UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

Role of secrecy in meeting business competition Huang, Hua Chai 1969

Your browser doesn't seem to have a PDF viewer, please download the PDF to view this item.

Item Metadata

Download

Media
831-UBC_1969_A4_5 H83.pdf [ 6.88MB ]
Metadata
JSON: 831-1.0102335.json
JSON-LD: 831-1.0102335-ld.json
RDF/XML (Pretty): 831-1.0102335-rdf.xml
RDF/JSON: 831-1.0102335-rdf.json
Turtle: 831-1.0102335-turtle.txt
N-Triples: 831-1.0102335-rdf-ntriples.txt
Original Record: 831-1.0102335-source.json
Full Text
831-1.0102335-fulltext.txt
Citation
831-1.0102335.ris

Full Text

THE ROLE OP SECRECY IN MEETING BUSINESS COMPETITION by HUANG HUA GHAI B.A. (Hons.)> University of Malaya, 1967 A THESIS SUBMITTED IN PARTIAL PULPILTi.IENT OP THE REQUIREMENTS POR THE DEGREE OP MASTER OP BUSINESS AIMINISTRATION In The Paculty . of Graduate Studies We accept this thesis as conforming to the required standard THE UNIVERSITY OP BRITISH COLUMBIA April, 1969 In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r an a d v a n c e d d e g r e e a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e a n d S t u d y . I f u r t h e r a g r e e t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may b e g r a n t e d b y t h e Head o f my D e p a r t m e n t o r b y h i s r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l n o t b e a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . D e p a r t m e n t of Commerce and Businesa Administration The U n i v e r s i t y o f B r i t i s h C o l u m b i a V a n c o u v e r 8, C a n a d a D a t e April 23> 1969 ABSTRACT Information and data are essentially the basic ingredients for the formulation of informed judgments and the making of rational decisions. In recent years, the inadequacy of business information and data available to the various segments of the economy has led them to advocate that business enterprises should disclose a l l their relevant and material information fully and comprehensively. Seldom, however, have they, who are outside the corporate management, given adequate consideration to the role that secrecy of business information can play in enabling competition among rival business enterprises. In this thesis, i t is suggested that secrecy of some information, not f u l l disclosure, is necessary i f business enterprises are to be competitive against rivals. This study has found that the business enterprises interviewed in the field study are strongly opposed to disclosing fully and comprehensively a l l their information. In the views of some of the executives who are in the selected enterprises, secrecy of certain information is required not only in the maintenance of the competitive positions of their enterprises, but also as a necessary part of their competitive weaponry against rivals. Secrecy i s also desired in the interests of their enterprises. Apparently, therefore, the exigencies of the various segments of the economy for business information and data cannot be met by voluntary f u l l disclosure of information by business enterprises; certainly i t i s not attainable without opposition from the business community. TABLE OF CONTENTS CHAPTER PAGE I ' INTRODUCTION 1 Present Tendency Toward Disclosure Of Business Information 5 The Hypothesis Of The Study 6 Significance Of The Study 8 Plan Of The Study 9 Limitations Of The Study 10 II WHAT IS FULL DISCLOSURE? 11 Brief Outline 11 Introduction 12 The Current Trends In Financial Disclosure 12 Why Must Business Information Be Disclosed By Business Enterprises? 15 A Meaning Of Full Disclosure 20 Summary 25 III COMPETITION AND THE NEED FOR SECRECY OF INFORMATION 27 Brief Outline 27 Introduction ,28 The Environment Of Competition In Business 29 What Is Competition In Business? 32 Business Objectives: Their Accomplishment Through Competition 34 Martin-Senour Company: An Illustration 36 The Incompatibility Of Full Disclosure With The Maintenance Of Competitiveness Of Business Enterprises 38 A Need For Some Degree Of Secrecy Of Information 40 Summary 41 IV FIELD STUDY — QUESTIONNAIRE AND METHODOLOGY 43 Brief Outline 43 Introduction 44 The Practical Purpose Of Conducting The Field Study 44 The Pilot Questionnaire 45 The Questionnaire 47 The Structure Of The Questionnaire 50 Methodology Of The Field Study 51 Selection Of Business Enterprises 52 Executives Interviewed In The Selected Enterprises 53 V ANALYSIS 03? THE RESPONSES OF THE SELECTED ENTERPRISES IN THE FIELD STUDY 56 Brief Outline 56 Introduction 58 Present Disclosure Of Information 58 1. Status Of Incorporation 58 2 . Size 59 3. Classes Of Information Disclosed And Methods Of Disclosure 61 4 . Target Users/Readers Of Disclosed Information 62 5. Disclosure Of Future Expectations And Current Economic Situation 62 6 . Some Observations Regarding The Present Disclosure Of Information 65 The Rationale For The Need For Information Secrecy 68 lo Information Necessary To Be Kept Secret By The Selected In The Maintenance Of Their Competitiveness 69 2 . The Need For Secrecy Of Some Information: An Enterprise-By-Enterprise Study 69 3. Some Generalisations On The Rationale For Secrecy 80 Information And Data Of Competitive Value 82 1. Goals, Objectives And Policies 8 3 2 . Marketing 8 4 3 . Production 86 4 . Finance And Accounting 8 7 5. Personnel And Industrial Relations 8 8 6 . Research And Davelopmeny 8 8 Incompatibility Of Full Disclosure With Competition In Business 8 9 Summary 91 VI SUMMARY OF THE MAIN FINDINGS OP THE STUDY 92 APPENDIXES 9 7 BIBLIOGRAPHY 118 LIST OP TABLES TABLE '. • . PAGE I Trends In Disclosure By Canadian Companies 13 II Trends In Disclosure By U. S. Companies 14 III : The Selected Business Enterprises, Industries And Operational Functions 53 IV Positions Of The Interviewed Executives And Managers 5 4 V Years Of Experience Of The Interviewed Executives And Managers 54 VT Total Number Of Times And Hours Of Interviews 55 VII Status Of Incorporation Of The Selected Business Enterprises 59 VIII Size In Terms Of Assets, Sales And Employed Personnel Of The Selected Enterprises 60 IX Classes Of Information Disclosed And Methods Of Disclosure 61 X Target Users/Readers Of Disclosed Information Of The Selected Enterprises 63 XI Classes And Items Of Information Considered Necessary To Be Kept Secret By The Selected Enterprises In The Maintenance Of Their Competitiveness 70 AGOTOWLEDGEMEITTS The author would like to express his profound gratitude to the following: . Dr. Brian E. Burke, his thesis supervisor, for the kind words of encouragement and the invaluable suggestions and assistance throughout the course of this thesis; Dr. Whata Winiata for his advice and helpful critisms, particularly in the preparation of the questionnaire for use in the field study; the business executives in the interviewed firms; who have so generously given the author their precious time and information about their firms without which the field study would have been impossible, but whose names unfortunately cannot be mentioned here; and a l l those who have assisted the author in one way or another. . CHAPTER I INTRODUCTION Pull disclosure of business information has been the focus of considerable interest in recent years. Though this interest may be differently motivated, discussion on this subject, however, does indicate that f u l l disclosure, or at least adequate disclosure, of business information by business enterprises i s desirable. In fact, f u l l disclosure is strongly advocated. Several reasons have been advanced in support. Firstly, the far-reaching influence of the work of Berle and Means, The Modern Corporation and Private Property,^" has spawned the belief that, with the extreme imbalance of economic power and the domination of economic activities by the large corporate enterprises, competition is no longer able to function effectively. Competition i s weakening, and cannot be relied upon to serve as the regulator of the market when control of market power lies in the hands of a few corporate giants. Full disclosure is desired for the maintenance of competition because by subjecting business enterprises to f u l l disclosure, particularly the large and dominant ones, some form of checks and balances at least is obtained. Full disclosure i s also advocated to serve as a safeguard 2 against abuse of economic power. This line of thinking i s deeply "'"Adolf A. Berle, Jr., and Gardiner C. Means, (New York: Mac-millan Co., 1932). 2 See A. D. H. Kaplan, Big Enterprise In A Competitive System 2 rooted in the societal disfavour and disapproval of bigness of size 3 as well as concentration of power of the large corporations. It has, moreover, been strengthened by the evidence of numerous invest-igations and litigations in the past in which the giant corporations have been defendents against public charges of use of unfair and unethical practices and abuse of their economic superiority to gain 4 advantages for their own interests. Secondly, economic data and information of business operations and activities are the essential ingredients of economic analysis and for the formulation of sound economic policy. Much of these data, however, have been obscured by the complexity of activities of business enterprises, corporate interlockings, and an inadequate revelation of information and data in general in the corporate reports. The aggregative form in which they are presented has also greatly reduced their usefulness. Business enterprises are, therefore, urged to disclose fully and comprehensively such information in order to 5 facilitate the accomplishment of this important task. Thirdly, the widespread growth of the corporate form of business organisations has significantly changed the corporate structure. The fusion of ownership with control and management of corporate business has disappeared as corporations developed into entities with thousands — even hundreds of thousands — of 'owners'. Aided by the rise of professionalism of executive managers of corporations, the divorce or (Washington, D. C.: The Brookings Institution, 1964, re. ed.), pp. 12 -13. ^See Andrew Hacker, The Corporation Take-Over (New York: Harper & Row, 1964). 4 A. D. H. Kaplan, op. cit., p. 1. 5 See Melville H. Watkins, et al, Foreign Ownership and The  Structure of Canadian Industry (Ottawa: Queen's Printer, 1968), pp. 166-186. 3 s e p a r a t i o n o f ownership and c o n t r o l i s complete. On the other hand, i t i s recognised t h a t there must be adequate p r o t e c t i o n of the i n t e r e s t s o f the s t o c k h o l d e r s , and t h a t the stewardship f u n c t i o n o f the corporate management, meaning by t h i s term the d i r e c t o r s and the top o f f i c i a l s o f c o r p o r a t i o n s who a d m i n i s t e r the corporate a f f a i r s , i s deemed to be a p p r o p r i a t e l y necessary. F o u r t h l y , the emergence of numerous pension funds, investment t r u s t s and o t h e r i n s t i t u t i o n a l i n v e s t o r s , together w i t h myriads of employees, c r e d i t o r s , and m i l l i o n s o f s t o c k h o l d e r s , has c e r t a i n l y i n c r e a s e d the demand f o r more and v a r i e d corporate i n f o r m a t i o n . The c o n v e n t i o n a l r e p o r t s r e l e a s e d and p u b l i s h e d a n n u a l l y o r p e r i o d i c a l l y are no l o n g e r capable o f meeting the needs o f these heterogeneous 7 i n t e r e s t segments f o r i n f o r m a t i o n . F u l l d i s c l o s u r e o r g r e a t e r d i s c l o s u r e i s i m p e r a t i v e . Apart from these c o n v i n c i n g views f o r e s t a b l i s h i n g f u l l d i s c l o s u r e as an appropriate and i d e a l standard o f r e p o r t i n g , the advantage o r wisdom of w i t h h o l d i n g i n f o r m a t i o n by the business e n t e r p r i s e s has a l s o been doubted. One p o i n t of view h o l d s t h a t d e l i b e r a t e w i t h h o l d i n g and suppression o f i n f o r m a t i o n may be i n i m i c a l t o the r e p o r t i n g business e n t e r p r i s e s themselves: .... A h i g h standard of corporate f i n a n c i a l and accounting r e p o r t i n g i s .... a safeguard o f the h e a l t h o f c o r p o r a t i o n s . Confidence i n the c o r p o r a t i o n s i s engendered by f u l l and f a i r d i s c l o s u r e ; and t h a t confidence could be s h a t t e r e d , w i t h s e r i o u s consequences to See Robert K..Mautz, F i n a n c i a l Reporting by D i v e r s i f i e d  Companies (iTew York: F i n a n c i a l E x e c u t i v e s Research Foundation, 1968), Chapter IV; Charles T. Horngren, " D i s c l o s u r e : 1957", Accounting  Review, V o l . XXXII, Ho. 4, Oct. 1957, pp. 598-604. For the items of business i n f o r m a t i o n needed by f i n a n c i a l a n a l y s t s , see C o r l i s s D. Anderson, Corporate Reporting For The P r o f e s s i o n a l  I n v e s t o r (Auburndale, Mass.: The F i n a n c i a l A n a l y s t F e d e r a t i o n , 1962;. 4 the freedom of corporations to operate) by any widespread deliberate suppression of information about the corporations. 8 Moreover, i t i s believed that any purposive effort to withhold v i t a l information for competitive advantage that may accrue i s unrewarding and pointless. 1 . IC. Goodrich remarks that ... most companies can go a great deal further than they do (in the disclosure of business information) with no fear of hurting themselves competitively. ... Competitors can find ways and means of ferreting out what they want to know, 9 (for) most companies are l i v i n g pretty much i n a f i s h bowl i n this day and age.10 The precariousness of withholding information and the significance of f u l l disclosure must, on the basis of these views and arguments, be recognised. But has proper recognition been accorded to them by the business enterprises? Have business enterprises been responsive, i n terms of information disclosure, to the urge for f u l l disclosure i n the last few years? While the answer to f u l l disclosure i s apparently 'no1, there i s clearly a tendency towards f u l l e r or greater disclosure of information. Herman W. Bevis, Corporate Reporting In A Competitive Economy (ilew York: Macmillan Co., 1965), p. 1. q For an interesting account of business espionage and the methods, both normal and controversial and unethical, that are employed to spy for competitors' information, see Burton H. Alden, et a l , Competitive Intelligence: Information, Espionage, and  Decision-Making (Massachusetts: C. I. Associates, 1959); Worth Wade, Industrial Espionage and Mis-Use of Trade Secrets (Ardmore: Advance House, 1964); and Edward E. Furash, '•Industrial Espionage", Harvard  Business Review, Vol. 37, No. 6, Nov-Dec. 1959, pp. 6-12 and 148-174. •^L. Keith Goodrich, "Executive's View of Corporate Reporting Responsibilities", Financial Executive, Dec. 1966, p. 16. 5 Present Tendency Toward Disclosure of Business Information The annual reports of the various business enterprises published in recent years are indicative that there is a tendency toward increased divulgence of business information. They compare favourably not only in the attractiveness of design and readership attraction,^* but also in information content as well as readability. In Canada and the United States, the extensiveness of corporate financial and accounting information and data disclosed in these reports can be readily observed in such authoritative references as 12 13 Financial Reporting.In Canada and Accounting Trends & Techniques respectively. In Canada, the present tendency of business enterprises to disclose more and varied information is evidently indicated by the increased use of more informative comparative financial statements, notes, supplementary schedules and statements and other additional 14 items. In the United States, this same tendency of industrial .corporations toward increasing disclosure of information in their 15 published annual reports i s equally obvious. Two recent studies have also found increased disclosure of information through the use of notes and supplementary data to 11 See Carter F. Henderson and Albert C. Lasher, 20 Million  Careless Capitalists (New York: Doubleday, 1967), Chapter 8. 12 Published by the Canadian Institute of Chartered Accountants, i t is a series of biannual studies providing current information on accounting practices and financial and accounting information of the survey Canadian public companies as presented in their annual reports. 13 An annual publication of the American Institute of Certified Public Accountants, i t shows the accounting aspects of the financial reports of the 600 selected American industrial corporations. 14 CICA, op. c i t . 5A PA, op. c i t . financial statements by Canadian public companies within the period of 1938 to 1963. 1 6 Disclosure of sales or revenue profit break-down, which is generally resisted by business enterprises because of its probable damaging effect to competitive position, has also been noted in the annual reports of several business enterprises. A survey conducted by the Financial Executive Research Foundation in 1966 reveals that eighteen such reports out of sixty-three show break-down of sales or revenue profits by listing percentages of sales by product grouping or industry market, or by relating profit percentages to products or 17 operating divisions. Another survey of the 1967 annual reports of 457 publicly-owned companies in the United States shows these T O following observations: (a) 48$ of the companies provided break-downs of gross revenues by two or more categories; (b) 3% provided additional break-downs of net earnings or profits; and (c) break-downs of sales and earnings were provided by companies of a l l sizes and from a l l industry groups. The Hypothesis Of The Study The tendency of business enterprises to disclose more and more information and data has significantly brought out-several hypotheses Goh S. Siah, A Descriptive Study of the Notes to Financial  Statements In The Annual Reports Of 75 Selected Canadian Public  Companies, 1938 - 1963; and Tan Y. Pin, An Analysis Of Supplementary  Data In The Annual Reports Of Selected Canadian Public Companies, 1938 - 1963. Both of the studies are unpublished master theses, Univer-sity of British Columbia, 1965. 17 "New Disclosures Noted In Annual Reports", Financial Executive, June 1967, pp. 68-77. 18 See George Hobgood, "Voluntary Disclosure in 1967 Annual Reports", Financial Executive, June 1968, pp. 81-89. 7 about f u l l disclosure of business information: (a) Pull disclosure of information is not feasible. This is because complete information of a l l the operations and activities cannot be obtained by the reporting business enterprises themselves. It may be due, for instance, to the lack of a system of information collection in the business enterprises that i s capable of handling the large volume of information generated. (b) Pull disclosure i s uneconomical. Pull disclosure f i r s t necessitates that a l l the information be obtainable. Assuming that complete information may be obtained, the cost of getting the data and information may eventually be so excessive that i t becomes too uneconomical for business enterprises to do so. Full disclosure, ipso facto, may not be possible. (c) Full disclosure of information is detrimental to the competitiveness of business enterprises. Certain classes and items of information may be considered to be secret, the dissemination of which would hurt their competitive positions. Thus, f u l l disclosure is impracticable, even i f complete information i s available. Insofar as the fi r s t two hypotheses are concerned, the difficul-ties encountered may not be insurmountable. With the growing application of electronic data processing these difficulties could be overcome. Tiie same may not be said about the third hypothesis, however. Secrecy of some information may be a necessary requisite for business enterprises to be competitive with their rivals. It may be argued, therefore, that f u l l disclosure of business information i s not compatible with the maintenance of the competitive positions of business enterprises. 2his will be investigated in this study from 8 the standpoint of the businessmen, meaning by this term the manage-ment group of a business enterprise. Significance Of The Study The desirability of information disclosure by business enterprises to f u l f i l the exigency of information has been noted in the previous paragraphs, but, as the hypothesis of this study might suggest, the acceptance of f u l l disclosure as an ideal reporting standard may be as strongly resisted as i t i s advocated. The fact i s that i f secrecy of some information is a necessary competitive weaponry of business enterprises, f u l l disclosure then would not only burden them with the onus of having to supply the information required, but also affect to a substantial extent the success of their performances. If this i s so, will the implementation of f u l l disclosure be justifiable when business enterprises are so 'penalised1? If not, what other alternatives will have to be devised in order that the information gap may be filled? If f u l l disclosure of business information is to materialise, i t seems fai r that the views of businessmen who are so immediately related to the issue of f u l l disclosure, should be represented. This study does not purport to examine and come out with solutions for these problems, nor to justify the retention of information by business enterprises. Rather, i t is hoped that through an examination of the relevance of secrecy of some information to the maintenance of the competitive positions of business enterprises, this study may shed some light on whether or not the tendency of economists and others to recommend f u l l disclosure of business information is in harmony with the establishment, maintenance, and purposes of competition. 