discussion about the company’s financial results and business outlook,’ the online streaming giant said in an advisory. ‘The discussion will be moderated by Rich Greenfield, BTIG Research, and Julia Boorstin, CNBC, with questions submitted via email or Twitter.’
“Boorstin is CNBC’s media reporter. BTIG analyst Greenfield is known as one of the most outspoken Wall Street entertainment industry analysts.
“Netflix didn’t detail the exact format of the discussion but said that it would be open to investors. Traditionally, earnings conference calls feature only questions from analysts covering a company.
“‘Questions from investors should be submitted to email@example.com/@RichBTIG or Julia.firstname.lastname@example.org/@JBoorstin,’ Netflix advised. ‘The moderators will incorporate as many questions as time permits into the discussion.’”
Read more here.
by Liz Hester
Zynga founder Mark Pincus is stepping aside as CEO and bringing in Don Mattrick, head of the Xbox division at Microsoft. Interestingly, the two will have a both directly report to the board of directors since Pincus will stay as chairman and chief product officer, according to the Wall Street Journal.
Here is some of the context behind the move from the WSJ story:
The unusual arrangement underscores how difficult it has been for Mr. Pincus to revive his company, which went public in December 2011 amid lofty expectations for businesses built on social networks, but has been caught flat-footed by the rapid adoption of mobile devices and the exodus of high-profile employees. Zynga’s shares have dropped about 70% since its IPO.
Mr. Mattrick’s departure comes at a crucial juncture for Microsoft’s videogame business. The Xbox One, Microsoft’s first refreshed videogame machine in eight years, is set to launch in coming months. The company didn’t immediately name a replacement for Mr. Mattrick.
Zynga, best known for its “Farmville” and “Words With Friends” games, reported in April that sales fell 18% in the first quarter. The company soon began restructuring, announcing last month plans to lay off 18% of its workforce, noting that its scale was now hindering its ability to turn around its business.
It isn’t clear how Mr. Mattrick, 49, who will also join the board, and Mr. Pincus, 47, will steer the company together through the new executive committee, or how they will hash out disagreements, since Mr. Pincus won’t directly report to Mr. Mattrick. Mr. Pincus still maintains a strong grip on the company he founded as chairman, and also through his ownership of 61% of the company’s voting rights.
The New York Times story points out the Pincus joins a growing list of start-up founders who turn to more established outsiders to help move their businesses to the next level:
In hiring Mr. Mattrick, Zynga is following a familiar rite of passage at young technology companies, which often look to seasoned managers to aid their transition from start-ups run by creative, headstrong founders into bigger enterprises. Google, for instance, brought in Eric Schmidt as chief executive to help manage the company with its co-founders Larry Page and Sergey Brin.
Some founders of troubled Internet companies have not been able to hang on, including Andrew Mason, the former chief executive of Groupon, who was fired from the coupon service in February after his missteps put him on the wrong side of its board of directors.
Mr. Pincus, who will remain at Zynga as chairman and chief product officer, worked hard on Monday to portray himself as a strong supporter of hiring Mr. Mattrick. In a message to Zynga employees, Mr. Pincus said he had long told Zynga’s board, including Bing Gordon, a stalwart of the games business and friend of Mr. Mattrick’s, that “if I could find someone who could do a better job as our C.E.O. I’d do all I could to recruit and bring that person in.”
The Financial Times story details how Pincus will still retain a large amount of control over the company even after stepping aside:
Mr Pincus’s leadership of Zynga has proved controversial since the company’s fortunes turned down a year ago. He has gained a reputation for harsh treatment of employees whom he thinks are underperforming and has attracted criticism for stripping some executives of equity awards previously promised by the company.
His management style came under scrutiny after early hits like Farmville lost momentum and follow-on games failed to build a solid following. Mr Pincus has also struggled to prove that Zynga can thrive beyond the shadow of Facebook, as he has tried to build an online platform which would reduce the company’s dependence on the social network.
Zynga recently cut Mr Pincus’s salary to $1 for 2013 and said he would not receive a bonus or any awards of extra equity. However, he has faced far bigger financial loss from the collapse in the company’s shares. Zynga’s IPO at close to the peak of its fortunes in late 2012 turned him into a paper billionaire, valuing his stake at $1.4bn by early last year. His shares are currently worth under $300m.
Mr Pincus has held the voting power to determine his own fate at the company he founded. Despite holding only 12 per cent of Zynga’s shares, he controls 61 per cent of the votes through a special class of voting stock, leaving him with full personal control of its boardroom.
