In the spirit of the GIPS(R) standards, let’s begin with a bit of “full disclosure.”
I’m one of the 17 Americans who have yet to use Uber.
Furthermore, I’m not a fan. And why is that? Well, taxi owners in New York City must spend hundreds of thousands of dollars to obtain one of the limited edition medallions that permit them to operate within the city. London cabbies must spend a minimum of two years studying for “The Knowledge” exam.
But along comes Uber, and for a minimum investment, someone who doesn’t know how to get from Hyde Park Corner to Buckingham palace, or from St. Patrick’s to Trinity Church can immediately become a London or NYC taxi driver. That troubles me. It just doesn’t seem fair, regardless of the hype and alleged convenience Uber provides.
But putting that aside, and going to the heart of this post. why would I suggest that Uber can be a “poster child” for the Global Investment Performance Standards?
“Uber, Come Clean”
In this past weekend’s Barron’s, Alex Eule wrote an interesting piece on this phenomenon in travel (“Uber, Come Clean”).
His piece, besides reminding us of some of Uber’s recent challenges, contrasts the requirements of a public vs. private company when it comes to disclosures.
“Public companies don’t have the ‘luxury’ of hiding troubling news.”
The author references a prior article where he “argued that investors’ embrace of these privately held companies enabled weak governance and poor behavior.”
The point in the article that made me think of GIPS was this statement: “Even Equifax (EFX), not exactly the poster child [did he steal my cliché?] for best practices, reported its recent breach within six weeks of the occurrence.”
Since Uber is a private company, it isn’t held to the same standards as public ones. “It’s fair to wonder how much will change at Uber, so long as the company remains private. Uber won’t have to address questions from Wall Street analysts in its next quarterly earnings call And the company seems unlikely to disclose the fallout from the breach in terms of costs, whether real or reputational. Without the discipline of going public, there’s little holding Uber to account.”
Without the discipline of GIPS compliance …
The GIPS standards require firms to adopt a certain degree of discipline, when it comes to reporting information to prospects, maintaining compliance, establishing and adhering to policies and procedures, and communicating, in general, their past performance.
GIPS equals best practice
When I am asked, for example, by an asset owner “why should we comply with the Standards?,” the first part of my response ties back to this fact: GIPS is best practice. I’ve yet to meet anyone who is comfortable with second or third best. Shouldn’t we all strive to adopt and adhere to best practices?
Because there are no rules that govern private companies, Uber is free to decide what information they wish to share with the public. Likewise, those firms and organizations that choose not to comply with GIPS are free to decide what they want to disclose and how to disclose it. Their calculations can vary greatly from what GIPS requires, and won’t be penalized as a result.
Most asset managers “get it,” and have chosen to comply. We foresee that asset owners, too, will adopt GIPS. Not exactly for the same reasons as asset managers, but they will, I’m sure, see benefits from taking this step.
Comments from a reader
I wanted to share with you a comment that came in, not through the normal channels, but rather sent to Jean Bryer, who emailed the notice about the post. Others might have a similar reaction, so sharing both the comment and my response seemed appropriate.
What kind of crap is this? Comparing government driven oligopolistic taxi systems in big cities to a competitive innovator like Uber, and then linking this to GIPS? What are you smoking?
Thanks for sharing your thoughts on today’s post.
To first answer your rhetorical question: nothing. I have never smoked marijuana, and don’t smoke anything that’s legal, either.
As for “oligopolistic taxi systems,” your point is well taken. Yes, taxi systems that are controlled by cities can have loads of restrictions. I am not familiar with very many, but do know that it’s common for municipalities to sell licenses, often in the form of an auction. In NYC, there are, as is in many other municipalities, a fixed number of them. As a result, when someone wants to part with theirs, they put it up for bid. In NYC, I believe that the medallions have gone for $500,000 or more. This has been the way it is for decades. We can argue whether it’s right or wrong, but it is, what it is. My point is that if someone has invested hundreds of thousands of dollars, does it not seem a bit unfair for another person to be able to offer an equivalent service with a minimal investment?
As for London, all cab drivers had to pass “the knowledge” exam, which is one of the most difficult exams around. Again, it seems unfair to me that someone can become an equivalent provider without having any real knowledge of the city (they can rely solely on a GPS).
That is it. You can disagree with my opinion, which is fine. I was using the Uber article mainly as the basis for a comparison to GIPS; my initial comments were simply to indicate my general view of their service. Sorry if you were offended or found my remarks to be without basis. But thanks also for being a reader of the blog.
I then sent the following:
I wanted to add one more thing, in case you were not aware of this.
Municipalities [in the United States] obtain revenues from a variety of source, including:
- Property taxes
- Sales taxes (in some cases)
- Marriage licenses
- The court system (e.g., a portion of the fines for traffic tickets).
I was mayor of the Township of North Brunswick (NJ) from 2000 to 2003; prior to that I was a councilman for two years. When I became mayor, I tried to find ways to reduce or at least limit property taxes. I appointed a judge who was more efficient in handling cases: this helped us raise a considerable sum. The sale of both liquor and taxi licenses is yet another way to raise money. And so, while these might be oligopolistic, they do serve to benefit the tax payers. Our town, for example, introduced a taxi license system in 1999, which generated several hundred thousand dollars, which helped offset expenses and provided a way to limit taxes. Likewise, on occasion the town had the right to issue new liquor licenses (I imagine this varies from state to state, but in New Jersey, the number of allowable licenses is controlled by the State). During my tenure we auctioned a couple, which, again, provided a few hundred thousand dollars.
With Uber, I imagine municipalities get zip! Something to think about, I believe.