It seems that the very purpose of a corporation, to make money over the long run, has been dashed by incentives to perform quarter after quarter. As the American attention span diminishes while our hunger for instant gratification and constant growth intensifies, how should the law evolve? How should corporations adapt? What is the SEC’s role in reigning it all in? During this episode, we are joined by UCLA Law Professor James Park, a leading expert in securities regulation, public companies, and securities fraud. Join us as we discuss his book, The Valuation Treadmill which delves into familiar case studies, including Xerox, Penn Central, and Apple, to consider how the constant pressure to meet projections causes public companies to commit securities fraud. Touching on the PSLRA, Sarbanes-Oxley, Dodd-Frank, and the concept of real earnings management, we discuss the pressure public companies face to meet earnings projections and the lengths to which they’ll go to keep pace with such projections. Is valuation pressure inevitable in our economy or are there ways around it? Hear James’s ideas, learn more about what drives certain companies to commit securities fraud, and decide whether there’s a way off of this treadmill.
Key Points From This Episode:
•The shift that has occurred in keeping with the reduced American attention span.
•Introducing guest James Park, professor, author, and expert.
•His definition of the Valuation Treadmill.
•The utility of forecasting and the related dark side.
•Xerox as a case study.
•Penn Central and the surrounding scandal that caused us to lose faith in managers.
•How the story of Apple’s early products demonstrates the necessity of understanding the risk of investing in tech.
•The PSLRA passed in 1995 and how it offers protection for projections.
•Considering criticisms of the PSLRA and to what extent it was successful.
•Where Sarbanes-Oxley and Dodd-Frank fit into this conversation.
•The method of real earnings management.
•Why there are bigger losses at stake when misrepresenting the numbers.
•Finding better ways to embrace disclosure.
•The impact executive compensation packages have on securities fraud.
•James’s suggestion that proving a motive is sufficient and why it is controversial.
•Why the duty disclose is only going to get stronger.
Links Mentioned in Today’s Episode: