Marketing's new role in financial reporting.

• Author: Hall, Robert
• Position: Marketing Solutions

The current era will probably go down as "post-Enron," but Enron is just the latest I example of financial reporting abuse.

What is ratcheting up investor anxiety and skepticism is not so much fear of rampant Enrons or egregious frauds or even the parade of earnings restatements. The real worry is financial reporting that obscures as much as it illuminates. The symptom is Enron and its ilk. The root cause is the pressure to create value. Evidence of this pressure can be found in financials that fog--rather than illuminate--value (and associated risk).

Sam Eddins, managing director at CSFB HOLT, says, "Because the accounting is not a very good reflection of the economic activity it's meant to report, I think it allows the boundaries to be loosened."

The fundamental question from anxious investors, emboldened analysts and alarmed regulators is: Where is the evidence of the value your company is creating?

For a period, companies and investors tacitly indulged in mutual obfuscation. Investors blithely bet on "business models" they rarely claimed to understand. And many companies got a "pass" on clarity.

Conglomerates by definition have a tough task using financials to explain the performance of myriad businesses. The GEs of the world are under fire not for misleading but for not leading.

Other companies have been getting a "merger-related pass" on their financials. For years after a merger or acquisition, the impact of the deal obscured the view of what was making money and what was not. Now, reports Business Week, "the 20 companies with the greatest merger and acquisition activity over the past four years are being punished by Wall Street"--down 15 percent compared to 5 percent for the S&P 500.

The dot-corns devised their own brand of opacity for a good reason. They didn't have earnings. A lot of the time they didn't have products or customers. They had to invent new financials.

So, nothing nefarious, but each time these companies rolled out vague or imprecise metrics, the mentality of "beats me, but I'm buying" was reinforced and rewarded. Enron and an avalanche of ineptitude and wrongdoing precipitated the inevitable day of reckoning.

Out of that crisis, we see an...