Forward looking rigor mortis afflicts CEO’s

Mention the term “forward looking statement” to any pre-revenue public company CEO and he’ll get an instant case of rigor mortis.

The powers that be have done a great job of scaring the pants off CEO’s when it comes to making forward looking predictions about revenues for the company.

The Corporations Act however only makes a couple of passing references to forward looking statements requiring there to be a “reasonable basis” for making one.

The problem however is that the term “reasonable basis” has not been tested in court and therefore it is left to bureaucrats who have no commercial experience to determine what that reasonable basis might be.

This approach is based on the thesis that investors need to be saved from themselves and that the public are incapable of determining what a reasonable basis for a revenue prediction might be.

A better approach might be to allow CEO’s to make revenue predictions provided only that they also publish their reasons for making those predictions.

Investors could then make their own considered judgements about whether there was a reasonable basis for making that prediction and CEO’s could then be held accountable by shareholders – not the bureaucrats if they get it wrong.

What do you think ? Email : matt.birney@businessnews.com.au