9 Plan Of The Study It i s proposed to approach this study f i r s t by a discussion of the terms 'full disclosure 1 and 'competition1. This would provide the foundation for a field study which i s to be conducted later in order to gain an insight of whether or not some degree of secrecy of information i s a necessary condition for business enterprises to be competitive against their rivals. In terms of the plan of this study, Chapter II i s devoted to finding out what i s meant by the term 'full disclosure'. Two aspects related to disclosure of business information will also be examined, namely, the trends in information disclosure, and why business enterprises are required to disclose their Information and data. Chapter III then examines what is competition to business enterprises or the businessmen, as they envisage i t to be. In the light of what competition means to the business enterprises, an attempt is then made to determine whether f u l l disclosure of their information will or will not affect their competitiveness. A tentative conclusion is then drawn as to whether or not a degree of secrecy of information is necessary in order that the enterprises may remain competitive with their rivals. The field study i s then conducted to supplement this tentative conclusion by means of interviews with business executives of a few selected business enterprises. More significant in this field study is, however, to find out from these business executives who have to practise competition whether a need for secrecy of some information is necessary in the maintenance of the competitive positions of their enterprises, and i f so, the rationale for their thinking. Chapter IV i s concerned with the discussion of the various 10 aspects of the preparation of the field study: the questionnaire to be used in the interviews, the business enterprises which are selected for interviewing, and the methodology of the field study. Chapter V i s devoted to an analysis of the responses of the selected business enterprises. This will be attempted in terms of what the questionnaire intends to find out. Chapter VI presents the main findings of this study. limitations Of The Study Limitations are inevitable, owing to the standpoint this study has adopted and in the methodology of the field study. The following limitations are recognised: (a) Owing to the standpoint adopted by this study, i t s findings may not be representative of others except the viewpoints of the business executives; in fact, only of those who are interviewed. (b) Ideally, business enterprises from the various industries, a sizeable representation of each, should be selected i f representat-iveness of businessmen's views about the need for business secrecy may be obtained. ITo attempt to obtain an elaborate sample for this study i s made, however, because of the lengthiness of the question-naire and the time required for the interview. Also, i t i s felt that not too many enterprises need be interviewed. For the purpose of this study, i t i s far more important and desirable to have good responses from even a few enterprises than to have l i t t l e or unenthusiastic responses from many. Financial considerations also pose a constraint on the possibility of having more business enterprises to be interviewed in the field study. (c) The enterprises selected are those from the City of Vancouver only. CHAPTER II WHAT IS FULL DISCLOSURE? Brief Outline: In this chapter, the trend, in disclosure of financial information i s briefly examined f i r s t . The :data used to ascertain the trends in disclosure are obtained from Financial Reporting In  Canada and Accounting Trends & Techniques. The next section then seeks to find out why business enter-prises have to disclose their financial data and information. By an examination of the historical events that led to the legislation of the 'disclosure' statutes, an attempt is also made to ascertain whether the enactment of these statutes thereby making the disclosure of certain classes of business information mandatory, was intended with a view to facilitate the competitive process. Finally, a meaning of 'full disclosure' of business information is attempted with reference to the objectives of reporting of business information to outsiders. Having so defined the term 'full disclosure', the major classifications of information and data of business enterprises that might reasonably be incorporated within i t s scope are specified. 12 Introduction In the previous chapter, brief mention has been made of the tendency of increasing disclosure of information and data by business enterprises. In the present chapter, various aspects of business disclosure are discussed. The Current Trends In Financial Disclosure At the outset, i t must be mentioned that a determination in any precise manner of the distinct trends in disclosure of financial information is not easy, for such an attempt would necessitate that original business reports are available. Becognising that this is quite infeasible, secondary sources of the data required are, therefore, relied upon. They are Financial Reporting In Canada and Accounting  Trends & Techniques. Some of the distinct trends in financial disclosure by Canadian public companies are clearly indicated in Table I. In Table II are shown the trends in disclosure of financial data and information by the American companies. These broad discernible trends in the disclosure of financial data and information by the Canadian and American companies are clearly indicative that an increasing amount of information i s divulged by the reporting business enterprises. Apart from the provision of the customary financial statements —- the balance sheet, the income statement, and the statement of retained earnings (or surplus), more and more information and data are disclosed through the use of such devices as the more informative comparative financial statements, notes to financial statements, supplementary statements and schedules. A significant trend in disclosure is also noted in the growing use of the statement of sources and application of funds, which has as its TABLE• I TRENDS IN DISCLOSURE BY CANADIAN Figures represent numbers of companies. The number of survey companies i s 300 f o r the years 1955, I960, and 1962; and from 1964 onward, the number o f survey comuanles i s 325. I . Comparative F i n a n c i a l Statements A l l Statements In Comparative' Form Some Statements I n Comparative Form No Statement In Comparative ^ orm o . • • e . . . . . I I . Supplementary Statements &: Schedules To Disclose Supplementary F i n a n c i a l Data « . . No Supplementary Data Presented I I I . Notes To F i n a n c i a l Statements Statements With Notes Statements With No Notes IV. Sales (a) Statements With Sales Statements With No Sales Statement o f Sources & A p p l i c a t i o n o f Funds Provided Not Provided VI. H i g h l i g h t s Of The Year's Operations Provided . . Not Provided 1955 Io 128 22 150 120 180 H o 3.0 n.a. n.a n.a, n.a. n»0.6 43 7 50 40 60 n.a. n.a. (b) n.a. n.a. n.a. n.a. n.a. n.a. I960 % 175 34 91 135 165 256 44 256 44 86 2.14 80 220 59 11 30 45 55 85 15 85 15 29 71 27 73 Notes: ( a ) ' S a l e s ' r e f e r s to the t o t a l amount o f sa l e s net of trade d i s c o u n t s , s a l e s and excise taxes, r e t u r n s and allowances, o r of gross revenue from which the p r o f i t s from opera-t i o n s i s d e r i v e d . (b) n. a. represents not a v a i l a b l e . 962 % 1964 1966 % -204 68 255 78 283 87 :34 11 39 12 26 8 62 12 31 10 17 5 144 43 179 55 190 58 156 52 146 45 135 42 257 86 291 90 309 95 43 14 34 10 16 5 257 86 291 90 309 95 43 14 34 10 16 5 93 31 154 47 231 71 207 69 171 53 . 94 29 84 28 104 32 118 36 . 216 72 221 68 107 64 Source: Canadian I n s t i t u t e of Chartered Accountants, F i n a n c i a l Reporting In Canada, 4 t h E d i t i o n ( l 9 6 l ) , 5 th E d i t i o n (19631, 6 t h E d i t i o n (1965), and 7 th E d i t i o n (1967) . TABLE II TRENDS IN DISCLOSURE BY U. S. COMPANIES 14 Figures represent number of companies, unless otherwise stated. Total number of survey companies i n each year i s 600. I . Comparative Customary Statements A l l Statements In Comparative Form Some Statements In Comparative Form . . . . . . . . ' . , No Statement In Comparative Form . . . . . . . . . . . I I . Additional Statements Covered By Auditor's Report Provided Not Provided III. Supplementary Schedules Covered By Auditor's Report Provided Not Provided IV. Statements, Summaries & Highlights Not Covered By Auditor's Report Provided . . . . . . Not Provided . . . V. ^Supplementary Charts, Schedules, Etc . Not Covered By Auditor's Reporb Provided Not Provided VI. Notes To Financial Statements Statements With Notes . Statements With No Notes . . . . VII. Statement of Sources & Applications of *unds Provided , Not Provided . . . . . . VIII . Sales Statements Showing Sales Figure Statements w i t h No Sales Figure 1955 375 90 135 71 529 227 373 495 105 65 535 372 228 24 576 573 27 63 15 22 12 88 38 62 83 17 11 89 62 38 4 96 96 4 I 9 6 0 437 83 80 129 471 316 284 523 77 120 480 578 22 31 569 589 11 73 14 13 22 78 53 47 87 13 20 80 96 4 5 95 98 2 1961 447 81 72 125 475 314 286 532 68 189 411 581 19 41 559 591 9 75 14 11 22 78 52 48 89 11 32 68 97 3 7 93 99 1 1962 460 80 60 139 461 344 256 542' 58 194 406 580 ; 20 50 550 ! 591 9 , 77 13 10 >23 77 57 43 9k )c9 • y& 68 97 •3 8 9 2 ; 1963 477 72 51 140: 460 350 250 550 50. m 579 21 90 510 594 80 12 8 2 3 77 58 42 92 8 58 42 97 3 15 85 99 '1 1964 496 68 36 254 346 413 187 558 42 362 238 '582 18 177 423 599 1 8 3 1 1 6 42 58 69 3 1 9 3 7 60 40 9 7 3 3 0 7 0 9 9 1 Notes: (a) Comparative Customary Statements include Balance Sheet, Income Statement, Retained Earnings Statement,; Com-bined Income & Ret. Earnings Statement, Capital Surplus Statement, Combined Capital Surplus & Ret. Earnings State-ment, Surplus (Unclassified) Statement, and Stock Equity Statement. (b) n.a. represents not available. V Source: American Institute of Certi f ied Publio Accountants, Accounting  Trends & Techniques, 14th Edit ion (-196P)» 16Mj- Edit ion (1962), 17th Edition (1963), 18th Edition (1964), and' 19th Edit ion (1965). 15 primary purpose to complement the customary financial statements by showing how the activities of the reporting enterprises have been financed, and how the financial resources have been employed — information which cannot be easily obtained from the other financial statements. Why Must Business Information Be Disclosed By Business Enterprises? The trend toward increasing divulgence of information by business enterprises gives rise to a point of significance, that i s , i f disclosure of information may exert a negative influence on the competitive positions of the enterprises, on the basis that their competitiveness might be damaged, why must business enterprises disclose so much of their information and data? A complete and satisfactory answer to this question, admittedly, cannot be provided. A partial answer i s , however, given by the exist-ence of what may be described as the 'disclosure' statutes in many countries. In Canada, for instance, mandatory requirements of disclosure of certain business information and data are clearly stipulated in the Canadian Corporations Act, 1968. Under Section 116 of the Act, the following types of disclosure are mandatory: (a) a financial statement made up of (1) a statement of profit and loss; (2) a statement of surplus; and (3) a balance sheet; (b) a report of the auditor to the shareholders; and (c) further information respecting the financial position of the company as the charter or by-law of the company requires.^ AICPA, "Cash How" Analysis And The Funds Statement, Accounting Research Study No. 2, (New York: AICPA, 1962). Canadian Corporations Act, 1968 (Don Mills, Ontario: CCH Canadian limited, 1968), pp. 91-99. 16 The items of information and data required to be incorporated in these financial statements are also clearly specified in Sections 117, 118 and 119 of the same Act. Section 121 further stipulates that consolidated financial statements be provided in the case of 3 holding companies. In the united States, the 'disclosure' statutes are the Securities Act of 1933, and the Securities Exchange Act of 1934. Cf particular importance with respect to disclosure of information and data of the reporting business enterprises are Regulation S-X (under N 4 the 1933 Act;, Regulation 1 3 A — Reports of Issuers of Listed Securities, Regulation 14, Schedule 14A — Information Required in Proxy Statement, and Schedule 14B — Information to be Included in Statements Piled by or on behalf of a Participant (other than the \ 5 Issuer; in a Proxy Statement, a l l of which come under the 1934 Act. Hie items of information and data to be reported are clearly stipulated therein. The objectives of these mandatory disclosures under the 1933 and 1934 Acts are typically described by Robert Mundheim: ... The theory of the Securities Act is that i f investors are provided with sufficient information to permit them to make a reasoned decision concerning the investment merits of securities offered to them, investor interests can be adequately protected without unduly restricting the ability of business ventures to raise capital.^ The necessity of business enterprises to disclose their inform-5 i b i d . A United States Securities & Exchange Commissxon, Regulation  S-X Under The Securities Act of 1935 (Washington, D. C: U. S. Government Printing Office, 1962). 5 United States Securities & Exchange Commission, General Rules  and Regulations Under The Securities Exchange Act of 1954 (Washington, D. C: U. S. Government Printing Office, 1962). 17 ation and data may also be explained partly by the in f luent ia l role of'the stock exchanges. Enterprises seeking l i s t i n g of their stocks at the exchanges are required to furnish information and data specified by the exchanges. Companies already l i s t e d are subject to the same requirements also. It i s not our concern here to consider the economic jus t i f i cat ion of the disclosure requirements here; what i s of concern, however, i s whether these disclosure requirements do intend to fac i l i t a t e the competitive process. While views advocating disclosure of information and data are not uncommon, there i s a paucity of treatises which attest that the competitive process can be effectively enhanced by these disclosure statutes. Are these disclosure statutes intended to f a c i l i t a t e competition? In this regard, i t seems necessary that the h i s t o r i c a l events leading to the leg i s la t ion of these statutes be examined i n order to provide an answer to i t . An over-riding impression from the available l i terature i s that the leg i s la t ion of these 'disclosure 1 statutes was passed with a set of objectives that was differently conceived. The objectives of these statutes were to secure the benefits of the l imited l i a b i l i t y system 7 of the corporate form of business, and to provide adequate protection to the investing public at a time when the corporate form of business Q organisation was most suitable and desired. The purpose of the f i r s t mandatory requirements of disclosure (which applied only to a ^Robert Mundheim, "Foreword, Symposium on Securities Regulation", Law and Contemporary Problems, No. 29, Summer 1964, p. 648, as quoted by George J . Benston, "The Impact of The SEC's Accounting Disclosure Requirements", a paper presented at the 52nd Meeting, American Accounting Association, Aug. 27, 1968, p. 2. •7 Bishop C. Hunt, "Recent English Company Law Reform", Harvard Business Review, Vo l . VIII, No. 2, Jan. 1930, pp. 170-183. 18 prospectus for the sales of shares) in the English Companies Act of 1867 was that 'to give subscribers to shares notice of contract into which the promoters of a company and the company had entered', and by requiring that 'the date and names of the parties to every material contract to be stated, a prudent subscriber would be able to decide 9 whether he would subscribe for the shares.' The primary objective of the B r i t i s h Companies Act i s very evidently i l lu s t ra ted by Le Bedts: . . . Before the issuance of shares was common, large commercial undertakings were generally carried out by guilds, r i c h merchants, or through partnerships. With the development of joint-stock companies to finance expanding, privateering and colonizing ac t iv i t i e s , their capital wealth grew amazingly. . . . With the dispersion of ownership into numerous hands, the joint-stock company revealed i t s e l f as not only a valuable instrument for financing new industries and coloni-zation but as an ingeniously irresponsible device for defrauding that portion of the public eager to invest i t s surplus wealth. The chartering of the Bank of England i n 1694 and the forming of the London Stock Exchange two years la ter inaugurated a period of f inancial experimentation and credit expansion. The Wars of the Spanish Succession aided i n a general development of trade and industry, marked by a number of increasingly hazardous trading ventures i n the opening decades of the eighteenth century. These wildly speculative promotions had their apex i n the meteoric career of the South Sea Company, chartered i n 1711 for ventures that included everything from lending funds to government to the pursuit of whale f ishing and the slave trade. Its scheme to assume the national debt i n return for unlimited trade privi leges in the seas south of America resulted i n an Ralph P. De Bedts, The New Deal's SEC (New York: Columbia University Press, 1964). ^George E . Barnett, "The Securities Act of 1933 and The B r i t i s h Companies Act", Harvard Business Review, Vo l . XIII, No. 1, Oct. 1934, p. 3. 19 immediate subscription of 10 million pounds. ... The company directors manipulated i t s share prices from about £100 in January, 1720, to over £1,000 in August. The directors and a few wise speculators made fortunes before the stock was permitted to slip back to its formal price. Other "bubbles", as similar projects were called, took ready advantages of the mania exhibited by those who could not accommodate themselves to the price of the South Sea shares. A thousand persons flocked in one summer's morning of 1720 to pay two guineas each as an instalment for shares in a company for carrying on an undertaking of great importance, but nobody knows what i t i s . The "Bubble Act" of 1720, passed by a Parliament exceedingly aware of the contemporary wave of suicides, ruination, and imprisonment of high officials, caused a setback in corporate development overcome only by the industrial growth of the following century. Additional protection for the investors through the principle of disclosure and the imposition of penalties against violators was included in the Companies Act of 1844. Various amendments to the Companies Act, which became the English corporation code as well, continually expanded the prospectus requirements and li a b i l i t y provisions into the twentieth-century version of the Act.^ 0 The mandatory disclosure of business information and data in the British Companies Act is implemented solely for the purpose of correcting a faulty financial system characterised by frauds, misrepresentation of facts and other malpractices, and of providing adequate security of invested funds to the investing public. The pattern of development of the American Acts of 1933 and 1934 is almost similar. They were enacted following investigations by the Congress of the united States which uncovered the existence of a number of undesirable practices which had developed in the Ealph P. De Bedts, on. cit., pp. 2-3. 20 securities market, the most obvious of .which were frauds, present-ation of false and misleading facts by many business enterprises, lack of adequate information concerning the issuer of securities and the securities issued, manipulative practices and consequential 11 excessive speculation, etc. Partly, the nation's discontent with the hegemony of business and finance after the stock market crash of 1929 and the subsequent years of depression also aided in the legislation of the disclosure requirements. The 'disclosure' statutes of the United States are thus not purported to promote competition, but to devise protection for the investors through measures aimed at eliminating and reducing the prevalence of frauds, manipulation and rigging of the stock market, and the evils of excessive speculation. It is apparent that, although business enterprises are required to reveal certain classes of their information and data, these 'disclosure' statutes do not lend support to the proposition that the process of competition could be facilitated by the implementation of f u l l disclosure of business information. A Meaning Of Pull Disclosure In order to ascertain whether f u l l disclosure of business information is detrimental and damaging to the competitive positions of the reporting business enterprises, i t is apparently necessary to have an understanding of what f u l l disclosure is about. Any attempt to search for a definition of f u l l disclosure, despite its frequent use in the accounting and financial literature, ^See United States Senate, 8 4 t h Congress, 1st Session, Senate Report No. 1280, Pactors Affecting The Stock Market, Report of the Committee on Banking and Currency (¥/ashington, D. C. : U. S. Government Printing Office, 1955); Ralph P. De Bedts, op. cit. 21 must inevitably end i n frustrat ion. This i s not surprising because . i t s meaning has not been properly defined, or imprecisely implied; there seems to be a lack of agreed terms of reference also for f u l l disclosure. The situation i s very aptly described by Michael N. Chetkovich who, i n discussing the standards of disclosure, writes that the subject matter (of disclosure) i s so broad i n implication and so philosophical (that) hours could be devoted to this topic without hope of adequately covering a l l of i t s aspects .I 2 Any attempt to define f u l l disclosure i s often plagued by the problems of delimiting the boundaries of information and data to be incorpor-ated i n the business disclosure. Many accountants have concerned themselves with the problem of the boundaries of disclosure — the question of what constitutes i n any given situation, adequate disclosure. . . . These boundaries may never be f i n a l , however, for the economic conditions which affect the stewardship relationships are i n a constant state of f lux, thus requiring a constant revaluation of the extent which the formalized reporting structure actually discloses the appropriate economic data."^ Disclosure i s not a one-time-only situation for a single item on the f inancial statements. It i s a concept which permeates the statements. It must be considered again for every item each time the f inancia l statements are prepared. Each presentation i s a new situation of that time; each presentation has a new set of circumstances.14 ^^Michael H. Chetkovich, "Standards of Disclosure and Their Development", Journal of Accountancy, Dec. 1955, p. 48. 13 Jacob G. Birnberg and Nicholas Dupoch, "A Conceptual Approach To The Framework Of Disclosure", Journal of Accounting, Feb. 1963, p. 56. 14 Dalbert E . Williamson, Concept of Disclosure On Financial  Statements (unpublished Doctoral Dissertation, Stanford University, 1960), p. 26. 22 A possible meaning of f u l l disclosure need not be precluded as such, however. What is f u l l disclosure? Its meaning may, perhaps, be established i f the objectives of business reporting to outsiders could be determined, for disclosure of business information and data must be intimately associated with these objectives. In this regard, Alfred Rappaport has very succinctly stated that (a) the managements of business organisations should have a reporting obligation to those segments of society affected by their decisions, that i s , investors, employees, consumers, suppliers, local communities and the public at large; (b) those groups with a legitimate interest in the corporations should be provided with information essential to arriving at rational judgment; (c) in the interest of economic progress, those groups which are responsible for allocating resources in the economy should be provided with information which will promote efficient allocation; and (d) in the interest of sustaining the basic values, information which is likely to influence socially desirable behaviour and discourage undesirable behaviour should be reported. The primary objective of external corporate reporting i s , therefore, to make available the relevant information and data to the interested parties to facilitate the making of informed judgments and rational decisions. Further, information and data should be disclosed on a fair basis in order that the needs of the information users, who are variously motivated in the planned use of the inform-ation and data,- can be met. The principle of fairness of reporting Alfred Rappaport, "Establishing Objectives For Published Corporate Accounting Reports", Accounting Review, Vol. XXXIX, No. 4, Oct. 1964, pp. 951-962. 23 i s e l o q u e n t l y emphasised by W i l l i a m J . P a t i l l o : ... I f one e n t e r p r i s e may be p i c t u r e d as a pool of r i g h t s and i n t e r e s t s , at any, one time there i s a c e r t a i n s t r u c t u r e of r i g h t s and i n t e r e s t s claimed by the v a r i o u s segments of the economy. Over time, t h i s p i c t u r e i s c o n s t a n t l y changing as the r e s u l t o f judgments formulated, d e c i s i o n s made, and a c t i o n s taken w i t h respect to each segment's r e s p e c t i v e p o s i t i o n . i n the p o o l . For accounting r e p o r t s and s t a t e -ments t o m i s s t a t e the s i z e o f the pool would be m i s l e a d i n g and u n f a i r to a l l p a r t i e s . L i k e w i s e , to m i s s t a t e the s i z e o f any one segment would n e c e s s a r i l y d i s t o r t the o t h e r segment's shares, t h a t i s , an u n f a i r r e p o r t i n g t o one ( e i t h e r f a v o u r a b l y o r unfavourably) w i l l cause an u n f a i r r e p o r t i n g t o the o t h e r . ^ The main sources o f business i n f o r m a t i o n and data have been the conventional annual r e p o r t s comprising the statements which r e f l e c t the f i n a n c i a l p o s i t i o n s , r e s u l t s o f o p e r a t i o n s , and o t h e r schedules and supplements, and o c c a s i o n a l r e l e a s e s through the media of p r e s s , trade j o u r n a l s , magazines and the l i k e . I t i s no l o n g e r safe to presume t h a t these sources of i n f o r m a t i o n can r e a d i l y meet the needs o f the v a s t complex o f i n f o r m a t i o n u s e r s . The presence o f u n c e r t a i n t y , the undertaking o f long-term p r o j e c t s by business e n t e r -p r i s e s , and the scope and extent o f business a c t i v i t i e s , as w e l l as the v a r y i n g c o n d i t i o n s o f the economic environment w i t h i n which business e n t e r p r i s e s operate l e a d t o the b e l i e f t h a t the r e q u i r e d i n f o r m a t i o n and data cannot be r e a d i l y obtained from these sources o f business r e p o r t s . I t i s e s s e n t i a l t h a t r e p o r t i n g of business Y / i l l i a m J . P a t i l l o , The Foundation Of F i n a n c i a l Accounting (Baton Rouge: L o u i s i a n a State U n i v e r s i t y P r e s s , 1965), PP- 63-64. 24 information and data should incorporate a l l the relevant and material information and data pertaining to these conditions outlined. Full disclosure as a standard of reporting to meet these varied needs and to facilitate the making of informed iedgments and rational decisions must, therefore, include the following: 1. A section in the reports to describe the goals and policies of the business enterprise, and, in terms of these goals and policies, the relevant changes which have occurred during the fiscal or accounting period; 2. A section in the reports to describe the expectations of the business enterprise in the future which is necessary for a better understanding of the enterprise's future operations; and 3. A section in the reports which decribes in both financial and economic terms the current store of service potentials available to the enterprise. This would then constitute the framework of f u l l disclosure of business information, for i t recognises the need to include, as elements of an evaluative framework in an uncertain and risky environment, the nature of the economic situation, the contemplated actions of the enterprise, and the various changes which have occurred. It i s also recognised that i f the business information and data disclosed within this framework of f u l l disclosure are to be of use, they should possess the following attributes: 1. Timeliness — It can hardly be denied that timely disclosure is a necessary requisite in reporting of business information and data to the external information users. Unless information i s disclosed at an appropriate point in time, the decision of, say, an investor to buy or sell stocks will be affected. 25 2 . Accuracy — Unless information and data disclosed are accurate, no informed jedgment or rational decision.can be possibly made without a certain degree of error. Hence, i t is vitally important that disclosed information and data should be accurate. 3. Disaggregativeness — For the purpose of making informed and rational decisions, i t is necessary for information and data disclosed to be clearly segregated and non-aggregative in order that these information and data could be meaningfully utilised. Sales performance of, for instance, a conglomerate designated by 'net sales for the year1 could hardly be informative at a l l to its investors in comprehending the performances in sales of the individual operating divisions or the various operating areas of the enterprise. 4« Comprehensibility — Since business information and data are required by a wide variety of information users, the scope of disclosure should adequately cover the various interests and needs of these diverse- groups. Information and data disclosed should be comprehensive. Summary Certain broad discernible trends in the increasing disclosure of information are observed. Devices employed by the reporting business enterprises to provide increasing disclosure are the notes to financial statements, supplementary schedules and statements, comparative form of statements, and the fund statement (or the statement of sources and application of funds). Although the 'disclosure' statutes which are in existence in many financially advanced countries require that certain classes and items of information be. disclosed by the business enterprises, 26 i t i s doubtful whether disclosure of information under these statutes is intended to promote and to facilitate competition. The finding, in fact, is that these statutes are implemented generally to help check any undesirable tendency or development of the stock market. Pull disclosure, in its relation to the purpose of business external reporting, is to make available business information and data to meet the diverse needs of the information users as well as to facilitate the making of rational decisions. The term 'full disclosure 1 should be so defined to include in the business reports relevant information pertaining to past operations and activities in both financial and economic terms; to future expectations; and to the goals and policies of the reporting enterprise.. To aid the usefulness of the information disclosed, i t i s necessary for the information to be timely disclosed, accurate, disaggregative, and comprehensive. CHAPTER III COMPETITION AND THE NEED FOR SECRECY OP INFORMATION Brief Outline: It is hypothesized that f u l l disclosure of business information by enterprises i s detrimental to their competitive positions. Having studied the various aspects of f u l l disclosure of information, this study proceeds in this chapter to an examination of what might be broadly described as the case of competition vis-a-vis f u l l disclosure of information. The focus of attention i s on the following: (1) An examination of what competition i s in the field of business, as envisaged by the businessmen; (2) What businessmen or business enterprises expect to accomplish through competition in business; and (3) To show, by way of illustration, how the competitive position of a business enterprise may be affected by f u l l disclosure of its information. Following the discussion, a conclusion i s drawn tentatively at this stage of the study as to whether or not f u l l disclosure of information is compatible with the maintenance of the competitive positions of business enterprises, hence, whether or not there i s a need for secrecy of some information in order for them to be competitive. 28 Introduction Competition has always been the mainspring of the free-enterprise economic system. The conviction i n certain countries about i t s desirab-i l i t y i s evident beyond any shadow of doubt. The principles of compet-i t i o n are enshrined i n the laws of these countries, and determined efforts are constantly made to ensure i t s maintenance or i t s preservat-ion. While much as i t i s desired, i t i s a strange fact that the under-standing of the term 'competition' i s s t i l l dubious and confused. Competition i s , i n fact, so many things to so many different people. 1 Even among the two people who ought to know best about competition, the economist, whose profession i t i s to study i t , and the businessmah, whose job i t i s to practise i t , there i s s t i l l a considerable discrepancy 2 of understanding over what competition i s . . Here i s a nation that i s the home and sanctuary of free competitive enterprise, distinguished from a l l other nations for such determined adherence to the principles of competition that i t has written them into law with constitutional force. Virtually every American businessman, manager or owner, big or small, producers and distributors, uses the word "competition" habitually and usually sincerely i n describing American capitalism. So do his employees, and so do editors, journalists, and even labour leaders. But here i s also a nation about whose competitiveness many "objective" and profess-ional observers are very dubious. Certainly the country's economists, the men whose job i t i s to describe, analyse, and interpret the economy, do not talk of competition as businessmen do.^ Apart from these apparent differences of opinions, an understanding See John M. Clark, Competition As A Dynamic Process (Washington, D. C.: The Brookings Institution, 1961), Chapter 1. ^Joel Dean, "Competition Inside and Out", Harvard Business Review, Nov-Dec, 1954, pp. 63-71. ^"The New Competition", Fortune, June 1952, p.99. 29 of what competition i s has also been beclouded by many changes i n the economic and business scenario, and the different character competition has assumed as a consequence. Clark, for instance, remarks: . . . . Competition cannot be thought of, as our predecessors used to think of i t , as a simple and self-regulator, maintaining i t s e l f as a part of the "obvious and simple system of natural l iberty".4 According to Harold Brayman, the ret ired director of public relations at Du Pont, . . . . many of the problems of present-day business result from a time-lag i n public understanding, so that the thizLking i s frequently based on the situation as i t existed many years before rathen than on the situation as i t exists today Nowhere i s this more apparent than i n the attitudes of many people toward competition i n today's market.5 In the midst of the general miscomprehension of what competition i s , one has, therefore, to be prepared to acknowledge what i s competition to the businessmen who have to practise i t . Otherwise, of what avai l w i l l the advocacy of f u l l disclosure of business information be v/hen competition, which i s to be so f a c i l i t a t e d , i s not conceived of i n the rea l i ty that i t is? On this count alone, the importance of a proper understanding of competition, as encountered by the businessmen who have to practise i t , cannot be over-emphasised. The Environment of Competition In Business An understanding of what i s competition to the businessmen should, perhaps, be preceded f i r s t by a discussion of the competitive ^John M. Clark, op. c i t . , p. 1. 5 Harold Brayman, Corporate Management In A World Of Po l i t i c s (New York: McGraw-Hill, 1967), p. 209. • 30 environment in which businessmen and their enterprises operate. It is indeed a rarity to find in the world of business today a market which i s singularly dominated by one firm alone. Even i f a firm i s alone in its field, "the businessman always feels himself in a competitive situation.* At a l l times, there i s or tends to be some form of rival force against i t , for no product, good, or service which the firm offers for sale is void of substitutes. With the tremendous improvements and progress in scientific know-how, this i s no more apparent, Milk, .'.for instance, which we once thought to come only from cows, has to compete with imitation milk whose protein i s derived from a chemical, fat from palm trees, sugar from corn syrup, colour, vitamin 7 and minerals from other chemicals. The presence of competitive forces to an enterprise is ubiquitous. The impact of scientific and technological advance has also been significantly felt in the business world. Firms in the plastic and a l u m i n i u m industries, in chemical and textile industries, which were formerly considered non-competing, are by this transcendence of techno-logy as keenly competitive as Ford and General Motors in the automobile industry, or Avon and Max Factor in the business of cosmetics. The critic a l importance of the effect of technological changes on business enterprises i s well emphasised by James R. Bright: In this technological ferment, one of the f i r s t requirements for the competing busi-ness enterprises is a keen sensitivity, awareness, and receptivity to technological changes as a major environmental force to which they must respond.8 Joseph A. Schumpeter, "Capitalism And Economic Progress", Paul A. Samuelson, Robert L. Bishop, and John R. Coleman, (ed), Readings  In Economics (Hew York: McGraw-Hill, Inc., 1958), p. 260. ^Richard C. Davids, "Soon That May Hot Be Milk You're Drinking", Reader's Digest, Sept. 1968, pp. 32-35. 31 The break up of many international trade barriers has expanded vastly the arena of contest among business enterprises from a l l over the world. It i s not r e a l i s t i c to rule out, for instance, the necessity of Brit ish. Columbia apples having to compete with those from Cal i fornia and Japan, or Canadian plywood with those from Malaysia and the Scan-dinavian countries i n the Japanese market, ^he expansion of trade beyond national boundaries inevitably broadens the vistas of competition, and no business enterprise whose interest may be so affected could afford to be bl ind to this dimension of competition. Business enterprises also operate within an environment that i s , to a substantial extent, characterised by prescribed rules and imposit-ions spell ing out i n pretty specif ic manner the "dos" and "don'ts", and to which they have to comply, especially the public corporations which have to furnish considerable amount of the ir f inancial information to outsiders. In complying to these regulatory rules and requirements, business enterprises are, however, open to a new form of threat. It does not arise from r i v a l s who are competing for the sales of goods or services, but from such danger as take-over, acquisit ion, and the l i k e . This form of threat i s so great that "hardly any corporation, no matter how large, 9 seems wholly safe" from i t s being grasped by others. Needless to say, to most business enterprises, this presents to them a new kind of environ-ment which they can least afford to ignore. F ina l ly , there are the buyers, individual and ins t i tu t iona l , who are the focal point of competition among the business enterprises. It needs only to emphasise here that while 'ignorant' buyers may s t i l l James R. Bright, Research Development and Technological Innovation (Homewood, I l l i n o i s : Richard D. Irwin, Inc. , 1964), pp. 10-11. : ^See Sfime Magazine, Canadian Edi t ion , March 7, 1969, pp. 73-73A. 32 exist, they are, by and large, more enlightened and better informed buyers now. Business enterprises who covet their patronage, will have to convince them that their dollars are wisely consumed. The need for sound plans and effective strategies to be employed by the business enterprises against those by their rival counterparts cannot be too strongly stressed. What Is Competition In Business? Joel Dean has a terse description of competition in the field of business. Ahis is ... whatever he (a businessman) has to do to get sales away from his rivals and whatever they do to take sales away from him. 1 0 It encompasses a l l aspects of his struggle for the patronage (of the buyers). ... '-%e intensity of competition is gauged by how hard his rivals press him. For him, the goal of competition is the welfare of the competitor — himself. 1 1 A significant point worthy of emphasis is that competition among business enterprises is oriented toward the pursuits of their own 12 which J. Dean has expressed by the term 'welfare'. Realisation of sales of the goods or services which are offered by the enterprises may be viewed as the culminating point of the whole competitive process, which involves whatever the enterprise or the businessman has to do in terms of efforts and actions necessary to be undertaken for sales to be attained. A manufacturing concern, for example, may have to undertake a l l the necessary actions, as against those of its rivals, to obtain secured supplies of materials for the manufacture of its product, to maintain stable and cordial relationships with i t s customers, or to plan for an expansion of its plant f a c i l i t i e s . A financing institution may 1° •+ CA op. ext., p. 64. ^ i b i d . , p. 68. 12 This will be discussed in the later part of this chapter. 33 have to vie for depositors' savings, and to do so, may have to offer more attractive terms such as higher interest rate, unrestrictive with-drawals on savings or deposits by the depositors, and better service. As another example, a supermarket store may have to strive very hard for a preferred location against the other stores, given other factors being equal. It might even have to compete with a gas service station dealer, or an apartment developer, for that same location. With the precedent actions successfully undertaken, further actions are then required for getting sales. Using the manufacturing concern as an example again, i t may have to offer his product at competitive prices against those of the other manufacturers, or in an attractive deal such as reasonable prices, provision of guarantee, warranty, and other services. It might have to compete with other more distant substitutes, and to compete with these substitutes, i t might have to provide such other things as arrangement for financing the purchase of i t s product by i t s customers, and so on. Suffice to say here that competition to businessmen is manifested generally as an omnipresent struggle. With rare exception, i t i s to strug-gle for the patronage of the buyers for the products or services of the enterprises who are competing among ceach other. The modes of this strug-gle for buyers' patronage are multifariousj and may manifest as (1) competition on price; (2) competition on non-price elements like services, credit terms, quality, product design, advertising and promotions, research and develop-ment, etc. The rivalry may be inter-industry, or intra-industry5 or i t may be against foreign competition. No one business enterprise, existing in the highly competitive environment and facing the omnipresent rivalry in the 34 business world, is absolutely impregnable because no one enterprise is completely insulated from competitive forces. Business Objectives: Their Accomplishment Through Competition Competition to a businessman or his enterprise, as noted in the preceding discussion, is a struggle for the patronage of buyers for his products or services. This struggle is omnipresent and calls for the undertaking of a variey of actions and activities necessary to obtain sales or to enhance saleability of his products or services. Of great significance to the business enterprise in this struggle i s that these activities are oriented toward the 'welfare1 or the pursuit of the enterprise. What i s an enterprise's welfare? What are the constituents.of its welfare? These are necessarily difficult questions to answer, but the struggle for buyers' patronage must ultimately be oriented toward the attainment of the objectives of the enterprise. Two objectives, at least, are basic to a l l business enterprises. The f i r s t and primary objective is to make profit, which i s the sole reason for which business enterprises exist. The need for business enterprises to make profit is well comprehended by a l l businessmen; i t i s , indeed, an absolute requirement for survival. To most business enterprises, however, profit making is not just the attainment of a surplus of revenue arising from the sales of products or services and from other operations over the expenses incurred therein. Profit making carries a more meaningful and far-reaching connotation: i t represents a certain rate of return on the invested capital, or a certain Tn-irHTmTm dollar amount of profit, or a certain percentage point increase in profit over and above the previous year's, and so on. 35 The significance of the profit-making need to business enterprises, part icu lar ly the forward looking ones, i s beyond doubt. Frederick R. Kappel, the President of American Telephone & Telegraph Company, i n describing prof i t as the energiser of future actions, says that . . . i t i s today 5 s prof i t that enables a business to do the things today that are needed tomorrow. ^ In the same vein, Earnest J . L i t t l e of Texaco Canada declares that . . . management i s not f u l f i l l i n g i t s fundamental responsibi l i ty , even to shareholders, by making a prof i t i f i t does not preserve the opportunity to make a prof i t tomorrow. It i s the desire of the enterprises to make prof i t that many enter-15 prises undertake research and development a c t i v i t i e s . In terms of business operations, prof i t i s viewed as a margin of protection against errors and misjedgments, a foundation for rais ing additional capital resources, a yardstick by which management efficiency i s evaluated. It i s interesting to note also that prof i t i s a symbol of success, status, and prestige to the business executives. The other basic objective i s necessarily related to the prof i t making objective; i t i s the objective of perpetuation, or of continuity 5"Management Problems As Seen By The Head Of The World's Largest Business", C. Lowell Hariss, (ed), Selected Readings In Economics (Englewood C l i f f s , New Jersey: Prentice-Hall , 1962), p. 42. 14 As quoted i n Harold Brayman, op. c i t . , p. 199• 15 John D. Lockton, "The Creative Power Of Profits", Clarence ?/alton and Richard E e l l s , (ed), The Business System (New York; Macmillan Co. , 1967), V o l . 