The SEC recently released some correspondence with Yahoo which carries a big lesson for leaders. Here are the relevant specifics, as reported by Bloomberg News. In April, 2012 an SEC staff accountant sent Yahoo Management a question about a statement Yahoo made in its 2012 annual report. Specifically Yahoo said that its search agreement with Microsoft represented more than 10 percent of Yahoo’s revenue during 2011 and 2012. The SEC asked Yahoo the following: “please tell us what consideration was given to quantifying the percentage or amount of revenues attributable to the Microsoft arrangement to more clearly demonstrate the significance of this concentration.”
Bloomberg noted that Yahoo responded that it would disclose the information in its 2013 annual report. This caused the SEC to specifically ask Yahoo to tell them the actual percentages for 2012 and the first quarter (Q1) of 2013. Yahoo did so in August, 2013 but asked the SEC to keep the data confidential. The SEC responded in September and said no way, telling Yahoo Management to disclose the data, starting with Yahoo’s third quarter (Q3) report. That report was issued recently and it shows that Microsoft provided 25% of Yahoo’s 2012 revenue, and 31% of its Q1, 2013 revenue.
Describing the situation as “above 10%”, when it is actually 25%, clearly raises eyebrows! As Bloomberg suggests, it is pretty obvious that Yahoo didn’t want to tell investors that a contract with a single company, Microsoft, was responsible for a big percent of its revenue.
I suspect this story quickly made the rounds among the financial analysts on Wall Street, and in the future may cause these analysts to be a bit skeptical of Yahoo’s public statements about its business results.
The lesson here is very obvious:
There is nothing more important than your reputation and you need to be absolutely objective and transparent with the facts at all times.
Any attempt to avoid talking about an issue, or presenting generalizations designed to steer people away from fully understanding, will likely lead to a point in time where it becomes very clear that you are being less than transparent. When and if that happens, it can take a long time to regain your tarnished credibility.