Zynga’s unusual equity structure will leave Mr Pincus with the final say over Mr Mattrick’s plans to turn the company round.
According to USA Today, many analysts are speculating on how the two will work together:
Zynga’s interest in Mattrick stretches back nine months, but only got serious in the spring when he and Pincus started working out parameters over an executive partnership, according to two sources with knowledge of the discussions.
That partnership hinges on Mattrick running day-to-day operations while Pincus focuses on product development, which he has done at Zynga for years.
The sources, who asked not to be identified, said Mattrick was the only person Zynga considered as CEO. Mattrick has been a hot CEO candidate for the past year and linked to several jobs, including his former employer, Electronic Arts.
How the strong-willed Pincus and Mattrick divide duties is also the subject of conjecture among analysts.
“What’s (Mattrick’s) assurance that Pincus won’t be meddling?” Wedbush Securities analyst Michael Pachter says, ticking off a number of Zynga execs who recently left, including the former chief financial officer and chief operating officer.
As more and more of our economic value and growth comes from Internet companies, how these firms move from newly public to more mature corporations will be a driver of wealth. With many founders and early executives being pushed aside for those with more traditional corporate experience, the transitions for these firms is sure to be rocky.
Zynga is just another example of a technology firm struggling to move past its initial good idea into a more sustainable business model. For the sake of investors in many sectors, let’s hope it figures out the formula for making it work going forward.
As for the media coverage, they did a good job of analyzing the issues and laying out the various political aspects to the story. Fights for the top job are generally juicy stories, but this one with Pincus’ ability to retain control of the firm makes for an even more interesting read.
by Chris Roush
Wall Street Journal technology editor Jonathan Krim sent out the following staff announcement on Monday:
I am delighted to announce that Daisuke Wakabayashi will be shifting his perch from the Tokyo bureau to the growing technology team in San Francisco, where he will take on the critical beat of covering Apple.
A dogged reporter and smooth writer of all things tech in Japan, Dai has covered everything from the restructuring at Japan’s struggling electronics firms, to Nintendo’s attempts to stay relevant in a changing industry, to billionaire entrepreneur Masayoshi Son’s audacious bid to crack the U.S. telecom market. He was also involved in the Journal’s extensive coverage of the 2011 earthquake and tsunami in Japan.
Dai joined the Journal in 2008 in Tokyo after starting his career at Reuters, where he worked in Tokyo, Boston and Seattle.
In his own words, Dai “was denied the gift of rhythm. He’s a bad dancer and an even worse karaoke singer — a potential career killer in Japan.”
His move thus comes not a moment too soon, and we are fortunate and excited to gain his services. A firm date is TBD.
I have spent a lot of time in this column discussing the importance of building relationships with reporters. You hear it so often in the public relations world that many people have stopped thinking about what these words mean and why “relationships” are a cornerstone of the practice of public relations.
In fact, many reporters would likely argue that not only has the origin of this adage has been forgotten but the meaning has been ignored. That is what happens when lessons are taught without examples. If you can’t explain to a new college graduate just exactly why reputation and relationships matter in the PR business, then the practicality of the advice will be ignored.
This is why when teaching media relations to new PR people I emphasize a simple and critical function of the PR and media relationship: talking a reporter off all or a part of a story.
Getting a reporter to walk away from any bit of a story can be no easy task and from a PR perspective comes in vary degrees of difficulty. At its simplest, the reporter has heard something that is interesting but is actually inaccurate. At the most advanced, a reporter is on to something that is accurate and potentially damaging to a client (which I will discuss in more detail in a later column).
In a simple example, let’s assume that a reporter calls up the PR person and says they are working on a story that XYZ Corp. spent $4.5 billion in the last year on development of a new product. In reality the development of the new product cost $3.5 billion. While most people would assume that this is a simple problem to solve, when it comes to corporate spending disclosures nothing is simple. Private or public companies likely do not want to disclose this information, but if reported inaccurately the market could punish the company for spending too much.
Enter the PR pro with his strong relationship with the reporter. In this case, the PR pro can work with the reporter off-the-record to guide the reporter in the right direction. In this case, the PR pro might say “you know I can’t confirm our spending numbers on or off the record, but I can tell you that the number you have number is high.” In some cases, the company may even make the decision to supply the accurate number on background.
What becomes glaringly obvious in this example is the trust that has be established between the reporter and the PR pro. If the reporter doesn’t trust the PR person they may pause at the off the record caution but will likely push forward with that number.