1, pp. 452-461. "^Beardsley Ruml, "Profits - The Spark Of The Enterprise System", Paul A..Samuelson, et a l , (ed), op. c i t . , pp. 300-304; see also Tibor Scitovsky, "A Note On Prof i t Maximization And Its Implications", T. Scitovsky, Papers On Welfare And Growth (Stanford, Cal i fornia: Stanford University Press, 1964), pp. 167-173. . 36 of existence, Ihe struggle of the business enterprises requires that a l l necessary actions are undertaken to ward off the threatening moves of the ir r i v a l s , and to strengthen themselves as wel l . In short, they have to act offensively or defensively against their r i v a l s ' actions which, by taking away sales, w i l l threaten the continued existence of the enterprises. Evolving from these basic objectives of prof i t making and perpetuation of existence are a variety of other objectives of the enterprises, such as the control of market share of the ir products, expansion of the ir operations through integration v e r t i c a l l y or horizontally, or by means of acquisitions, mergers and take-overs, or just the maintenance of the enterprises' status quo, and so on. In the context of the competitive environment, the attainment of the objectives which the business enterprises set for themselves necessitates that an integrated programme for the struggle for sales 17 of the ir products or services be developed. This ca l l s for the development of the strategic plans of and policy guidelines for competitive actions, an analysis of the enterprises' "profiles" which includes an inventory of available resources, plans for additions and changes to the existing resources and the deployment of these resources, as well as an estimate of the probable reactions and responses of the competitors. 18 Martin-Senour Company; An I l lus trat ion By way of i l l u s t r a t i o n , Martin-Senour Company adopts as one _ For an account of the development of an integrated competitive programme, see Seymour T i l l e s , "Developing A Statement of Corporate Strategy", John S. Wright, and Jac L . Goldstucker, (ed), Hew Ideas  For Successful Marketing (Chicago: American Marketing Association, 1966), pp. 71-75. 37 of its objectives colour leadership in paint, which its management considers highly desirable to the sales of its paint products. Having decided on this, i t sets up a plan to find the right people, colourist and colour physicist, to help launch the programme. In conjunction with this, a plan is also designed to create "the company image" so that the users of its products would identify colour and quality with the company's name and paint products. This part of the campaign calls for a substantial amount of publicity: direct mail and national advertising directed at the potential users of the company's products, while professional public relations are maintained with 'home' magazines and with, 'home fashions' industry whose co-operations are sought in order to promote and propagate colour. Also, as a necessary follow-up, tremendous amount of activities in research and development in paint products is under-taken to maintain better colour standards in its paint, including the development of better colourants with greater permanence, inside and outside, better washability, and a l l the other important actions in maintaining high quality of the products. There is also to be continued research into the use of new chemicals such as acrylics, latex, vinyls, etc., with a view towards product improvement. On the marketing side of this colour leadership programme, the company expends a good deal of efforts in order to secure a network of wholesalers. This involves the beneficial market research on the specific markets of the wholesalers, as well as the provision of assistance to wholesalers to plan for a better co-ordinated sale 18 Adapted from William M. Stuart, "Integrated Marketing", Lynn H. Stockman, (ed), Advancing Marketing Efficiency (Chicago: American Marketing Association, 1959), pp. 11-16. 33 plans for their Immediate markets. The entire programme thus requires planning for a l l the necessary actions that have to be undertaken in order to f u l f i l l this objective of colour leadership in paint products. It might be difficult to imagine how this objective of the Martin-Senour Company could be achieved without the development of an elaborate programme of activities. This illustration also serves to show what competition as a struggle for the patronage of buyers i s to the business enterprises or the businessmen. The Incompatibility Of Full Disclosure With The Maintenance Of  Competitiveness Of Business Enterprises It i s , perhaps, appropriate to examine, at this stage of the study, whether or not f u l l disclosure of business information is compatible with the maintenance of competitiveness of the enterprises in the light of competition in business as envisioned by the businessmen. A comparison of what a business enterprise has to disclose in terms of information and data about its operations and activities within the meaning of f u l l disclosure with what i t has to do in i t s competition with i t s rivals seems to suggest that in several respects f u l l disclosure and the maintenance of the competitiveness of a business enterprise are not compatible. Martin-Senour Company may be a suitable case to illustrate their incompatibility. When i t launches its colour leadership" campaign in order to boost sales of its: paint products, the company haa to incur a tremendous amount of its resources, both financial and physical, in product planning and development as well as in the marketing of the products. The campaign does not bring about profitable results until several years later 39 when these plans have been effectively executed. If this: objective of the company is disclosed soon after the launching of the project the company will inevitably experience counteractions such as price cut and a tighter control over the existing wholesalers by i t s competitors, as well as many other actions the competitors consider to be necessary to undertake. The effectiveness of its competitive efforts to boost its sales will be substantially reduced. The fact that this colour leadership project should be disclosed because i t is a relevant piece of information to, for instance, its shareholders is evident; but by i t s disclosure the company will actually be "broadcasting1 i t s business strategy. This may provoke its competitors to take counter-measures which might seriously defeat what is other-wise good planning of the company. The company might be so badly hurt by the disclosure that i t may not be able to compete again effectively with i t s rivals. The incompatibility may arise in another way. A firm may be carrying ./several lines of products in order to utilise i t s plant capacity more fully. There may be only one or two of these product lines which are profitable and well-developed. If the firm is required to report disaggregatively the performances of these product lines, such as their sales, product costs, selling expenses, their profitability and so on, the disclosure in such disaggregative form would amount to laying bare to i t s competitors the strengths and weaknesses of the firm. Confronted with aggressive actions of rivals against the lines of products which are less defensible, such as those with marginal profits, the competitive posture of the firm becomes vulnerable. A greater threat to the competitiveness of the 40 firm lies, perhaps, in the possibility that competitors are invited to enter the markets of those profitable lines, and the competitors need not be rivals in the same industry producing the same products, but also those from the other industries which have the capability to produce substitutes to the profitable lines of products. Rivals producing aluminium f o i l or paper products might be lured, for instance, to enter into competition with firms in the cellophane wrapper market, i f cellophane wrapper market is a lucrative one. The competitive position of the reporting enterprise might, therefore, be invariably damaged by the disclosure of the break-down of its product lines' performances. Many other examples may be used to show that f u l l disclosure of business information may not be compatible with the maintenance of the competitive positions of the reporting enterprises. Suffice to say that f u l l disclosure, depending on the competitive situations that the reporting enterprises are facing, may be detrimental to them in that secrecy of certain information which the reporting enterprises consider necessary to be kept undisclosed in order to protect their competitiveness against their rivals, cannot be maintained, i f f u l l disclosure i s made mandatory. A Need For Some Degree Of Secrecy Of Information It i s submitted that, i f the analysis is correct, f u l l disclosure of business information is, in some respects, not compatible with the maintenance of the competitive positions of business enterprises. Although information and data about business enterprises may aid greatly to those who require these information and data in making 41 rational decisions, business enterprises certainly cannot afford to disclose fully the information and data about their affairs. Certain items of information may be disclosed, particularly those that are required by the statutory lav;; some particular items of information, however, are of such vital importance to the enterprises, owing to the competitive positions they are faced with, that the enterprises have to keep the information secret, or should disclose the information in such a way that the disclosure will not affect the competitiveness of the enterprises. It may be true that businessmen are as much interested in the existence of competition as the economists and the other advocates of f u l l disclosure. Competition is undeniably s t i l l the bulwark of the free private-enterprise economy, and few businessmen are really interested in the elimination of competition. It.seems doubtful, however, that f u l l disclosure of information can be feasible as a means to promote competition, since business enterprises themselves require some degree of information secrecy. If competition i s weakening, i t should be promoted as a matter of course. And, i t is equally doubtful that the exigency of the information users can be met. Summary The environment in which business enterprises operate is keenly competitive; and no business enterprise cannot be impregnable as such. Paced with such an environment, business enterprises have to undertake a l l actions necessary in order to achieve sales of their products or services. With rare exceptions, competition often 42 to the competing"business enterprises is thus envisaged to be a struggle for buyers' patronage. Competition is also oriented toward the attainment of the objectives of the enterprises. Efforts undertaken by the business enterprises are calculated toward the achievement of these objectives. In the competitive environment, i t i s necessary that some information about the enterprises be kept secret in order that the objectives may be attained through a successful competition in the sales of their products and services. In view of the need for at least a degree of information secrecy by business enterprises, i t seems doubtful that the demand for information and data about business enterprises: can be met. It is also doubtful i f competition can be promoted by means of f u l l business disclosure since secrecy is required by enterprises in the maintenance of their competitiveness. CHAPTER IV FIELD STUDY QUESTIONNAIRE AND METHODOLOGY Brief Outline: To gain an insight of the need for secrecy of information in the competitive business environment, a field study by means of questionnaire and answers and interviews with business executives in some selected business enterprises is utilised* This chapter i s devoted to a discussion of the methodology of the field study and the questionnaire that is employed in this field study. The various aspects under discussion are: (1) the practical purpose of conducting the field study; (2) the questionnaire to be used in the field study, i t s set-up- in sections which are intended to find out the various matters relevant to the disclosure of information by the selected enterprises; ( 3 ) the method in the selection of the business enterprises and their executives and managers who are suitable to answer the questions; and (4) the method used in carrying out the interviews and discussions with the selected executives and managers. 44 Introduction A tentative conclusion has been drawn in the previous chapter that there seems to be a need for at least a degree of secrecy of information and data of an enterprise so that i t may be competitive against its rivals. The stage is set now for a field study by means of questionnaire and answers and interviews with business executives in business concerns to be made to ascertain their rationale for thinking that such a need for information secrecy is necessary. The Practical Purpose Of Conducting The Field Study At the risk of over repetition, i t is undeniable that the most practical purpose in undertaking this field study is that through the interviews with the selected business executives and discussion on the need for information secrecy, in the light of the real business compet-itive situation that they are faced with, a realistic insight might be gained. First-hand discussions with business executives on this seemingly vital question of the need for information secrecy, i t is felt, can surely be very much more enlightening than any amount of abstract thinking and arm-chair discussion by the author. Through the questionnaire and interviews that are to be conducted in the field study, i t is hoped that whether or not a need for secrecy of information does exist may be ascertained. If i t may be shown that such a need does exist, and that its existence is necessary for business enterprises to be or to remain competitive with their rivals, i t is certainly interesting also to know and understand the rationales of the business executives in the light of the competitive situation they are faced with. In this regard, perhaps, no more important and useful purpose may be served by this field study in that the expressed views 45 and opinions of the business executives may shed light as to whether f u l l disclosure of business information by enterprises is or is not harmonious with the maintenance of the competitive system of the free private-enterprise economy. The Pilot Questionnaire In order that the field study can be facilitated and conducted in an appropriate and meaningful manner, a pilot questionnaire was f i r s t used. It was constructed in a way that would enable the author to test whether the hypothesis of this research thesis — f u l l disclosure of business information by business enterprises is detrimental to their competitive postures, and to remain competitive with rivals, business enterprises require at least a degree of information secrecy — may be established. The questions in this pilot questionnaire are directed towards the finding out of: 1 (l) whether the meaning of f u l l disclosure, as defined in Chapter I I , 1 i s acceptable to the businessmen; (2) whether the disclosure of such information as goals, objectives and policies of a business enter-prise, its future expectations, and i t s current economic situation — information which is generally not revealed in the annual reports of business enterprises — would be objectionable, and i f so, whether the objection is based on competitive reasons; and (3) the attitude of business executives 'with respect to f u l l disclosure of information. The pilot questionnaire is as shown in Appendix I. An appointment with the president of a concern in the business of pest control was then arranged. The interview took place on Dec. 21,. 1968. ISee supra, pp. 20-25. 46 The answers from the respondent are evidently and strongly in support of the hypothesis of this research thesis. (1) In reply to Questions 19 and 20 which ask the respondent about his attitude toward f u l l disclosure and the reason or thinking for the attitude adopted* he was "strongly opposed" to f u l l disclosure because he felt that in a free-enterprising economy "f u l l disclosure of business information is not in the best interests of a company." (2) Replying to Questions 9, 10 and 11, whether or not the disclosure of goals, objectives and policies; future expectations; and the current economic situation of a business enterprise is detrimental to i t s competitive position, the respondent asserted that "su&h disclosure would provide competitors with information which would be valuable to them. Such disclosure could easily 'broadcast' one's plans to one's own detriment. For example: i f consideration were being given to new products, additional branches, expansion of physical facilities, the fact that one's plans were so and so might influence the plans of the competitors." However, he had some reservation as to the competitive value of the disclosure of future expectations of a business enterprise. ( 3 ) When asked about the probable detriment which disaggregative disclosure might cause, that is, Questions 12 through 16, the respondent reasoned that "by supplying of disaggregative information competitors would be able to follow any development (of the reporting enterprise) by area, by product, and by group. This is more so when plans and future expectations are disclosed also in a detailed manner. Most companies in a free-enterprising society could be affected by disaggregative disclosure." 47 ( 4 ) While the respondent objected to the disclosure of most of the items of information which were incorporated 'within the term and the meaning of ' f u l l disclosure' , he agreed that these information and data were certainly useful for the purpose of rational decision-making by the users of information. Although i t may be established that there i s a need for inform-ation secrecy for a business enterprise to remain competitive, there i s s t i l l no substantial evidence from the respondent i n this interview to ascertain the rationale behind his thinking. Despite this deficiency, the p i lo t questionnaire and the interview have, nevertheless, brought to the surface several considerations which deserve greater attention in the construction of the questionnaire eventually to be used in l a t er interviews. The Questionnaire In the l ight of the knowledge gained i n this preliminary in ter -view and through the p i l o t questionnaire, several considerations relevant to the preparation of the questionnaire to be used i n the f i e l d study become evident; adequate attention must be given to them in order to ensure that the f i e l d study can be successfully conducted. F i r s t , in the preparation of the questionnaire, the question arose of whether i t i s suitably necessary to ask questions which would require the respondents to reveal i n their answers information which may be properly considered business secrets, such as "how much i s the cost per unit of a product?", "what i s the mark-up margin i n pric ing the product?", "what are the terms of sales, and are they the same or different in the various marketing d i s t r i c t s or areas?", etc. 48 After having given much thought to i t , i t was decided questions of such a nature have to be excluded i n the questionnaire f o r the following reasons: ( l ) there i s no way of finding out which are "secret information" and "non-secret information" without having at l e a s t a fore-knowledge of the respondent's enterprise. Such inform-ation about the respondent's enterprise as i t s nature of operations, the classes of information and data i t usually discloses, the media by which the information and data are disseminated and the target readers, and so on, are considered to be v i t a l l y relevant to an analysis of the rationale i n regard to the need f o r information secrecy; and ( 2 ) the avoidance of such questions i s necessary i f an assurance of co-operation and honest expression of the respondent's views with regard to the need f o r information secrecy i s to be obtained. Also, i f such questions concerning "business i n t e l l i g e n c e " are asked, the respondent might balk at the amount of the secret information and data he has to provide. Even i f he i s persuaded to answer such quest-ions, there i s no assurance s t i l l that the answers given are genuine. The r e l i a b i l i t y of the answers i n r e f l e c t i n g the rationale of the respondent w i l l be d e f i n i t e l y impaired. The questionnaire, therefore, i s to be constructed with questions which are worded i n a general manner. In being general, t h e i r relevance to the purpose of t h i s f i e l d study i s not s a c r i f i c e d , however. Second, i n order to ascertain the rationale of the respondent f o r the need f o r information secrecy, i t i s deemed necessary that certain background information about the respondent's enterprise be .' made available f i r s t . The information to be obtained relates to ( l ) the nature of the operations of the respondent's enterprise, as 49 mentioned e a r l i e r ; (2) the s i a e of the e n t e r p r i s e i n terms of s a l e s revenue, t o t a l a ssets and employed personnel; (3) the number of products o r product groups c a r r i e d o r manufactured by the e n t e r p r i s e ; and (4) the competitive s i t u a t i o n t h a t i s faced by the e n t e r p r i s e . T h i r d , to a s c e r t a i n the respondent's r a t i o n a l e f o r the need f o r secrecy i n the l i g h t o f h i s view of h i s e n t e r p r i s e ' s operations and i t s competitive s i t u a t i o n , the q u e s t i o n n a i r e must i n c l u d e questions which would probe i n t o the b a s i s f o r the e x i s t e n c e of the need f o r secrecy of i n f o r m a t i o n . These questions are posed i n the f o l l o w i n g sequence: (1) the items of i n f o r m a t i o n v/hich have to be kept s e c r e t ; (2) why they should be kept s e c r e t , through an i l l u s t r a t i o n o f the p o s s i b l e consequences which might r e s u l t i f they are d i v u l g e d ; (3) the c r i t e r i a by which a d i s t i n c t i o n , may be made as to whether an item of i n f o r m a t i o n may o r may not be d i s c l o s e d . Since competitive f o r c e s may be present i n each phase of the 2 operations and a c t i v i t i e s ' o f an e n t e r p r i s e , and at a l l times, i t may be of i n t e r e s t to f i n d out a l s o which are the items of i n f o r m a t i o n and data i n the f u n c t i o n a l areas of operations of an e n t e r p r i s e , which the respondent considers necessary to be kept s e c r e t f o r competitive reasons. The q u e s t i o n n a i r e i n c l u d e s , t h e r e f o r e , some questions which are separated a c c o r d i n g to these broadly defined f u n c t i o n a l areas of o p e r a t i o n s , namely, g o a l s , o b j e c t i v e s and p o l i c i e s a t the top management l e v e l ; marketing; p r o d u c t i o n ; finance and accounting; personnel and i n d u s t r i a l r e l a t i o n s ; and research and development. See supra, pp. 32-36. 50 The Structure Of he Questionnaire These various considerations constitute the rudiments f o r the construction of the questionnaire which i s employed eventually i n the f i e l d study. This f i n a l version of the questionnaire i s adopted only a f t e r several attempts were made. As shown i n Appendix I I , i t consists of the following: Section I - Questions which attempt to f i n d out the nature of the respondent business enterprise; Section I I - Questions which are intended to f i n d out the various aspects of the competitive s i t u a t i o n faced by the respondent enterprise; Section I I I - Questions which relate to the various aspects of reporting and disseminating of information and data generally disclosed by the respondent enterprise; , .. Section IV - Questions which require the respondent to indicate whether or not there i s a need f o r information secrecy i n the l i g h t of i t s competitive s i t u a t i o n , and h i s opinions as to how f u l l disclosure i s or i s not consonant with the maintenance of h i s enter-prise's competitive position; and • Section V - Questions which attempt to f i n d out that i f a need f o r information secrecy e x i s t s , \ the items of information and data under the various functional areas of operations which the respond-ent considers necessary to be kept secret f o r competitive reasons. The questionnaire also includes a preamble which explains the' nature of the research thesis and the use of the questionnaire i n interviews. There i s also included a section, Section VI, which requires the 51 respondent business executives and managers interviewed to provide some personal data about themselves which might be useful f o r purpose of reference. Methodology Of The F i e l d Study While i t i s hoped that through the questions contained i n the questionnaire s u f f i c i e n t s i g n i f i c a n t materials can be obtained to provide a sound basis f o r the ascertainment of the rationale of busi-ness executives i n respect to the need f o r information secrecy i n order to maintain the competitiveness of t h e i r enterprises, i t i s also f e l t that the interviews should not adhere s t r i c t l y to the area as defined by the questionnaire only. Discussions are also to be used so as to cover a l l relevant aspects of the operations and a c t i v i t i e s of the respondent enterprises. This w i l l surely provide a much broader basis of the understanding of the rationale underlying the need or otherwise of information secrecy. There remains one more consideration i n connection with the f i e l d study, that i s , who should be selected to answer these questions? In view of the many and di f f e r e n t facets of operations which business enterprises perform, and the wide coverage of the questionnaire, i t i s apparently inevitable that the business executives selected to answer these questions should be the ones i n the enterprises who have a good o v e r - a l l knowledge of the operations and a c t i v i t i e s of the enterprises. Executives from the top management of the selected business enterprises are thus considered to be appropriate to answer the questions. For the questions which are related to the s p e c i f i c functional areas of the selected enterprises, however, the executives or the chief managers i n charge of these s p e c i f i c areas are more suitable to answer such questions. 52 S e l e c t i o n Of Business Enter-prises No elaborate sample design i n the s e l e c t i o n of the enterprises f o r the f i e l d study i s used. The lengthiness of the questionnaire and the time which business executives who are selected w i l l have to spend i n going through i t are the main reasons f o r not having too many i n t e r -views. An elaborate sample i s thus considered to be not e s s e n t i a l l y necessary. P a r t l y , i t i s the d i f f i c u l t y i n g e t t i n g business enter-p r i s e s to co-operate w i l l i n g l y i n the f i e l d study which r u l e s out the p o s s i b i l i t y of having many interviews. This w i l l i n g n e s s to co-operate of the selected business enterprises i s undoubtedly the most important c r i t e r i o n i n the s e l e c t i o n of enterprises f o r interviews since t h i s i s a sure way of g e t t i n g genuine responses. The business enterprises are thus selected on a non-random b a s i s . The method of s e l e c t i o n of the business enterprises i n the f i e l d . study i s as f o l l o w s : (1) Industries are c a t e g o r i c a l l y c l a s s i f i e d as production and d i s t r i b u t i o n i n d u s t r i e s f i r s t . Prom each of these broad categories, several p a r t i c u l a r i n d u s t r i e s are then chosen; ( 2 ) Prom the i n d u s t r i e s so chosen, one enterprise i n each i s then selected. The enterprise i s then contacted, and informed of the nature of the research t h e s i s , and f i n a l l y selected f o r interview i f i t agrees i n the p a r t i c i p a t i o n of the f i e l d study. A replacement i s chosen only when the enterprise f i r s t selected i n d i c a t e s i t s i n a b i l i t y to p a r t i c i p a t e i n the f i e l d study. Excluded i n the s e l e c t i o n are i n d u s t r i e s and enterprises which . operate under any franchise or s p e c i a l r i g h t ; examples of such exclusion are crown corporations, telephone companies, o i l p i p e - l i n e companies, a i r - l i n e s , e t c . 5 3 Altogether eight enterprises are selected, inclusive of the one with which the pi l o t questionnaire was used i n the preliminary interview. Table III below i s a l i s t of the industries and the enterprises which' are selected. The operational functions of the selected enterprises are also indicated therein. TABLE III THE SELECTED BUSINESS ENTERPRISES, INDUSTRIES AND OPERATIONAL FUNCTIONS Industry/Nature Functions of Operations of Business Manufac turing Wholesaling Retailing 1 . Pest Control X 2 . Marine Transportation X 3 . Refrigeration/Air-Conditioning X X 4 . Bakery Products X X X 5 . Forest Products X X 6 . Department Store X 7 . Cement & Construction Products X X X 8 . Diversified - Conglomerate X X X Executives Interviewed In The Selected Enterprises Altogether nineteen executives and managers from the eight selected enterprises were interviewed. A distribution of the positions held by these executives and managers i n the selected enterprises at the time of interview i s as indicated i n Table IV below. The number of years of experience i n business management and with the interviewed enterprises of the interviewed executives and managers i s shown i n Table V. 54 TABLE IV POSITIONS OP THE INTERVHJWED EXECUTIVES AND MANAGERS Posit i o n Number Interviewed Pre sident 2 Vice-President 6 Se c re t ary- Tre asure r 3 Manager.- In Charge Of Specific Functional Area* 8 Total 19 "A few of these managers were not exactly i n charge of the s p e c i f i c functional areas, but they were considered by the top executives of the enterprises interviewed to be best suited to answer the questions related to the s p e c i f i c areas. TABLE V YEARS OF EXPERIENCE OP THE INTERVIEWED EXECUTIVES cc MANAGERS Years of Experience Number of Executives In business Management With Present Company Less than 1 year - 1 1 to 5 years - 2 6 to 10 years 4 6 10 to 20 years 2 5 More than 20 years 13 5 Total 19 19* The t o t a l time i n hours taken to complete the interviews with the executives and managers i n the selected enterpriese are as shown i n Table VI. The number of times of interviews with each enterprise 55 i n carrying out the f i e l d study i s also indicated. TABLE VI TOTAL NUMBER 0 ? TIMES & HOURS OF INTERVIEW JL Company J No. of Interviews No. of Hours Taken3 1. Pest Control 1 4 2. Marine Transportation 1 3 5. Refrigeration/Air-Conditioning 1 4 4. Bakery Products 1 3 5. Forest Products 3 8 6. Department Store 1 2 7. Cement & Construction Products 3 7 8. Diversified -Conglomerate 1 4. Total • - - • , ., 12 • 34 'In approximate whole number CHAPTER V ANALYSIS OP THE RESPONSES OP THE SELECTED ENTERPRISES IN THE FIELD STUDY Brief Outline: In this chapter, an analysis of the responses of the selected business executives and managers in the selected business enter-prises is presented. The analysis is preceded fi r s t by an examination of the various aspects of disclosure of information by the selected enterprises. This may provide an impression of the classes of information and data which they generally disclose, the media by which the information and data are disseminated and to whom. Such background information may be useful to the ascertainment of whether or not there exists a need for information secrecy. Then the nature of operations of the selected enterprises, the competitive situations they face, and the secret information related to their competition are examined. This would help to indicate why the selected enterprises consider necessary to keep secret certain information in order to maintain their competitive positions. The next section in this analysis then presents the various items of information and data related to the various functional areas of operations of the selected enterprises which the executives and managers consider to be of competitive value and, as such, necessary to be kept secret. 57 In the last section, the thinking of some of the interviewed executives and managers in respect to whether or not f u l l disclosure of business information is compatible with the competitive system of the free private-enterprise economy is presented. 58 Introduction The responses to the questionnaire and the information gathered during the interviews with the nineteen business executives and managers of the eight selected enterprises form the basis of the analysis with respect to the question of the need for secrecy of some information in the maintenance of business competitiveness. Because of the many and varied facets of business operations and activities which the selected enterprises undertake, and the different situations of competition they encounter, there is consequently a diversity of views expressed by the interviewed executives and managers. Tabulation of data is thus made difficult. 2n the analysis throughout this chapter, data will be tabulated only to aid in i t s presentation; otherwise, an enterprise-by-enterprise approach to the analysis will be. used. Present Disclosure Of Information Disclosure of information by the eight selected enterprises, based on the replies given to Questions 2 and 3 of Section I, and Questions 10 through 18 of Section III, is presented below. (l) Status Of Incorporation The status of incorporation of an enterprise is one of the primary factors influencing the disclosure of information by an enterprise. In Canada, a private corporation2" generally is not •*"The legal distinction of a private corporation from a public corporation is based on the following: (a) the right to transfer its shares is restricted; (b) the number of its shareholders is limited to 50; and (c) any invitation to the public to subscribe for any share or debentures of the company is prohibited. See J. L. Stewart, Handbook on Canadian Company Law (Toronto: Carswell Co., I960, 5th ed.), p. 31. 59 required to disclose to the public very much of its information and data, except to governmental agencies such as the income-tax authority and the Dominion Bureau of Statistics which are empowered by statutory laws to obtain information from enterprises. The status of incorporation of the eight selected enterprises is shown in Table VII below: TABLE VII STATUS OP INCORPORATION OP THE SELECTED ENTERPRISES Company Incorporated Private Public 1 . Pest Control X X 2 . Marine Transportation X X 3 . Re f r i ge ration/Air-Conditioning X X 4 . Bakery Products X X 5 . Forest Products X X 6 . Department Store X X 7 . Cement & Construction Products X X 8 . Diversified - Conglomerate X X ( 2 ) Size The sizes of the selected enterprises in terms of their respective total sales, assets and employed personnel (hourly-employed and salaried) are indicated in Table VIII. The companies are listed in the same order as in Table VII. This order i s used in subsequent tables also. Whether or not the size of an enterprise is a determinant of the strength of its competitiveness and a factor underlying its disclosure of information i s difficult to ascertain. The data 60 TABLE VIII SIZE IN TERMS OF ASSETS, SALES AMD EMPLOYED PERSONNEL OP THE SELECTED ENTERPRISES Company Assets . Sales Employed Personnel 1 n.a. 2 not disclosed 5,000,000 200- 250 3 ' 100,000 360,000 11- 16 4 not disclosed 2,000,000 1,500 3 Q £ 5 100,000,000 50,000,000 3,200 6 200,000,000 700,000,000 30,000-44,000 7 34,000,000^ 32,000,000^ 1,200 8 56,000,000 125,000,000 3,100 As per 1967 financial statements of the company, in approximate round figures. ^^Pigures as at time of interview, in approximate round figures, n. a. = not available. relating to the size of the selected enterprises are collected just in case some comment on the relationship between disclosure and size of the enterprise may seem possible. It i s interesting to note that the assets of two of the selected companies were not obtained, as the figures were not disclosed by the respondents. The author was in i t i a l l y give to understand that such information was confidential. On further inquiry, however, the respondents seemed to imply that i t would not be desirable to disclose this information for either one of the following reasons: (a) no undesirable financial situation of the company should be disclosed; and (b) disclosure of such information to people outside the company might lead to interested parties * contemplating the possibility of take-over or acquisition. 61 (g) Glasses Of Information Disclosed and Methods Of Ifi.sclosu.re The classes of information and data generally disclosed by the selected enterprises are financial and economic information. Other information, as exemplified by industrial dispute settlements, negotiations of union contracts, etc., is also disclosed. These classes of information and data which are generally disclosed by the selected enterprises are presented in Table EC. TABLE IX GLASSES OF INFORMATION DISCLOSED AND THE METHODS OP DISCLOSURE Classes of Information Disclosed Media of Disclosure Company Financial Economic Others Financial Statements/ Annual Reports Press Trade Journals, Magazines Etc. 1 X X 2 X X X X X 3 X X X X X 4 X X X X X 5 X X X X X X 6 X X X X X 7 X X X X X 8 X i X X X X The financial information was generally disclosed through the financial statements which included the balance sheet, the income statement, and the statement of retained earnings. Other statements, such as sources and application of funds and cash flows, schedules, supplements and charts were also commonly employed in the disclosure of financial data of the companies. These statements and schedules, etc., formed a part of the annual reports of the companies. 62 Economic and other information which i s generally disclosed through the media of press, trade journals and magazines, i s presented i n greater detai l as follows: Company Managerial Appointments Plant Expansion Acquisitions Take-overs Earnings Industrial Dispute Settlements 1 n .a . n .a . n .a . n . a . n . a . 2 X 3 X n.app. 4 X X 5 X X X 6 X 7 X X X X 8 X X X X X n .a . = not available n.app. = not applicable (4) Target Users/Readers Of Disclosed Information The target groups of usex-s and readers of the disclosed information of the selected enterprises are as shown i n Table X. (5) Disclosure Of Future Expectations And Current Economic Situation In reply to Question 15(a), whether or not information such as future expectations and the current economic situation of the company had been included i n i t s annual reports i n the past, three companies - Ho. 4 , 7 and 8, replied "yes", and the other five companies - Ho. 1, 2, 3, 5 and 6, gave the answer "no". However, a l l the selected companies agreed that such information should be included when they were asked to answer Question 15(b) of the questionnaire. 63 TABLE X TARGET USERS/READERS OF DISCLOSED INFORMATION OP THE SELECTED ENTERPRISES x - f inancia l statements and annual reports XX - economic and other information (x) or (XX) represents the group of users/readers who are of greatest interest to the company Company Investors Creditors Financial Analysts Customers Employees Govt. & Other Agencies1, 1 CO X 2 (x) XX X 3 (XX) X 4 (XX) X 5 X (XX) XX X 6 (XX) X 7 X . X (x) x (XX) x XX X . 8 (x) (XX) X X .x. Income-tax authority, Dominion Bureau of Stat i s t i cs , and Stock Exchanges ( i n the case of public corporations ) Companies No. 2 and 7 qual i f ied the ir answers to Question 15(b) by indicat ing that there had to be a d is t inct ion between 'generality' and ' spec i f i c i ty ' of such information when disclosed. Examples of ' spec i f ic i ty ' as given i n the words of two executives are: (a) "The demand for transportation services i s expected to increase by J.% from the 1967 l eve l , i n view of the steadily expanding trade between Br i t i sh Columbia and Japan and the Paci f ic region of the United States. The company w i l l continue to contribute to this progress, as i t did i n the past, by expanding i t s present f leet of barges and tugs through the addition of three more barges which are equipped with the latest handling equipment and f a c i l i t i e s by 64 the end of 1970. This will enable the company to increase its share of the market for transportation services by Y%n; and (b) "We expect to serve our customers in Areas A, B and C with the completion of our new plant in the following year". Company 2 reasoned that i f the information was specific, meaning that the information was too detailed, i t would certainly not disclose i t , because "our competitors would be provoked into taking counter-actions which would affect us, and which could have been easily avoided." The advantages of the disclosure of information such as future expectations and the current economic situation of the company, as expressed by the executives and managers interviewed, are generally in the nature of publicity value which the disclosure carries. Typical of the advantages which they anticipated of such disclosure are: "to improve the image of the company"; "to give customers and the public an idea of what the company is doing"; and "to ensure confidence of the investing public and customers in the company". The disadvantages of such disclosure are more eloquently expressed by the respondents. The undesirability of the disclosure of such information as future expectations and the current economic situations of their companies i s evident from their arguments quoted below: "Disclosure of such information, particularly when i t i s specific, permits competitors to copy our ideas in order to counter-act our strategy, or even to take-over our company"; "When our future expectations are disclosed, 7/e might reveal our future expansion plans and what we are contemplating to do. Counter-measures might be taken f i r s t by our rivals before our plans and expectations can be materialised. As a result of the disclosure, even our present 65 position might be affected because of the actions our rivals have taken"; "The specificity of the disclosure of such information, that is, the degree of detailed information in the disclosure, is certainly very undesirable. We not only broadcast our plans and moves in the future, but invites competition unnecessarily"; and "If the company's economic situation is 'bad', the disclosure of i t will surely reduce the company's ability to raise funds or loans, and the ability to grow must inevitably suffer." Another consideration in the disclosure of future expectations and the current economic situation of an enterprise is the timing of the disclosure. The importance of timing of disclosure i s well explained by the reasoning given by a.respondent in Company Kb. 7s "If actions and plans are to be effective, we do not want to disclose them too prematurely, even i f we have already decided to take the actions or to go ahead with the plans. The reason is very simple; competitors will be stimulated by the premature disclosure of the information about our plans and expectations to take any actions necessary to f o i l them, to block us from doing anything to realise our plans. "Timing of disclosure i s , therefore, very important, and we will disclose this information only when we expect that there is no adverse effect on us, which might be caused by competitors' actions, or counter-actions. "In the disclosure of this information, • there is a need for secrecy in the sense of non-specificity or not-too-detailed disclosure of the information, as well as timing of disclosure." (6) Some Observations Regarding The Present Disclosure Of Information Several observations may be made about the present disclosure of information by the selected business enterprises: 66 (1) Business information, particularly financial information, is disclosed to the governmental bodies; this is mandatory. No one company, however, shows any notable interest in this direction of disclosure. ( 2 ) While the eight selected enterprises disclosed more or less the same kinds of information, the private corporations and the public corporations do differ in the target groups of information users or readers. The private corporations are generally interested in the customers, and their economic and other information is particularly directed at this group of information users. The principal reason for the interest in the customers is from the standpoint of the publicity value inherent in this information, which i s thought useful to improve the images of the companies. The two public corporations, however, are more interested in their investors because, as Company No. 8 asserted, "we want to be sure of public confidence in our company by informing them, both current and potential investors." Company No. 7 deviates from Company No. 8 because of the target group of information users or readers in which i t is most interested. It is more interested in the customer group than the investing public because "information to customers is the best way to expose our company to the customers, and to strengthen our image. This is an effective way to start soliciting sales." However, there is also an explanation in this deviation; i t is that although the company has over a thousand shareholders, 51%-of the shares of the company is held by a . company in the united Kingdom, while the majority of the remaining shares i s held by a few large shareholders in Canada. Its shares 67 are not actively traded on the exchanges as such. Two factors may thus be of significance in the disclosure of business information, namely, the status of incorporation and the ownership structure of the company. (3) With regard to the information disclosed by the selected enterprises, i t seems apparent that the information generally disclosed by the enterprises is of a nature which does not or is not anticipated to endanger their competitive posturesj and, as this information carries publicity value, the companies, i f affected at a l l by the disclosure, will only be favourably affected. Their competitive positions; will be strengthened rather than weakened as a result of disclosure of these kinds of information. ( 4 ) While the enterprises make no secret about the information which they generally disclose through the financial statements and the other media such as newspapers, trade journals and magazines, they are nevertheless very conscious of the probable effect of the disclosure. This is evidently indicated in the case of disclosure of such information as future expectations and the current economic situations of their companies. If disclosure of such information is thought to be disadvantageous, then the information will be withheld. ( 5 ) The selected enterprises implicitly recognise the need for secrecy of information. Non-specificity or not-too-detailed disclosure, as opposed to detailed and specific disclosure, implies secrecy. Again, the need for secrecy is implied in respect to the timing of disclosure. Secrecy of information is, in the view of the selected enterprises, maintained at least by not disclosing any information prematurely. 68 The Rationale For The Ifeed For Information Secrecy The analysis in this section focuses on the rationalisation by the interviewed executives and managers on the need for at least a degree of information secrecy in the milieu of competition experienced by their enterprises. Cwing to the many and varied facets of operations and activi-ties engaged by the enterprises and the differences in the competitive actions and situations faced by them, the analysis is presented, on an enterprise-by-enterprise basis. To ascertain the rationale for the need for secrecy of inform-ation, the sequence of the analysis is as follows: (1) the nature of operations of the enterprise in question; ( 2 ) i t s present position as evidenced by the sources of earnings and the relative successes of i t s products or services; ( 3 ) i t s competitive situation as indicated by the number of rivals and the presence of competitive products or services; (4) the actions of rivals which the enterprise consider threatening to its competitiveness; and ( 5 ) thereby the need for keeping secret certain information about the enterprise, as evidenced by the probable consequences upon its competitive position, i f such secrecy were not maintained. The analysis is based on the replies given to Questions 1 and 4 of Section I, Questions 5 through 9 of Section II, and Questions 19 through 2 5 of Section IV. The present analysis does not include Company No. 1, the pest control company, as information pertaining to these questions was not available when the pilot questionnaire was used in the preliminary interview with the company. 69 (1) Info relation Necessary To Be Kept Secret By The Selected  Enterprises In The Maintenance Cf Their Competitiveness The need for at least a degree of secrecy of some information in the maintenance of the competitiveness of a business enterprise is evident, to judge from the affirmative replies of the business executives and managers interviewed in the field study. Many of them did not take long to express their conviction that a business enter-prise requires secrecy, not f u l l disclosure, of information in order to remain competitive. Table XI shows a l i s t of the classes and items of information which the interviewed executives and managers considered necessary to be kept secret, in the light of the competitive situations faced by their enterprises, in order that their respective enterprises' competitive positions may be maintained. (2) The Need For Secrecy Of Some Information - An Enterprise-By- Enterprise Study An enterprise-by-enterprise analysis is presented below to show why the selected enterprises consider that there is the need for secrecy of their information as presented in Table XI, in order that their competitive positions may be maintained. Company No. 2 - Marine Transportation Company The subject company is engaged in the provision of marine transportation services for lumber, pulp, petroleum products, logs, chemicals, limestone, gravel and railway cars. It operates along the West Coast of Canada and the United States - from the mouth of the Columbia River to the Alaskan ports, including the major off-shore islands within the area - by the use of barges and tugs. It is about, the third largest in British Columbia in a field 70 T ABLE XI CLASSES AID ITEMS OP INFORMATION CONSIDERED NECESSARY TO BE KEPT SECRET BY THE SELECTED ENTERPRISES IN THE MAINTENANCE OP THEIR COMPETITIVENESS 1 • Classes And Items Company| Of Information 2 3 4 5 6 7 83€ Sales: Volume in physical units/quantity X Volume in dollars & physical units X X X X Break-down by product/product group X X X X X by method/category of sales X X by subsidiary n.a X by branch/store n.a .n.a X Cost: Cost of Sales - disaggregative X X X Unit cost X X Product: Specialty product/product line n.a • X Product-mix n.a o X X Pricing: Policy and method X X Terms of sales X X Profit margin X Other: Preliminary negotiations on take-overs and acquisitions n.a 9 X X Financing plans and methods . X Financial reports for each subsidiary n.a 9 X Customers1 l i s t X Reciprocity of sales X. From the standpoint of holding company only n.a. = not applicable 71 of about seven, and i s only medium-sized when related to the entire field of marine transportation companies along the West Coast of North America. Presently, i t enjoys a fair share of this marine transportation market - "proportionate to the company's ability to handle the volume of services available". If the services are segregated on the basis of the items of goods transported, the company is about SOfo successful; the reason is that competition i s extremely keen in the transportation of forest products such as pulp, logs and lumber. Keen competition is experienced by the company not only with its rivals in marine transportation, but from land transportation services by trucks and r a i l . Potential competition is also anti-cipated from unit trains and hovercrafts. Competition largely takes the form of price and quality of services, although personal selling efforts by the company and the promotion of 'public relations' with its clients and potential customers are important elements in i t s competitive actions to meet competition. Any actions of i t s rivals which might lead to price competition are considered to be threatening to the company because "a difference of 1/8 of 1% in price can control large sales of transportation services." Any efforts by rivals to "infiltrate the clients of the company may possibly result in the loss of clients." Hence, the company feels that in its present competitive situation, information such as the cost of transportation services provided, especially the unit cost - that i s , cost per ton-mile -of services provided, has to be kept very secret. Other data which should not be revealed are sales volume by items of goods transported, the l i s t of customers and the terms of sales. Even the methods of 72 handling transported goods and the equipment used are generally not disclosed by the company, as they are the determinants of the quality of services; but they cannot be retained for long as rivals can easily find out this information. The respondent asserts very strongly that the need for secrecy of some information in order to maintain the competitiveness of his company is definitely necessary because "disclosure of such inform-ation as costs of services will invariably uncover the vulnerable area of transportation and will allow competitors directly to attack i t . In consequence, a price war tends to develop which could cause elimination of part or a l l of the company's: operations." Company Ho. 5 - Refrigeration/Air-Conditioning Company The main operations of the company are wholesaling of air-conditioning, refrigeration and heating equipment, and installation of such facilities on a contractual basis of price bids to hotels, offices and restaurants. Competition arises not only from many rivals in the same line of business, but also from the unlicensed 'back-door' dealers. In the competition for business, cut-throat competitive situations often develop because the manufacturers of these facilities make no secret about their prices and because of the unlicensed dealers who are operating at low costs and are unrestricted by any union contractual obligations. The respondent reasons that with so much of the information already known to others, the necessity of keeping secret the information whose secrecy may s t i l l be maintained cannot be too stressed. Hence, he has to keep secret such information as pricing 73 policy and method and costs of sales, the information which is of vital importance in the competition for contractual work. Other information which he feels should be kept secret in order to protect his business includes the volume of sales in monetary and physical terms and segregation of sales by product group. The need for such information secrecy, the respondent asserts, is not only vital to the maintenance of his enterprise's competitive position, but possibly to its survival. Company No. 4 - Bakery Products Company The subject company, one of the largest in Western Canada, manufactures, wholesales and distributes a wide variety of bakery products, namely, bread, rolls, cakes, sweetgoods, etc. The target customers are generally the retail outlets like food stores (mini-marts), restaurants, hotels and supermarkets. It also supplies bakery products on a contractual basis to hostels and other institutions which consume these products in bulk. While few people might expect that the company, on the basis of its size and its product lines, and with its fleet of tracks and it s plants scattered throughout the western provinces, will not be able to compete successfully against its rivals, the reverse is surprisingly true. The company presently faces one of the most difficult problems in the marketing of bakery products, that is, the adequacy of product exposure to buyers. It stems from the fact that most of the supermarkets - the most effective channels of sales for bakery products - are owned by a large supermarket chain organisation which operates also in the western provinces. This supermarket chain organisation owns a bakery subsidiary also. The 74 subject company i s thus cut off in its access to the best marketing channel for its products. The lack of adequate product exposure consequently leads to slow turnover; and most of i t s product lines are about breaking even in terms of profitability. Another factor contributing to the aggravation of the problem of low profitability i s the relative high costs of distribution: delivery costs and salesmen's commission which the company has to pay under the existing union contract, irrespective of whether its salesmen' are responsible for the sales or not. Under these circumstances, a range of information and data to be kept secret becomes necessary: (l) the company cannot reveal through any kind of disclosure its information on sales in dollar and physical terms, nor any break-down of sales by |7roduct or category of sales; (2) competitors must not be informed of the profitability or otherwise of the company's lines of products; and (g) cost information which is of great significance in bidding for contractual sales. Secrecy of the aforementioned information i s necessary, according to the respondent, i f the company is not to lose to its rivals, by their more competitive and attractive offers in pricej i ts present contractual sales as well as i t s feeble and insecured hold of the present retail outlets. The company does not see f i t either to disclose its financial position. Its assets 7/ere not revealed during the interview, the reason given seems to be that a 'bad' situation should not be disclosed. 75 Company No* 5 - Forest Products Company This is an integrated company in the forest products industry; it s operations span from logging and lumbering to the manufacture of pulp, plywood, hardboard and shingles, and from shipping container services and transportation by trucks to sales of its products by its various subsidiaries. Competitor-wise, i t faces (l) local and foreign rivals in pulp exports to the United Kingdom, Germany, Prance, Italy, Japan, the South American countries, etc.; (2) largely local competitors in the plywood market in Japan; and (5) the same rivals in the sales of shingles and hardboard in the local market. Sales are mainly solicited through the personal selling efforts by the company's sales force or agents located throughout these markets. Price dominates as the most important mode of competitive actions, although i t is partly dependent upon the qualities of these products. Most of i t s products are profitable, measured on the basis of the return on investment, especially hardboard for which the company is the only producer in British Columbia, and shingles. Compared to its local rivals which number about seven, the relative market positions of its classes of products in terms of market share are roughly as follows: Hardboard - f i r s t Shingles - second Plywood - third Lumber - third Pulp - f i f t h Pulp does not fare as well as the other products because of the high costs of operations of the pulp mills resulting from relative 'agedness'. Competition is fierce, and i s extremely so in pulp sales in 76 the foreign markets. The greatest threat, according to the respondent, would be "any unwise actions of rivals to increase outputs of their products through plant expansion and increased logging operations," because these actions would definitely bring about depressed prices for the forest products. This is somewhat obviated by the existence of regulatory restrictions imposed by the government. Other threatening actions are the research activities of the rivals which might lead to cost reduction that would give them an attendent competitive edge over the company. Price competition is s t i l l , therefore, the most important form of contest. In the present circumstances, secrecy of pricing information -terms of sales, net or actual selling prices, reciprocity of sales, is unquestionably desirable. Cost information is not much of a secret, according to the respondent, because of the fact that the industry i s pretty much standardised throughout in terms of costs of operations. Also, in the interest of the company, no disaggregative form of disclosure of sales information such as the volume of sales in monetary and physical units and by product group should be revealed. With respect to the need for secrecy to maintain the competitive position of the company, the respondent rationalisesthat "the revelation of the highly profitable sales in hardboard and shingles will attract competitors to enter the markets for these products, making the operations of our company in these areas more difficult relative to'when the company is the main producer." Secrecy of some information is, therefore, required in the maintenance of its competitive position. 77 Company Ifo. 6 - Department Store The department store interviewed belongs to one of the largest trans-Canada department store organisations. It engages in retail merchandising of clothings, household furnishings, sports goods and other merchandise generally carried by a department store. Supplies of merchandise are secured on a contractual basis from Canadian and foreign manufacturers, the latter supply about 10$ of the purchases of the company as a whole. In Vancouver, this department store faces two major rivals, one of which belongs to another trans-Canada department store organisation and the other to a Western Canada organisation. There are also many other smaller stores in men's and women's clothings and footwear, in sports goods and in home furnishings with which the subject company has to contend with. Insofar as the three big stores are concerned, a l l of them carry more or less identical lines of merchandise. Price differentials are not very significant as a mode of competition; rather the determinants of sales are largely quality, design, services and the convenience of shopping, that i s , the place u t i l i t y created by the location of the store, to shoppers. In terms of competitive actions, the most threatening action of rivals is in the addition of their new stores because shoppers will definitely be attracted by the convenience of shopping afforded by these new stores. The need for secrecy of information, viewed in this light of department store business, arises, therefore, in the following ways: (l) specialty products which are not carried by rivals and their cost information; and (2) sales data relating to any individual store of the company because of their usefulness to rivals who are contemplating 78 the addition of new stores or expansion of the existing stores, especially in the making of the necessary studies such as feasibility study, site location analysis and so on. Company No. 7 - Cement & Construction Products Company The subject company manufactures cement and construction products such as cement, ready-mix concrete, concrete pipes and blocks, masonary products, etc. Sales of these products are made to contractors and dealers in construction supplies and to the municipalities and the provincial government in the construction of public projects. Of these products, cement, ready-mix concrete and sand and gravel are very successful in terms of profitability and market share; the other products are less profitable, judged by the company's standards. In competition, i t meets only "respectable competition" from the only other major competitor in the same line of business in British Columbia, although opposition is also faced in the interior of British Columbia from rivals which operate mainly in Alberta. Inter-industry-wise, keener competition arises from manufacturers of steel pipes, plastic pipes and the like which are effective substitutes. The most threatening competitive actions does not, therefore,arise from rivals in the same industry, but from rivals who are the manufacturers of the alternate products as well as their research activities which might lead to the development of more substitutes for the cement products for use in construction projects, or of new building and construction technology which might result in using substitute products to replace cement and construction products currently being used in construction projects. Owing to the presence of inter-industry and intra-industry 79 rivals, the respondent remarks 3 t r o n g l y that any information whose disclosure may be detrimental to his company's competitiveness should not be disclosed, particularly information about the product-mix and the product-line profitability data. The need for secrecy . of this information, according to the respondent, is necessary because of potential rivals from outside the cement industry. "Why should the company reveal to them its profitability and invite them to compete in the market of the company?" 2 Company No. 8 - Diversified Conglomerate This company has about thirty subsidiaries which are mostly private corporations operating in the areas of graphics and communications, food services, discount sales (retail store with wholesale services) and household improvements (paints and wood finishes). As a holding company, i t is interested in diversification through acquisition and internal expansion. The company i s presently contemplating the acquisition of any business establishments with good earning prospects in the field of consumers' leisure time, such as household equipment, household improvements, camping equipment, trailers, etc. Although there are a few 'rivals' who operate on the same 2 Discussion on the need for secrecy of information is from the standpoint of the subject company as a holding company only. It is difficult, according to the respondent, to look at a l l the activities of the company and its subsidiaries as a whole. Besides, the respondent explains that at the level of the parent company, i t is not possible to have a l l the information and data required for this discussion, especially those which relate to its subsidiaries. 80 basis as a conglomerate, competition per se does not exist amongst them. If there i s any competition at a l l , i t is that the company has to compete with financial institutions for the funds of the investors; but this is considered to be not serious. As a company intending to diversify through acquisition, there might be a need to keep secret any information about preli-minary investigations or negotiations which might lead to later take-overs. In this respect, any premature disclosure is not desirable since i t would affect the company through the effect of the disclosure on the market prices of the stocks of the company. The company might be affected favourably or unfavourably eventually in terms of the cost of future financing, depending upon the reaction of the money market to the premature disclosure. Also, there is a need to keep secret the plans of financing in this connection. Again, from the standpoint of a holding company, the respondent explains that there would be no disclosure in any disaggregative form about the subsidiaries, nor any financial reports to be presented on the individual subsidiary basis. There is no necessity to do that; on the other hand, any disaggregative disclosure about subsidiaries might give their competitors some competitive advantages. The need to keep information about secret is necessary i f the holding company is not to be affected eventually. (5) Some Generalisations On The Rationale Tor Secrecy Based on this study of the eight selected enterprises, i t may be established that secrecy of some information is required by business enterprises in order to maintain their competitive positions. The information which needs: to be withheld i s not similar in most 81 instances, but is dependent upon the competitive situations faced by the business enterprises. This may be summarily stated as follows: (a) In a very keenly competitive situation, information secrecy may constitute a vital and necessary part of the competitive weaponry, of an enterprise. The effectiveness of the competitive actions of the enterprise may depend on the ability of the enterprise to withhold information that might be of competitive value to rivals. The rationale which underlies the thinking of the need for secrecy of information may be exemplified by the marine transportation company. It needs to maintain secrecy of its cost information and to withhold information about its equipment and methods of providing transportation services. The needs of the refrigeration/air-conditioning company to keep secret its pricing policy and method, and of the forest products company to maintain secrecy of its terms of sales are very much based on the same rationale. (b) Secrecy of information is necessary in the maintenance of the competitive position of a business enterprise vis-a-vis its rivals, existing and potentail. The need for secrecy of product-mix and product costs by the bakery products company is inevitable, i f its present competitive weaknesses are not to be exploited by rivals. Its competitive posture will be undoubtedly aggravated i f secrecy of its aforementioned information is not maintained. On the other hand, the need of the cement and construction products company to withhold information about its product-line profitability arises because of potential rivalry from the other industries. This potential competition might be activated i f potential rivals from the other industries are attracted by the profitability of the cement products, and enter into the market of the cement and construction products company. 82 Its competitive position will invariably be affected with the entry of new substitutes. Secrecy of information is desirable even though its competitive position is relatively very strong vis-avis its rivals in the same trade or industry. This same rationale is found also in the case of the forest products company which consider that it s product-line information should be kept secret. (c) Secrecy of information is desired in the general interest of a business enterprise. This is apparent in the case of the diversified conglomerate; i t does not wish to have its subsidiaries' financial reports presented separately because, i t says, such disclosure might benefit their rivals. The need of the department store to withhold information relating to its individual stores is rationalised on the same basis. Thus, disclosure of information is not desirable even though the nature of the threat to an enterprise's competitive position is not certain. Information And Data Of Competitive Value The previous section has presented some of the classes and items of information which the selected business enterprises consider necessary to be kept secret in order t o ensure the maintenance of their competitive positions against their rivals. This information, as i t i s easily noticeable, is largely related to their sales, costs and products or services. The significance which the selected business enterprises attached to this information is not altogether unexpected since sale of products or services is the main lifeblood of an enterprise, and i t i s towards the achievement of sales that most competitive efforts of an enterprise are oriented. Forces of competition are ubiquitous, however. The need for 83 . secrecy of information may arise in a l l phases of operations and activities of an enterprise. In this section, there is, therefore, presented the various classes of information which the selected enterprises consider to be of competitive value and, as such, are . to be maintained secret. This information is classified according to the broadly defined major functional areas of a business enter-prise, via: goals, objectives and policies; marketing; production; finance and accounting; personnel and industrial relations; and research and development. The presentation here certainly serves to show further that competition in business requires secrecy of some information, not f u l l disclosure. The data in this section are based on the replies of the respondents in the selected enterprises to Questions 27 through 32 of Section V of the Questionnaire, and are presented mostly in tabulated form, with some of the reasons for the need for their secrecy following. (l) Goals, Objectives And Policies While a l l the selected enterprises recognise that goals and objectives of an enterprise are useful information to users and readers for the purpose of rational decision-making, and should be incorporated in the annual reports of the reporting enterprise, most of them, however, are opposed to the information being disclosed in specific detail. In other words, i f the information is described in general terms, the enterprises would not object to the disclosure at a l l . What i s meant by the disclosure of goals and objectives in general terms may be illustrated by the following: "We are'planning to further diversify through entrance into new markets that have an ultimate interest in servicing and-f u l f i l l i n g the needs of our growing 84 Canadian consumer population. This consumer is becoming more and more interested in improving his standard of living and enjoying the increasing leisure time available. Your manage-ment i s currently reviewing the various opportunities to increase the company's investments in these consumer related areas ...." (From the Annual Report for the Fiscal Year 1967-8 of the Diversified Conglomerate) The reasons advanced in opposing specific or detailed disclosure of an enterprise's goals and objectives are: "If they (goals and objectives) are too specific, they are also too revealing"; "Unless such goals and objectives can be realised, i t does no good to disclose them". On the disclosure of policies, most of the selected enterprises are firmly in the belief that "this i s the company's business, nobody else's". Policies of the reporting enterprise need not be disclosed at a l l . One company which opposes the disclosure of goals and objectives in specific terms also opposes its policies being disclosed because "its goals and objectives are based on long-term plans, and i f i ts policies are disclosed, i t s goals and objectives would also be revealed and pinpointed by rivals. Competition would thus be provoked." (2) Marketing All the selected enterprises, except the diversified conglo-merate, replied that certain items of marketing information need to be kept secret owing to competitive reasons. Following is a l i s t of the marketing information which the 85 selected enterprises consider to be preferrably kept secret. Much of this information has already been given in the previous section v/hen the rationale for secrecy of information by these enterprises was discussed. MARKETING INFORMATION OF COMPETITIVE VALUE Company 2 3 4 5 6 1 1 8 Sales: n In various disaggregative forms X X X X X X 0 Costs: t Product or service costs X X X X X X Selling costs such as a (a) advertising X V (b) salesmen's commission X a i Product or Services: 1 Product-mix X X a Product quality X b Specialty product X 1 Pricing: e Methods of pricing X X X Terms of sales X X X X Market Information: Customers' l i s t X X Market survey & research inform-ation X Some of the reasons given for opposing the disclosure of this information are as follows: "By disclosing the volume of sales in disaggregative forms, the strengths and weaknesses of the company would be exposed; and this would enable rivals to plan actions which directly attack the weak spots"; 86 "Sale and cost information i s the most important i n any kind of competition for sales. If this information f a l l s into the hands of our r i v a l s , they w i l l be able to compete more aggressively against us"; "In competition for contractual work, the company has to keep i t s information such as product qual i ty , terms of sales and other information secret. Price biddings are based on such information, there i s no question, therefore, that the company can afford to have i t s competitors know these"; and "When the market conditions are poor and bad, we won't even l e t our competitors know who our customers are". (3) Production Information relat ing to the area of production which some of the selected enterprises would l ike to keep secret i s as follows: PRODUCTION INFORMATION OF COMPETITIVE VALUE Company 2 3 4 5 6 7 8 Production method or technique n .a . n .a . X n.a ,n.a Production costs i n disaggregative form n.a . n .a . X X n.a X n.a n . a . = not applicable The enterprises oppose the disclosure of this production information because: "Competitors would be able to produce and market ident ica l products or commodities without any development costs"; "There w i l l be no revelation of our production technique u n t i l our products have obtained a good market pQsition"; and 87 "Production costs are a basis for making price bids. No disaggregative form of disclosure about production costs would be made i n order not to allow 'price f idd l ing ' by r i v a l s , especially i n tender bids." ( 4 ) Finance And Accounting 'Secret' information i n the area of finance and accounting which i s not disclosable for competitive reasons i s as shown below: FINANCE AND ACCOUNTING INFORMATION OF COMPETITIVE VALUE Company 2 3 4 5 6 7 8 Finance: Future financing and methods X Premature disclosure of capital expenditure and financing X X X Accounting: Product-line p r o f i t a b i l i t y X X X X X Individual branch/subsidiary f inancial reports X X X X The need to keep such information and data secret arises because of the following reasons: "Future financing must usually be secret u n t i l completed, due to the situations inherent i n the f inancial community where competitors could confuse the reporting company's f inancial market maliciously"; and "Each category of company's products has special groups watching i t . Any disaggregative product-line information would be dangerous because of them." 88 (5) Personnel And Industrial Relations The selected business enterprises feel that there is not much information in the area of personnel and industrial relations which may be considered trade secrets; however, much of the information is not disclosed because i t is a confidential matter. Host enterprises believe that information such as unionization, workers1 wages, and company's employee relations policy is openly known, particularly when an industry is unionized. However, accord-ing to one respondent, there might be a need to keep secret certain information in this area i f , for instance, a company could establish any secret deal with its workers to increase productivity without, union objection. "It would pay not to publicize i t because any publicity of this sort would surely result in objections being made by its competitors and the loss of such competitive edge." Data relating to executives' remuneration and other supplemental compensations are generally not disclosed because they are confidential matters. Their non-disclosure has nothing to do with competitive reasons. (6) Research And Development Only two of the selected enterprises - Company No. 2 and Company No. 5 - replied to the questions pertaining to the need for secrecy in the area of research and development; the others did not respond because they did not engage in such activities. The need for secrecy of information in research and development i s necessary under the following circumstances: (a) Secrecy of research activities of a competitive nature, for example, new product development, needs to be maintained. It 89 is necessary in order to ensure that the company undertaking the research will obtain a comfortable 'head-start' in these new product areas. Once a good 'head-start' in these new products has been obtained, and these new products have secured a hold of market, the disclosure of such information i s not objectionable, i f i t is expected that the disclosure of such information is not damaging to the company. (b) Secrecy of information in the area of research and development is desired i f competitors are not to be informed of a company's possible future courses of operations. Research and development expenditure has thus to be non-disaggregative. The information related to specific projects or specific areas of research cannot be disclosed as such. Secrecy is thus maintained in the non-disaggregative form of disclosure, although disclosure of the total research and development expenditure is not objected to. Incompatibility Of Full Disclosure With Competition In Business The presentation in this chapter of some executives' views suggests that secrecy of some information i s required by business enterprises. Secrecy is not only desired by enterprises to maintain their competitiveness, but is also desired in the interest of maintaining the free private-enterprise economic system. In their views, i t is the presence of some secrecy of information which enlivens competition. It has been shown that some degree of secrecy of information could enhance the competitive effectiveness of an enterprise vis-a-vis i t s rivals. Full disclosure, a priori, would necessarily 90 reduce the ability to compete among rival enterprises. The incompatibility of f u l l disclosure in a competitive milieu is well articulated by a respondent. His argument is quoted below: "If, by f u l l disclosure, everyone knows al l about the competitors, then presumably one 'best1 way of financing, selling, etc., would develop. ... It is in the searching efforts to try _ . to find out and to imagine what might be done and what might exist that we innovate and learn. If a l l was laid bare before us, a l l that remains is for us to accept and use." Another respondent supported the view that rather than the promotion of competition, f u l l disclosure of information might result in the elimination of competition among rival enterprises. He was strongly critical of f u l l disclosure. He reasons that with prices of merchandise as well as costs of supplies known to a l l , each and everyone in the same retail merchandising business will be driven to the extent that there will be no leeway eventually for any one of us to operate. All will end up in a situation of 'equal-nothingness' . It is the secrecy of some information and of something that makes one take a certain action believed to be beneficial that gives l i f e to competition." A third respondent remarks that i t is the entrepreneurial spirit in the presence of uncertainty and risk that brings about progress and development in the free private-enterprise competitive economy. Pull disclosure of information would eliminate or slow down the progress achieved so far by removing the uncertainty which exists partly due to secrecy about something. 91 Summary The analysis of the responses of the selected business enterprises in the field study has shown that they do not judge the information they are presently disclosing endangers their competitive positions. While apparently no objective criterion has been scientifically developed and put into practice, never-theless, the enterprises use subjective criteria by which to determine and decide whether certain information and data may or may not be revealed. The field study indicates that the executives interviewed judge they need secrecy of some information to operate in a compet-itive situation. Secrecy i s required not merely in the general interests of the enterprises, but i s also necessary i f their competitive actions are to be effective in the struggle for sales. Although the need for secrecy of sale information is greatest, secrecy is needed also in the other functional areas of business operations, with the exception of only personnel and industrial relations, perhaps. Finally, the interviewed executives doubt that f u l l disclosure of information i s compatible with the competitive system of the . free-enterprise economy. Full disclosure is not only strongly opposed, but is, in their views, considered to be contrary to the role of competition upon which proper functioning of the free-enterprise economy relies. Full disclosure, they believe, might eliminate competition instead of promoting i t . CHAPTER VI SUMMARY OP THE MAIN FINDINGS OP THE STUDY The subject of disclosure of business information has attracted considerable interest in recent years, owing to the increasing demand for i t . Business enterprises are urged by many quarters in the economy to disclose their information fully and comprehensively; f u l l disclosure of information by business enterprises is, indeed, advocated. However, f u l l disclosure as a standard of business reporting to outsiders might be as strongly opposed by business enterprises as i t i s urged by its advocates because extensive disclosure, in the view of businesses, would weaken their competitive postures. Secrecy of information is necessarily the antithesis of f u l l disclosure of information. This study has as its premise that secrecy of certain information is necessary for a business enter-prise to maintain its competitiveness against i t s rivals. In order to ascertain whether or not the need for information secrecy is necessary, and to find out the classes of information business enterprises would oppose disclosing, this study has attempted fi r s t to examine what i s meant by f u l l disclosure of information and, in addition, what business enterprises mean by competition -which are undoubtedly two very important subjects in the disclosure dispute. It is submitted that business enterprises have a reporting obligation to a l l the segments of the economy which have a legitimate 93 interest in the enterprises - the government, investors, employees, creditors, suppliers, consumers, etc. The primary purpose of business reporting is thus to make available a l l the relevant and material information about the reporting enterprises in order to facilitate rational decision-making. The argument, on one hand, is that i f exigencies of these diverse interest groups for inform-ation are to be satisfactorily fulfilled, business enterprises should disclose their data and information on the principle of fairness to a l l parties, and should incorporate, in addition to the traditional financial statements, such relevant and material information as the goals, objectives and policies, the future expectations, and the current economic position and situations of the enterprises. Furthermore, to enhance the usefulness of the information, disclosure must possess the attributes of timeliness, accuracy and disaggregativeness. Competition, on the other hand, to business enterprises operating in the free private-enterprise economy is characterised by an omnipresense of rivalry among the competing enterprises. The forces of rivalry emanate from an environment subject to not only the influence of the competitors in the same trade or industry, but as well as the influences of real and potential rivals across the inter-industrial and international boundaries. The likelihood of complete immunity from the threat of rival forces i s , to a business enterprise, entirely out of the question. Operations and activities of a business enterprise are oriented toward the accomplishment of its objectives, of which profit making and continuity of existence are the most important. Because of the competitive environment under which i t operates, the 94 forces of competition actually transcend the entire fabric of operations and activities of the enterprise, although they are most manifest in the struggle for the patronage of buyers of goods or services which the enterprise offers for sale. The enterprise's goals and objectives of operations, plans and strategies which detail the current and planned deployment of its economic resources, and the competitive actions which ensue are necessarily some of its vital matters. Quite apparently, therefore, the enter-prise finds f u l l disclosure of such matters objectionable because its competitive efforts will be impaired i f secrecy of such information cannot be maintained. The field study in which eight business enterprises located in the City of Vancouver were interviewed lends support to the thesis that secrecy of certain items of information is necessary for an enterprise to maintain its competitiveness vis-a-vis its rivals. The executives and managers of the selected enterprises who were interviewed have, in unequivocal terms, expressed their opposition to f u l l disclosure of their enterprises' information. Some secrecy of information, they have shown, is indeed necessary not only in the interest of their enterprises, but is also undeniably required to ensure the effectiveness of their competitive actions against their rivals'. Due to the overwhelming importance of the elements comprised in a business's sales, the need to keep secret information relating to these elements of sales seems to be of prime concern, although the need for secrecy arises in the other areas of operations as well. In terms of the form of business information disclosure, the 95 field study has found that the business enterprises intervie?/ed are opposed to any disclosure, inclusive of the information they presently disclose, which is too detailed, specific or disaggregative; or any premature timing of disclosure. In agreeing that such information as goals, objectives and policies, future expectations, and the current economic position and situation of their enterprises should be disclosed in aggregative form, they have nonetheless disapproved of such information being divulged in specific, detailed or disaggregative form, since secrecy cannot then be maintained. This field study has also brought out the thinking of some of the interviewed executives that f u l l disclosure of information by business enterprises is not compatible with the competitive free private-enterprise economy. According to them, i f there was f u l l disclosure of a l l the relevant and material information about a l l the competing enterprises, then one 'best' way of marketing, production, financing, etc., would probably develop and the entre-preneurial spirit of free private enterprising would probably be smothered because the incentive to innovate in the hope for greater profits would be lost. Pull disclosure of information might thus eliminate whatever benefits have accrued or are expected to arise from the competitive system of the free-enterprising economy. The fear of severely adverse consequences of f u l l disclosure of information is a real one, and so long as business enterprises believe or actually require secrecy of information to be employed as a part of their competitive weaponry and to protect their enterprises' interests, then voluntary f u l l disclosure of information cannot yet be judged a feasibility in spite of the growing need for information; i t certainly is not attainable without opposition from the business community. 97 APPENDIX I THE PILOT QUESTIONNAIRE This study i s d i r e c t e d toward the p r o p o s i t i o n that some degree of secrecy of information i s necessary f o r a business enterprise to remain competitive with i t s r i v a l s . In order that t h i s study may be properly pursued, i t seems sensible to have interviews with business executives to a s c e r t a i n t h e i r thoughts regarding whether or not some degree of information secrecy i s a necessary part of t h e i r competitive weaponry against r i v a l business firms, as well as the r a t i o n a l e , i f any, f o r such thinking. To f a c i l i t a t e your understanding of my terms of reference, I have provided below what I consider to be the meaning of f u l l d i sclsosure of business information and the meaning of competition. Meaning of P u l l Disclosure The primary purpose of business reporting i s to make av a i l a b l e information required "by a l l the i n t e r e s t segments of the economy so as to f a c i l i t a t e the making of informed judgments and r a t i o n a l decisions. As such, information d i s c l o s e d by business enterprises would have to be f u l l , comprehensive, disaggregative, and accurate, and incorporate at l e a s t the f o l l o w i n g : (1) goals, o b j e c t i v e s , and p o l i c i e s of the reporting business enterprise, and i n terms of these goals, objectives and p o l i c i e s the relevant changes' which have occurred during a year or period of the r e p o r t i n g enterprise; (2) expectations of the r e p o r t i n g business enterprise i n the future; and (3) the current p o s i t i o n and s i t u a t i o n of the r e p o r t i n g business enterprise i n both f i n a n c i a l and economic terms. Meaning of Competition Competition i s oriented toward the f u l f i l l m e n t of the goals of the business e n t e r p r i s e . With rare exceptions, i t i s generally manifested as a struggle f o r the patronage of buyers, and necessitates whatever a business enterprise has to do to get sales from i t s r i v a l s or to react to whatever i t s r i v a l s do to take i t s sales away. The process of straggle f o r patronage i s m u l t i f a r i o u s i n dimen-sions, such as p r i c e competition, non-price competition which includes a d v e r t i s i n g and sales promotions, terms of payments, c r e d i t terms, servi c e s , research and development, and a host of other non-price elements of competition. 98 Having given my understanding of the meaning of f u l l disclosure and the meaning of competition, there i s now outlined below a set of questions to f a c i l i t a t e our discussion. They are intended to help to find out your views regarding my proposition that some degree of secrecy of information i s necessary for a business enterprise to remain competitive with i t s r i v a l s . QUESTIONS 1. Does your company publish financial statements or annual reports at the end of i t s f i s c a l year or period? No Financial statements only Annual Report with financial statements .... "  2. What does the company hope to achieve i n publishing the financial statements or the annual report? 3. Does i t disclose other additional classes of information, apart from the financial statements? Yes No _ _ _ _ _ 4. Are these additional classes of information related to any of the following? (a) Goals, objectives and policies of company .... (b) Future expectations of the company (c) Current economic position and situation (d) Others (please indicate) 5. Why does the company provide these additional classes of information? Is there any competitive advantage to be derived from such additional disclosure? 6. Have you any objection to the disclosure of the following? (a) goals, objectives and policies of the reporting company; (b) future expectation of the reporting company; and (c) the current economic position and situation of the reporting company. Yes No ( i f 'No1, skip to Question 11) 99 7. I n d i c a t e i n which ar e a ( s ) your o b j e c t i o n l i e s : (a) i n the d i s c l o s u r e of g o a l s , o b j e c t i v e s and p o l i c i e s (b) i n the d i s c l o s u r e of f u t u r e e x p e c t a t i o n s (c) i n the d i s c l o s u r e o f c u r r e n t economic p o s i t i o n and s i t u a t i o n 8. I s your o b j e c t i o n based on any reason(s) t h a t such d i s c l o s u r e may a f f e c t your competitive p o s i t i o n ? Yes No 9. I f 'Yes', ( i ) how would the d i s c l o s u r e of g o a l s , o b j e c t i v e s and p o l i c i e s a f f e c t your competitive p o s i t i o n ? ( i i ) how,would the d i s c l o s u r e of your f u t u r e e x p e c t a t i o n s a f f e c t your competitive p o s i t i o n ? ( i i i ) how would the d i s c l o s u r e of the current economic p o s i t i o n and s i t u a t i o n a f f e c t your competitive p o s i t i o n ? 10. Does the d i s c l o s u r e of goals and p o l i c i e s and/or the f u t u r e expectat-i o n s of your company help to 'broadcast' your f u t u r e plans and s t r a t e g i e s of your company's ope r a t i o n s and a c t i v i t i e s ? I f so, please e l a b o r a t e and give examples to i l l u s t r a t e . 11. I f you have no o b j e c t i o n t o the d i s c l o s u r e of the g o a l s , o b j e c t i v e s and p o l i c i e s , your f u t u r e e x p e c t a t i o n s , and your current economic p o s i t i o n and s i t u a t i o n , c o u l d you e x p l a i n why? Note: Questions 12 through 18 deal w i t h d i s a g g r e g a t i v e d i s c l o s u r e of business i n f o r m a t i o n . The term ' d i s a g g r e g a t i v e d i s c l o s u r e ' may, perhaps, be made c l e a r by a few examples below: ( i ) break-down of s a l e s revenue by product, product group, o r g e o g r a p h i c a l area-, o r market; ( i i ) s e l l i n g expenses shown s e p a r a t e l y as a d v e r t i s i n g expense, perso n a l s e l l i n g expense, and o t h e r s a l e s promotional expense; ( i i i ) c o s t s of goods s o l d segregated i n t o amounts f o r l a b o u r , m a t e r i a l s , and manufacturing expense. 12. Do you t h i n k d i s a g g r e g a t i v e d i s c l o s u r e presents a hazard to the i n t e r e s t s of your company?. Yes . No • ( i f 'No', go to Question 18.) 100 13. I f your answer to Question 12 i s 'Yes', could you indicate which of the following i t i s ? (a) danger i n revealing confidential information to competitors (b) cost of such reporting (c) incurrence of l e g a l r e s p o n s i b i l i t i e s (d) others (please indicate) 14. I f your answer i s (a) above, could you give some examples to show HOY/ your competitive position may be affected or endangered? 15. I f your competitive p o s i t i o n may be affected by such disaggregative disclosure, i s i t due to the economic s i t u a t i o n of your company? 16. I f your competitive position may be affected by such disaggregative disclosure, i s i t due to the nature of the industry i n which your .company i s in? 17. Assuming your company i s i n a strong position, would you allow disclosure of any information about your company i n a disaggregative form? 18. I f disaggreg ative disclosure does not represent any kind of hazard to the in t e r e s t s of your company, please explain why. 19. What i s your attitude toward f u l l disclosure of business information as outlined i n the previous pages? Favourable Neutral Opposed •  Strongly opposed 2 0 . Could you elaborate on i t ? 21. In your opinion, i s at least some degree of information secrecy necessary f o r a business enterprise to remain competitive? 101 COMPETITION REQUIRES A DEGREE OF SECRECY  NOT FULL DISCLOSURE OF BUSINESS INFORMATION This booklet contains an explanation of the research plan for an M. B. A. thesis and the questionnaire to be used in interviews with business executives. (1) Sections I, II, III, IV, and the f i r s t part of Section V, i.e., Question 27, would be questions to be answered by an executive in the top management only. (2) The other parts of Section V would be questions relating to Marketing, Production, Finance and Accounting, Personnel and Industrial Relations, and Research and Development. These questions should, preferrably, be answered by the heads or chief executives in charge of these respective functional areas of the company. (3) Section VI w i l l be answered by a l l . NAME OF COMPANY IN FULL: ADDRESS: DATE OF INTERVIEW: PROPOSITION "FULL DISCLOSURE OF INFORMATION BY BUSINESS UNITS HAS BEEN ADVOCATED AS AN AID TO COMPETITION. IT MAY BE ARGUED, HOWEVER, THAT FULL DISCLOSURE OF INFORMATION AND COMPETITION ARE, IN SOME RESPECTS, NOT COMPATIBLE; AND THAT DIVULGENCE CAN ONLY SERVE TO WEAKEN THE COMPETITIVE INCENTIVES OF THE BUSINESS UNITS. SOME DEGREE OF SECRECY OF BUSINESS INFORMATION IS NECESSARY FOR COMPETITION TO BE EFFECTIVE. IT IS FURTHER PROPOSED THAT A FIELD STUDY BY MEANS OF A QUESTIONNAIRE AND ANSWERS AND INTERVIEWS BE MADE WITH SELECTED FIRMS IN SELECTED PRODUCTION AND DISTRIBUTION INDUSTRIES TO ASCERTAIN THE NATURE OF BUSINESS INFORMATION WHICH A FEW SELECTED BUSINESSMEN DEEM TO BE SECRET, AND THE RATIONALE, IF ANY, FOR THE THINKING OF EACH OF THEM INDIVIDUALLY." This proposition w i l l be investigated from the viewpoint of the businessman or corporate management group. 102 - 2 -T h i s study i s d i r e c t e d toward the p r o p o s i t i o n that some degree of secrecy of informa t i o n i s necessary f o r a business e n t e r p r i s e to remain competitive w i t h i t s r i v a l s . (Please see the previous page.) An i n v e s t i g a t i o n of t h i s p r o p o s i t i o n i s appropriate and necessary i n view of the growing needs f o r business i n f o r m a t i o n by the va r i o u s segments of the economy. Business e n t e r p r i s e s have been urged to make greater and f u l l e r d i s c l o s u r e of i n f o r m a t i o n ; the general f e e l i n g , i n f a c t , i s that f u l l d i s c l o s u r e of info r m a t i o n by business e n t e r p r i s e s i s d e s i r a b l e . In order that t h i s study may be pr o p e r l y pursued, i t seems s e n s i b l e to have i n t e r v i e w s w i t h business executives to a s c e r t a i n t h e i r thoughts regarding whether or not some degree of inf o r m a t i o n secrecy i s a necessary part o f t h e i r c o m petitive weaponry against r i v a l business f i r m s , as w e l l as the r a t i o n a l e , i f any, of such t h i n k i n g . I would the r e f o r e l i k e to request your k i n d co-operation i n t h i s regard by p e r m i t t i n g me to have an i n t e r v i e w w i t h you, and to ask you to answer some questions i n connection w i t h t h i s study. To f a c i l i t a t e your understanding of my terms of re f e r e n c e , I have provided below what I consider to be the meaning of f u l l d i s c l o s u r e of business i n f o r m a t i o n and the meaning o f competition. F u l l D i s c l o s u r e The primary purpose of business r e p o r t i n g i s to make a v a i l a b l e i n f o r m a t i o n r e q u i r e d by i n t e r e s t e d segments o f the economy so as to f a c i l i t a t e the making of informed judgements and r a t i o n a l d e c i s i o n s . As such, inform a t i o n d i s c l o s e d by the r e p o r t i n g business e n t e r p r i s e should be f u l l , meaning that a l l r e l e v a n t m a t e r i a l i n f o r m a t i o n i s rev e a l e d , i n c l u d i n g not only f i n a n c i a l data and informat i o n about operations already undertaken i n the past, but a l s o the f o l l o w i n g : ( i ) goals and p o l i c i e s of the r e p o r t i n g business e n t e r p r i s e , and i n terms of these goals and p o l i c i e s the r e l e v a n t changes v i i i c h have occurred during a f i s c a l year or p e r i o d ; ( i i ) expectations of the r e p o r t i n g business e n t e r p r i s e i n the f u t u r e ; and ( i i i ) the current p o s i t i o n and s i t u a t i o n of the r e p o r t i n g business e n t e r p r i s e i n both f i n a n c i a l and economic terms. F u r t h e r , the informat i o n d i s c l o s e d , i f i t i s to be u s e f u l to the user s , should be t i m e l y , accurate, d i s a g g r e g a t i v e and comprehensive. COMPETITION Competition i s o r i e n t e d toward the f u l f i l m e n t of the goals of the business e n t e r p r i s e . With r a r e exception, i t i s g e n e r a l l y manifested as a s t r u g g l e f or the patronage o f buyers, and n e c e s s i t a t e s whatever a business e n t e r p r i s e has to do to get sal e s from i t s r i v a l s or to r e a c t to whatever i t s r i v a l s do to take i t s sales away. T h i s process of s t r u g g l e f o r patronage i s m u l t i f a r i o u s i n dimensions, and i n v o l v e s not only competition on p r i c e , but such non-price elements as a d v e r t i s i n g and sal e s promotions, 103 - 3 -services, credit terms, research and development, and a host of other non-price variables of competition. Having given my understanding of the meaning of f u l l disclosure and the meaning of competition, there is now outlined below a set of questions to f a c i l i t a t e our discussion. The questions are intended to help to find out your views regarding my proposition that some degree of secrecy of information i s necessary for a business enterprise to remain competitive with i t s r i v a l s . Lastly, before proceeding to the questions, let me assure you that the information you provide w i l l be treated confidentially, and ehe set of questions w i l l be destroyed or returned to you, i f you wish. 104 - 4 -THE QUESTIONNAIRE SECTION I --- IN THIS SECTION, I WOULD LIKE TO GAIN AN IMPRESSION OF YOUR COMPANY AND ITS CURRENT OPERATBDNS. 1. Would you de s c r i b e i n a few sentences the nature of operations of your company? (Industry, geographical areas of o p e r a t i o n , etc.) 2. Is your company incorporated? yes / no 2a. I f yes, i s i t a p u b l i c company? yes / no 2b. I s i t a s u b s i d i a r y of another company? yes / no 2c. Has i t any s u b s i d i a r y company or companies? yes / no 3a. What i s the s i z e of the company, as per i t s l a t e s t f i n a n c i a l statements? i n terms of i t s t o t a l assete i n terms of i t s s a l e s \ 3b. What i s i t s s i z e to-day, i n terms of the number of i t s h o u r l y employed workers plus i t s s a l a r i e d personnel? 4. How many l i n e s of products does the company c a r r y or manufacture? Would you name them? 105 SECTION I I --- IN THIS SECTION, I WOULD LIKE TO OBTAIN A GLIMPSE OF THE COMPETITION THE COMPANY FACES. What kinds or forms of competition are faced by the company? What are the measures of the seriousness or keenness of competition? 6. Which competitive a c t i o n by your r i v a l s do you f i n d most threatening to your company? 7. How many of the company's product l i n e s are s u c c e s s f u l i n terms of p r o f i t a b i l i t y , market share, or the measures of success used by the company (please i n d i c a t e these measures) ? 8. How are these l i n e s o f products doing i n comparison to the company's competitors? 9 . What i s the company's o v e r - a l l competitive p o s i t i o n ? 106 - 6 -SECTION I I I — IN THIS SECTION, I WOULD LIKE TO DISCUSS WITH YOU MATTERS RELATING TO THE REPORTING OF BUSINESS INFORMATION BY YOUR COMPANY. 10. What kinds of informa t i o n does the company g e n e r a l l y p u b l i s h ? (For in s t a n c e , accounting and f i n a n c i a l data, economic i n f o r m a t i o n , etc.) 11. What are the means by which the informat i o n i s d i s c l o s e d ? (For in s t a n c e , newspapers, magazines, trade j o u r n a l s , e t c ) . 12. What c l a s s or c l a s s e s o f readers i s your company p r i m a r i l y i n t e r e s t e d i n when i t pub l i s h e s i t s i n f o r m a t i o n i n (a) the annual re p o r t or other f i n a n c i a l statements, and (b) other p u b l i c a t i o n s ? .Annual Report and Other F i n a n c i a l Statements: Other P u b l i c a t i o n s : 13. Which of these c l a s s e s o f readers i s of gr e a t e s t i n t e r e s t or importance to your company? Why? 14. What does your company hope to achieve when the inf o r m a t i o n d i s c l o s e d i s aimed a t the p a r t i c u l a r c l a s s o f readers as i n d i c a t e d * i n Question 13? 107 - 7 -15. Meaningful and re l e v a n t i n f o r m a t i o n -- such as future expectations, and the current economic s i t u a t i o n of a r e p o r t i n g company, i s u s u a l l y not included i n the annual r e p o r t . (a) Have these kinds of information been included i n the annual r e p o r t s of your company i n the past? (b) Do you agree that t h i s i n f o r m a t i o n might reasonably be included i n your company's annual r e p o r t s ? 16. What competitive advantage(s) or disadvantage(s) might be experienced from the d i s c l o s u r e of (a) the fu t u r e expectations of your company, and (b) the curr e n t economic p o s i t i o n and s i t u a t i o n of your company? ( a) Future Expectations (b) Current Economic P o s i t i o n and S i t u a t i o n 17. Do you t h i n k that the inf o r m a t i o n u s u a l l y d i s c l o s e d i n the company's annual r e p o r t or f i n a n c i a l statements i s adequate for the i n t e r e s t e d p a r t i e s to make r a t i o n a l d e c i s i o n s or informed judgements about your company? 18. I f not, w i l l i t be necessary f o r the company to make a d d i t i o n a l d i s c l o s u r e s ? A n d , i f the a d d i t i o n a l d i s c l o s u r e s happen to be informati o n of value to your competitors, what would you do then? 108 - 8 -SECTION IV — - IN THIS SECTION, I WOULD LIKE TO DISCUSS WITH YOU WHETHER OR NOT FULL DISCLOSURE OF INFORMATION IS COMPATIBLE WITH COMPETITION. 19. What, i n your o p i n i o n , i s the most important i n f o r m a t i o n about your company that must be kept secr e t ? Why? 20. What other c l a s s e s of informa t i o n about your company i s a l s o n o n - d i s c l o s a b l e ? 21 . Assuming that the kinds of in f o r m a t i o n which you have i n d i c a t e d i n Question 19 or 20 are d i s c l o s e d , how would they a f f e c t your company, and what would the consequences be l i k e ? 22. Turning now to your c o m p e t i t i o r s , what i s the informa t i o n about your competitors that you would consider most v a l u a b l e to have? 23. Of what p a r t i c u l a r s i g n i f i c a n c e would t h i s i n f o r m a t i o n be to your company? 109 - 9 -24. What other i n f o r m a t i o n would you l i k e to have about your competitors? 25. Can you f i n d t h i s i n f o r m a t i o n i n t h e i r business reports? 26. To conclude t h i s part of our d i s c u s s i o n , do you t h i n k f u l l d i s c l o s u r e of business i n f o r m a t i o n i s compatible w i t h competition? I would appreciate i t i f you el a b o r a t e . For the meaning of f u l l d i s c l o s u r e , please see preamble. (pages 1 - 2 ) . 110 - 1 0 -SECTION V IN THIS SECTION, I WOULD LIKE TO FIND OUT THE ITEMS OF INFORMATION AND DATA ABOUT YOUR COMPANY WHICH NEED TO BE KEPT SECRET, AND THE DISCLOSURE OF WHICH MIGHT BE OPPOSED ON THE GROUNDS THAT THE COMPETITIVE POSTURE OF THE COMPANY WOULD BE AFFECTED. THE QUESTIONS ARE CLASSIFIED UNDER THE FOLLOWING AREAS: GOALS, POLICIES AND OBJECTIVES; MARKETING; PRODUCTION; FINANCE AND ACCOUNTING; AND RESEARCH AND DEVELOPMENT. 27. Goals, P o l i c i e s and Obj e c t i v e s a. Would you say that i t i s necessary to keep such inform a t i o n as your company's goals and o b j e c t i v e s secret due to competitive reasons? b. What advantage (s) or disadvantage(s) do you a n t i c i p a t e by the d i s c l o s u r e of such i n f o r m a t i o n i n s o f a r as your company's competitive p o s i t i o n i s concerned? c. What about the b a s i c p o l i c i e s which u n d e r l i e your company's a c t i o n s and d e c i s i o n s ? Should they be revealed or kept secret? d. How do you decide whether such i n f o r m a t i o n - go a l s , o b j e c t i v e s and p o l i c i e s , may or may not be revealed? What are the c r i t e r i a used i n making such a d i s t i n c t i o n for purposes of d i s c l o s u r e ? U l - 11 -Marketing Do you think there is a need for some kinds of marketing information and data to be kept secret because of competitive reasons? What are the classes of marketing information and data which, in your opinion, should be kept secret? Would you please i l lus trate how the disclosure of such data and information might affect your competitive position? Is the need for secrecy of these data and information always necessary i f you are to remain competitive, or is the need to keep such informa-tion and data secret based on some other considerations? What c r i t e r i a do you use to determine whether or not certain information and data may be detrimental to your company's competitive posture and, as such, may not be revealed? 112 - 12 -29. Production a. In your opinion, what classes of information and data in the area of production which, when they are disclosed, might affect the competitive position of your company? b. How would they affect the competitive position of your company? c. Would you be opposed to disclosing certain production data in a disaggregative form? (Example: production costs of goods segregated into materials, labor, and other manufacturing costs.) \ 113 - 13 -30. Finance and Accounting a. Are there any particular classes of financial and accounting data and information, other than those items generally presented in the financial statements, which should not be revealed in order that the competitive position of your company may not be affected? b. What about plans for capital expenditures? Future financing? c. On what bases do you distinguish between items of information and data which are disclosable and non-disclosable? 114 - 14 -Personnel and I n d u s t r i a l R e l a t i o n s What are the c l a s s e s of informa t i o n and data i n the area of personnel and i n d u s t r i a l r e l a t i o n s which, i n your o p i n i o n , may not be revealed? I n what ways would the d i s c l o s u r e of these c l a s s e s of information and data be damaging to your company's competitive p o s i t i o n ? 115 15 Research and Development What are the c l a s s e s of informat i o n and data about your a c t i v i t i e s i n the area o f research and development which, i n your o p i n i o n , need to be kept secret? What about i n f o r m a t i o n of a non- t e c h n i c a l nature such as expenditures made i n re s e a r c h and development? Are you w i l l i n g to d i s c l o s e your expenditures i n each area of research and development and f o r each p r o j e c t ? Why? 116 - 16 -SECTION VI — FINALLY, I WOULD LIKE, IF I MAY, TO OBTAIN SOME PERSONAL DATA ABOUT,YOU. 1. Your Name: _____ Number of Years of Business Experience: Number of Years with the present Company: Current Position in the Company: 2. (For the Marketing Executive) Your Name: ______ Number of Years of Business Experience: Number of Years with the Present Company: Current Position in the Company: 3. (For the Production Executive) Your Name: Number of Years of Business Experience: years Number of Years with the Present Company: years Current Position in the Company: 4. (For the Executive in Finance and Accounting) Your Name:_ Number of Years of Business Experience: years Number of Years with the Present Company: years Current Position in the Company: years years. years years - 17 -5. (For the Personnel and I n d u s t r i a l r e l a t i o n s Executive) Your Name:__ Number of Years of Business Experience: years Number of Years w i t h the Present Company: years Current P o s i t i o n i n the Company: 6. (For the Executive i n Research and Development) Your Name:_ Number of Years of Business Experience: years Number o f Years w i t h the Present Company: years Current P o s i t i o n i n the Company:__ 118 BIBLIOGRAPHY I. BOOKS Alden, Burton H., et al, Competitive Intelligence: Information, Espionage and Decision-Slaking (Massachusetts: C. I. Associates, 1959). American Institute of Certified Public Accountants, Accounting  Trends &• Techniques, various volumes. , "Cash Plow" Analysis and The Fund Statement, Accounting Research Ho. 2 (New York: AICPA, 1962). —, A Tentative Set of Broad Accounting Principles For Business Enterprises, Accounting Research No. 3 (New York: AICPA, 1962). Anderson, