April 16, 2019

Uber’s Proposed IPO: Another Utopian Cab Dispatcher Hits the Market

Now that I’ve seen both Lyft’s prospectus & Uber’s recent filing, I’ve reached the conclusion that we here at need our own mission statement.  Here’s what I’ve come up with: “Our mission is to end global warming, poverty & tooth decay by publishing online and print resources for corporate and capital markets lawyers.”

Does that mission statement seem a bit unrealistic given the nature of our business?  Well, I think ours is arguably more tightly tethered to reality than what either of these two high profile tech companies cab dispatchers are peddling.

Lyft says its mission is to “Improve people’s lives with the world’s best transportation,” while Uber says that “our mission is to ignite opportunity by setting the world in motion.”  Both companies extensively embellish on their mission statements, with Lyft contending that it is at the forefront of a “massive societal change,” while Uber counters with a statement that it “believes deeply” in its “bold mission” and has a “massive market opportunity.”

This is heady stuff for companies with core businesses based on an app that does what Danny DeVito did in the ’80s sitcom “Taxi” & whose financials suggest that they spend a lot of time shoveling money into a furnace. Although to be fair, Uber will also deliver your Pad Thai order, and it’s . . .you know. . . sorry about the other stuff.

These messianic mission statements & the puffery that accompanies them have become a cliché in tech deals.  But it seems to me that they do little to aid investors and a lot to obfuscate what companies actually do. The whole approach reminds me of nothing so much as “The Great & Powerful Oz” exhorting Dorothy to “pay no attention to the man behind the curtain” – only what’s frequently behind the curtain in tech deals is an endless string of huge losses, and a path to future profitability that is far from certain.

By the way, there’s plenty of disclosure about what’s behind the curtain in these prospectuses, if you take a moment to look for it.  For instance, Uber accompanies its announcement of the new millennium with a 46-page “Risk Factors” section, while Lyft’s “Risk Factors” section is 41 pages long. So investors who get carried away with the hype have only themselves to blame. Read the prospectus.

Regulation G: Coming to a CD&A Near You?

SEC Commissioner Robert Jackson recently co-authored a WSJ opinion piece calling for increased transparency about the use of non-GAAP numbers in setting executive pay.  The article notes that Reg G generally requires companies to provide comparable GAAP information & a reconciliation, but acknowledges that this doesn’t apply to the CD&A discussion. The authors think it should:

Unfortunately, those requirements do not apply to the reports that compensation committees of corporate boards disclose to investors each year. Thus, committees choosing to use adjustments when deciding on payouts need not explain why an adjusted version of earnings is the right way to determine incentive pay for the company’s top managers. This increases the risk that adjustments will be used to justify windfalls to underperforming managers.

The SEC’s disclosure rules have not kept pace with changes in compensation practices, so investors cannot easily distinguish between high pay based on good performance and bloated pay justified by accounting gimmicks. That’s why we’re calling on the SEC to require companies to explain why non-GAAP measures are driving compensation decisions—and quantify any differences between adjusted criteria and GAAP. A few public companies already provide investors with this kind of transparency. Others can too.

Transcript: “The Top Compensation Consultants Speak”

We have posted the transcript for the recent webcast: “The Top Compensation Consultants Speak.”

John Jenkins