The United States is well known for the excesses of its lawyers. Citizens of other nations, while marveling at the upholding of the law in the US, are left scratching their heads in bewilderment at the famous McDonald’s case or the Washington DC laundry case. Cases like this have resulted in some labeling gems such as “Contents Hot” on a cup of coffee or “Remove the baby before folding the pram”. This post covers such an impact on the glamorous world of accounting.
When lawsuits against companies began mounting in the late eighties and early nineties, companies started to become extremely careful in disclosing any information at all, other than the statutory minimum, for fear of being sued. Best to say nothing ; say your name ( presumably safe) and say nothing more. The powers that be, in the US, realized that disclosure of more information , especially plans and strategies would be good for investors . In order to encourage companies to do so, some protection against being sued had to be given. The Private Securities Litigation Reform Act was thus passed in 1995.
This Act offered protection from being sued for companies making “forward looking statements”. The framers of the Act were oblivious to grammar - statements can neither look forward nor backward, not possessing any eyes, but we shall pass lightly over. If they had left it at that, we would have had some very interesting company announcements on the following lines – this is a forward looking statement ; my name is Ramesh. This is a forward looking statement; I may or may not post on my blog tomorrow. This is a forward looking statement. The blog may or may not be up tomorrow …..
So they very kindly stated that you do not have to preface every statement with a declaration that it is a forward looking statement and instead statements that contain words like “expect,” “anticipate,” “intend,” “plan,” believe,” “seek,” , “will”, etc may be deemed to be forward looking and that the company cannot get sued if such statements ultimately don’t turn out to be right. So if you say we expect to grow our market share and one year later it has fallen, you cannot be sued for having made a false statement.
This has hence resulted in the famous disclaimer that now precedes every company’s accounts, every earnings call, every filing, every anything. Its called by various names – simply disclaimer, or safe harbor statement, or whatever. It says that the company may be making some statements about the future, can’t guarantee that they will come true, and isn’t endowed with godlike powers to predict the future accurately. Of course, not in those words, but to that effect. If you are seriously interested in exactly what is said in wonderful legal language, click here for an example.
This is one of those useless statements nobody reads or pays the slightest attention to. As if anybody needs to be told that you can’t predict the future. But the absence of this statement would be fatal for a company, as some lawyer will then sue the pants off it. So they dutifully make it – page 1 of any filing, slide 1 of any presentation, first words (after Good Morning) of any speech.
What a waste.
Disclaimer – This post may contain certain forward looking statements, blah blah ..
When lawsuits against companies began mounting in the late eighties and early nineties, companies started to become extremely careful in disclosing any information at all, other than the statutory minimum, for fear of being sued. Best to say nothing ; say your name ( presumably safe) and say nothing more. The powers that be, in the US, realized that disclosure of more information , especially plans and strategies would be good for investors . In order to encourage companies to do so, some protection against being sued had to be given. The Private Securities Litigation Reform Act was thus passed in 1995.
This Act offered protection from being sued for companies making “forward looking statements”. The framers of the Act were oblivious to grammar - statements can neither look forward nor backward, not possessing any eyes, but we shall pass lightly over. If they had left it at that, we would have had some very interesting company announcements on the following lines – this is a forward looking statement ; my name is Ramesh. This is a forward looking statement; I may or may not post on my blog tomorrow. This is a forward looking statement. The blog may or may not be up tomorrow …..
So they very kindly stated that you do not have to preface every statement with a declaration that it is a forward looking statement and instead statements that contain words like “expect,” “anticipate,” “intend,” “plan,” believe,” “seek,” , “will”, etc may be deemed to be forward looking and that the company cannot get sued if such statements ultimately don’t turn out to be right. So if you say we expect to grow our market share and one year later it has fallen, you cannot be sued for having made a false statement.
This has hence resulted in the famous disclaimer that now precedes every company’s accounts, every earnings call, every filing, every anything. Its called by various names – simply disclaimer, or safe harbor statement, or whatever. It says that the company may be making some statements about the future, can’t guarantee that they will come true, and isn’t endowed with godlike powers to predict the future accurately. Of course, not in those words, but to that effect. If you are seriously interested in exactly what is said in wonderful legal language, click here for an example.
This is one of those useless statements nobody reads or pays the slightest attention to. As if anybody needs to be told that you can’t predict the future. But the absence of this statement would be fatal for a company, as some lawyer will then sue the pants off it. So they dutifully make it – page 1 of any filing, slide 1 of any presentation, first words (after Good Morning) of any speech.
What a waste.
Disclaimer – This post may contain certain forward looking statements, blah blah ..
