Emergent Chaos

Roger McNamee has an article on how Sarbanes-Oaxley is hurting public companies by making their guidance more conservative than it should be.

It’s hard for executives to avoid providing some form of guidance – investors generally insist on it – but they have a big incentive to understate the outlook early in the fiscal year.  As annoying as the recent sell-off must be to executives, it is the lesser of two evils.  No executive wants to invite shareholder litigation by falling short of aggressive guidance, so most execs put out the lowest guidance they think they can get away with.  As the year progresses, the guidance window gets shorter and shorter, and the trend line in fundamentals provides investors with greater confidence in the outlook for the year.

When you combine that problem with the increased bar for a company to go public, which I wrote about in Sarbox and Venture Capital, the damage done by laws passed quickly becomes increasingly clear. Which is all the more reason to take our time and write a decent privacy law in the aftermath of Choicepoint.