However, if the reporter can trust the PR pro then it’s more likely they will appreciate the guidance. On a side note, I believe a company or agencies reputation matters just as much here, too. Even without an existing relationship with the PR pro, a reporter may have trust in the agency or company based on previous experiences.
Working with reporters cannot be a one-way street in which the PR pro hits send on a million emails and hopes a few “bite” on the story. (Unfortunately, this has become such a common practice it’s now known as “spray and prey”). A good PR pro has to be able to help a reporter write accurate and timely pieces while effectively representing their company or client.
It can be tricky at times, but open, honest and clear dialogue will build that trust and make life much easier.
by Chris Roush
Carey Polis of The Huffington Post writes about the latest installment of Bloomberg Television’s “Titans at the Table,” which features celebrity chefs Mario Batali, Bobby Flay, Tom Colicchio and Rachael Ray.
Polis writes, “As part of Bloomberg Television’s ‘Titans At The Table’ series, Batali, Flay, Colicchio and Ray all joined host Betty Liu at Manhattan’s Upper West Side location of PJ Clarke’s for an early dinner. They spoke about their brands, passions, goals and, of course, controversies.
“In the clip above, the four ‘titans’ discuss what it’s like being both chefs and television stars. They have no time for the haters — which all of them have. Flay argues that flack comes mostly from the food industry, and it isn’t the rest of America that actually cares. In a different part of the interview not included in the clip, Colicchio responds to the criticism over his endorsement of Diet Coke. ‘No, didn’t bug me at all. I slept at night,’ he tells Liu.
“There are a lot of theories about why celebrity chef fandom seems to be at an all-time high right now. In an era of obsession over Instagram food photos, non-stop Twitter feeds (including Mr. Batali’s!) and navel-gazing food media coverage, it’s sometimes easy to forget that part of the reason that food as a subject is so popular is because there’s a lot of change happening in our food systems today. And these four individuals are part of that movement, whether they meant to be or not.”
Read more here. The episode airs on June 25.
by Liz Hester
Gannett is paying $1.5 billion for Belo Corp., doubling its TV operations, and trying to move into the more lucrative world of broadcast as papers continue to lose money.
The New York Times writes that it’s the biggest sale of local TV stations in a decade:
The takeover is a move by Gannett to diversify its media operations at a time when traditional print media continues to struggle. The company said the transaction would increase its television portfolio to 43 stations from 23, while its revenue from digital and broadcasting operations would make up two-thirds of its pro forma earnings before interest, taxes, depreciation and amortization.
The deal is the biggest local television station sale in about a decade and comes amid of a wave of consolidation in the industry. One of Gannett’s rivals, the Sinclair Broadcast Group, is currently acquiring two smaller station owners.
And they offer this rational for the purchase:
Being bigger is also better when the stations turn around and negotiate with the networks that provide them programming. Networks like CBS have been aggressive about receiving a slice of stations’ retransmission fees, something known in the industry as reverse compensation.
Having a presence in more markets across the country — Gannett will have 21 stations in the nation’s top 25 markets when the Belo deal closes — can also help on the advertising front. Local stations in states with competitive elections have looked particularly valuable to investors as a result of the surge in political advertising every two years.
The Wall Street Journal points out that Gannett is on more solid financial footing than in the past:
Gannett—the largest U.S. newspaper publisher by circulation, including its flagship USA Today—has been aiming to build up its digital operations, partly through bolt-on acquisitions, as readers increasingly turn to the Internet and mobile devices for news. The company’s circulation revenue also has been getting a boost from the rollout of the digital subscription program.
In April, Gannett reported that its first-quarter earnings rose 53% as the media company reported a boost from its digital-subscription program, revenue growth in its broadcast business and a tax benefit. The company also reported its broadcast revenue increased 8.7% to $191.6 million, driven in large part by a 59% increase in retransmission revenue.
Bloomberg Businessweek goes even further to highlight the appeal of TV stations versus the dying dinosaur of newspapers:
Newspapers, like 1960s sports cars, are expensive toys these days: costly and usually more trouble than they’re worth. That’s the sentiment behind Gannett’s (GCI) move this morning to buy Belo (BLC) for $2.2 billion in cash and assumed debt. If shareholders and antitrust regulators sign off on the deal, the owner of USA Today and 81 other newspapers will be transformed into a company that earns more than half of its operating profit from TV broadcasts.
Apparently, investors were thrilled with the decision, sending the stock to record highs according to the Bloomberg story:
Gannett Co., the publisher of USA Today, surged the most in almost four years after agreeing to buy Belo Corp. (BLC) for about $1.5 billion, gaining TV stations to reduce its dependence on its shrinking newspaper business.
Gannett leaped as high as 29 percent to $25.69, the most since July 2009. It traded at $25.10 at 9:46 a.m. in New York. The McLean, Virginia-based publisher will pay $13.75 per Belo share in cash and assume $715 million in debt, according to a statement today. The per-share price is 28 percent above Belo’s closing price yesterday.
In addition to Houston, the deal gives Gannett stations in other major markets in Texas as well as in Arizona and in parts of the South and Northwest. The stations, and the broadcast networks they’re affiliated with, are beginning to extract fees from cable and satellite operators such as Comcast Corp. and DirecTV in exchange for distributing local-TV programming.
The pace of mergers has accelerated in the broadcast-TV industry: Last week, Media General Inc. agreed to buy New Young Broadcasting Holding Co., while Sinclair Broadcast Group Inc. has spent more than $1.84 billion on broadcasters in the past two years.
“Consolidation continues in the industry,” Tracy Young, a media analyst at Evercore Partners, said in an interview. “At the end of the day there’ll be a handful of players.”
The transaction also underscores Gannett’s exposure to the weakening newspaper industry. The company’s publishing business declined 23 percent in operating income last year from 2011. Gannett’s broadcast division, meanwhile, gained 47 percent in the same period.
What these stories aren’t pointing out is how consolidation generally leads to fewer jobs, which is terrible news for those continuing to eek out a living in the shrinking media sector. While it might be good for investors, it does shake confidence in companies that continue to get the majority of their income from newspapers.
It also is a counter to the argument for splitting newspaper and television properties as News Corp is doing. It may also be hard to attract investors to the more traditional media companies.
by Liz Hester
In his June 10 column, New York Times’ Andrew Ross Sorkin raises some pretty interesting issues about the government’s monitoring of personal communications and the role that large technology companies play. Some of his points would make for great questions on executive calls and follow-up stories for others.
Sorkin points out that Facebook’s CEO Mark Zuckerberg and Google’s chief Larry Page both denied that their companies were involved in the government’s spying, but that doesn’t exactly add up with the facts that we know about the program:
Mark Zuckerberg, Facebook’s founder and chief executive, declared: “Facebook is not and has never been part of any program to give the U.S. or any other government direct access to our servers,” adding that, “We hadn’t even heard of Prism before yesterday.”
Larry Page, Google’s co-founder and chief executive, went slightly further. “The U.S. government does not have direct access or a ‘back door’ to the information stored in our data centers,” he said. Apple, Microsoft, AOL andYahoo followed with denials as well.
And yet President Obama and the United States director of national intelligence, James R. Clapper Jr., have publicly confirmed the existence of the Prism system, without providing any details about it.
Of course, the news — as well as the responses — raises doubts about who is telling the truth and about how extensive the spying program really may be.
But perhaps just as important, the episode also raises questions about how publicly traded companies with hundreds of millions of consumers — companies that are regulated by the Securities and Exchange Commission and the Federal Trade Commission — can, and should, react to news when pressed about involvement in confidential government programs.
He writes that the statements are likely true when taken literally, but once one denied involvement, they all had to deny it. But they’re walking a fine line, since they do provide the government with large amounts of data:
But I also don’t doubt another part of his statement that was frequently overlooked: “We provide user data to governments only in accordance with the law.”
In other words, when the government makes a legitimate request — and through Section 702 of the Foreign Intelligence Surveillance Act, which was highlighted by the leak, the government can seek vast troves of information — Google and others comply.
It is possible, for example, that Mr. Page and Mr. Zuckerberg had never been told that the government’s program was called Prism. And it is highly unlikely the government has a password granting access to company servers despite early reports quoting a government document that used the phrase “direct access” and now appears as if it overstated the case.
At the same time, however, companies like Facebook and Google have clearly worked with the government to create systems to transfer vast amounts of private data that is sought by the N.S.A. and other government agencies. The New York Times reported last week, based on people briefed on the matter, that Google and Facebook discussed plans “to build separate, secure portals, like a digital version of the secure physical rooms that have long existed for classified information, in some instances on company servers.”
That is different from the idea that the government has “direct access” to corporate servers, but it still means that the companies are providing the government with enormous amounts of data.
For it’s part, Google has requested to publicize when the government asks for data, according to the Wall Street Journal:
Google Inc. on Tuesday said it had asked the U.S. Justice Department for permission to publicly report on secret federal court orders that require it hand over information about its users to authorities including the National Security Agency.
Google’s request, made in a public letter written by its chief legal officer, David Drummond, comes days after the government on Saturday publicly acknowledged that Internet content companies had received secret Foreign Intelligence Surveillance Act requests about the activities of their users.
It will be interesting if this sparks other companies to make this information public as well. The argument being that because the agency has discussed the matter publicly, then Google should be able to disclose it.
Sorkin points out that most tech companies have “terms of service” agreements that allow them to share personal information and communications. But since most people don’t usually read those, it’s hard to know what you’ve signed up for and who will wind up with it.
This raises interesting angles for business stories. Are there ways to make those disclosures easier for people to read and understand? Is there really a way to safeguard private information?
It would also be interesting to hear if investors are concerned about the risk of losing customers or if many of these sites have become so essential that people will shrug off the privacy concerns in order to keep posting cat photos.
Here is Sorkin’s last paragraph and parting thought:
So while the nation’s biggest technology companies may not be a part of systematic large-scale spying program, it is clear that they are legally required to play a significant role in funneling data to the government. That leaves them on a tightrope balancing what they can say to their customers and investors while complying with their obligations to keep the government’s secrets.
It’s definitely an important issue and one that I’m sure will come up in earnings calls in the next couple of months. Legal departments all over Silicon Valley are gearing up for a few long nights of prepping executives on what they can and can’t say.
by Liz Hester
Small and medium firms may have new, simpler rules for reporting finances in an effort to make accounting for them easier. While most of the business media covers large, publicly traded companies, this is a big deal for entrepreneurial firms and could amount in some much needed cost savings.
Here are some of the details from the Wall Street Journal:
Millions of U.S. small businesses will be able to use simplified, streamlined methods for measuring and presenting their financial results under a new accounting framework announced Monday.
The new guidelines for “small and medium-size entities” come from the American Institute of Certified Public Accountants, the nation’s main accounting trade group.
The guidelines are designed as an alternative to generally accepted accounting principles, or GAAP, the system large companies use in the U.S.
“It is a framework that is tailored for small business—a very relevant, simplified framework,” said Bob Durak, the AICPA’s director of private company financial reporting.
The New York Times added these details and pointed out a drawback of the new rules:
Some private companies have complained that preparing GAAP statements costs too much, with a considerable portion of the cost coming from rules that provided for disclosures that might be irrelevant. The companies say that because owners and lenders generally know one another, it is easy for them to arrange to get only the information they actually need, whether or not the rules require companies to provide it.
In the United States, unlike some European countries, there are no legally required accounting standards for most companies. The Securities and Exchange Commission requires that companies that sell securities in the public markets follow GAAP, but all others can use any form of accounting that the company and its creditors find acceptable. Many smaller companies just use tax accounting, because they must file tax returns like everyone else.
To win widespread acceptance, the institute framework would need support from two groups: accountants and bank lenders.
Any company that chooses to adopt the framework would face new headaches if it ever decided to go public. Then it would have to redo its financial statements for at least two years to conform to accepted accounting principles. “The framework is not intended for companies that are looking to go public,” Mr. Durak said.
The changes being proposed for a new GAAP for private companies might prove less of a problem. Because they are presented as specific changes from the normal rules, it might be easier to reverse them if a company needed to do so to sell securities in public markets.
It’s interesting to note that the new rules are not intended for firms that may go public. So the impact to the business media seems to be small. But it will be important for trade publications and those who work with middle market firms to understand the rules.
The New York Herald outlined the big pieces of the new guidelines:
Small businesses will use the FRF for SMEsTM to prepare financial statements that clearly and concisely report what a business owns, what it owes and its cash flow. Lenders, insurers and other financial statement users will find this new accounting framework helps them clearly understand key measures of a business and its creditworthiness, including:
- Business profitability
- Cash available
- Assets to cover expenses
- Concise disclosures
The framework’s streamlined common-sense requirements are based on traditional and proven accounting methods to ensure consistent application. Specifically, the FRF for SMEsTM:
- Uses historical cost – steering away from complicated fair value measurements
- Offers a degree of optionality – businesses can tailor the presentation of statements to their users
- Includes targeted disclosure requirements
- Reduces book-to-tax differences
- Produces reliable financial statements that can be compiled, reviewed or audited
What will be interesting to see is if some choose to research the outcome of the new rules. For instance, I would love to see if cost savings allow these companies to expand or if they have trouble getting bank loans because they don’t have GAAP financials. While those stories are years off, any time rules are changed, it’s a good idea to pay attention.