Risk Management

Political risk for market dominance

A recent article on the New York Times about the political costs that Google is facing due to its market dominance, and their strategy to reduce those costs, caught my interest:

Google has begun this public-relations offensive because it is in the midst of a treacherous rite of passage for powerful technology companies — regulators are intensely scrutinizing its every move, as they once did with AT&T, I.B.M., Intel and Microsoft. Some analysts say that government opposition, here or in Europe, could pose the biggest threat to Google’s continued success.

Google’s SEC filings make repeated mentions of the high level of competition the company faces in their business. Microsoft and Yahoo are specifically named as the two biggest competitors, and Google notes that Microsoft has more cash and employees, and both companies have longer relationships with advertisers.

I find it interesting that Google is taking the strategy of talking about the “formidable competition” they face as a risk to their business instead of (or in addition to) the risk posed by increased government regulation as a result of their perceived market dominance.

In the section where they talk about government regulation and the risk it poses to their business, they discuss issues like privacy laws, copyright infringement and even net neutrality. But I couldn’t find mention of the risk presented by regulation due to the perception of unfair competition.

Does your business face political risks like Google and other tech companies?


Alberta kiboshes plan for single Canadian securities regulator

So much for mobile, accessible capital for growing Canadian businesses…

Alberta Premier Ed Stelmach poured cold water yesterday on federal Finance Minister Jim Flaherty’s push for a nationwide securities regulator, saying he has no interest in moving beyond an alternative system provinces have set up.

He said he’s content to stick with the “passport system” – arranged by all provinces except Ontario – that synchronizes securities approvals but allows 13 separate securities commissions to remain.

That’s right – thirteen separate securities commissions for Canada, each one a fiefdom unto itself in terms of enforcing securities legislation. Restricting the flow of capital through a country quickly falling behind its core G8 competitors.

Alberta’s support is considered crucial to forming a single securities regulator because companies headquartered in the province have the second-biggest market capitalization of any jurisdiction in Canada.

Ontario is the largest in terms of market cap, but Alberta is growing quickly on the strength of oil sands development.

According to Canada’s Department of Finance:

In December 2003 the Wise Persons’ Committee presented its report recommending that the federal and provincial governments collaborate to establish a single securities regulator in Canada. The federal government continues to work with the provinces towards the development of a single securities regulator to promote greater efficiency in Canada’s capital markets.

C’mon guys, they don’t call them wise persons for nothing!

What do you think? Is there any hope for a single regulator in Canada to rival the SEC in the US and the FSA in the UK?


Options backdating investigation not making the SEC any friends

Tech companies are the primary focus of the SEC’s recently announced and currently ongoing investigation into options dating irregularities, which makes sense given their proclivity for awarding stock options as part of compensation packages with employees.

An article in BusinessWeek documents what tech company executives have recently termed a “witch hunt”:

Many executives are surprised by the breadth of the government’s probe, which has resulted in SEC investigations into 80 companies and criminal indictments against former executives at Brocade Communications and Comverse Technology.

I think that speaks to the rampant abuse we’re going to see coming out into the open as a result of the probe. The SEC wouldn’t investigate unless they were reasonably certain there was wrongdoing to be found.

One tech company executive, Daniel Warmenhoven of Network Appliance, is interviewed for the article. The exec spoke out publicly because the company has just performed a comprehensive review of their options practices and deemed themselves in the clear.

“I thought the SEC’s role was to build investor confidence. What they’re doing right now is destroying it, and I don’t see the purpose.”

Applying a statute of limitations to this sort of white collar crime (let’s call it what it is) would send an even worse message to investors and their brittle confidence than all this pesky investigating.

Improving compliance with regulations and GAAP will do more to inspire confidence in the markets than sweeping all this under the rug.