Transparency Analytics in Decision Support

Happy New Year to all!

In 2019, we look forward to providing additional risk transparency and analytics insights, tools, and tips to help each of you have a successful year and beyond.

The concepts of transparency are gaining traction in broad elements of society ranging from traditional financial transparency such as company earnings and impact on Enterprise Values, to new disclosures associated with consumer data protection and privacy.

For example, when Apple Computer announced quarterly earnings on November 1st, 2018, they also disclosed their decision to halt updates on unit sales and average selling prices for iPhones, Macs and other product lines. The CNBC article titled “Apple has ‘something to hide’: Here’s what every major analyst had to say about its earnings report” published November 2nd 2018 highlighted the importance of transparency in financial performance disclosures as analyst Daniel Ives of Wedbush Securities criticized Apple’s decision to halt updates on unit sales and average selling price data saying “The Street will find this a tough pill to swallow this morning as the transparency of the Cupertino story takes a major dent…”.

Since the earnings release and disclosure change on November 1st, 2018, Apple Computer stock price has declined from over $222 per share on November 1st, 2018 to $157 per share on December 31st, 2018 which equates to a 29% decline and over $308 Billion in Enterprise Value reduction. It is difficult to quantify and attribute the amount of the reduction in share price since November 1st, 2018 specifically to the disclosure change, but this example highlights the need for robust risk transparency evaluation and consideration of key company disclosure decisions especially during volatile financial markets.

Facebook was in the news in 2018 with various transparency and data protection issues associated with their 2.27 billion monthly users (as of September 30, 2018). In their March 16th, 2018 news release, Facebook announced suspending Strategic Communication Laboratories (SCL), including their political data analytics firm Cambridge Analytica. Facebook disclosed additional customer and consumer privacy data protection, and transparency information and initiatives throughout 2018.

On July 25th, 2018 Facebook released their quarterly earnings and missed analyst expectations on revenue and disclosed slowing user growth. Facebook share price began to decline from the July 25th, 2018 high of $218 to the December 31st, 2018 closing price of $131. The 47% share price decline represented a loss of over $209 Billion of Enterprise Value. Facebook provides another example of the importance of designing risk transparency analytics into the early stages of product designs and launch strategies vs. later having to hire 20,000 security and safety employees to fix issues associated with data protection and privacy and rebuild public trust.

The May 2018 entry of the European Union (EU) General Data Protection Regulation (GDPR) introduced stronger rules on data protection. According to the European Commission GDPR website, the new stronger rules on data protection mean people have more control over their personal data, and businesses benefit from a level playing field. GDPR is having a significant impact globally as it has provided a standard framework for the transparency and requirements of businesses over personal data protection and privacy. GDPR also foreshadows standards likely to be adopted throughout the world.

All types of entities and consumers will be focused on financial reporting, computer and cyber related privacy and security, and new expectations of transparency in 2019 and beyond. Systematically assessing these risks and opportunities earlier in key decision making and ensuring alignment with risk appetite and tolerance levels can increase entity success and long-term resilience.

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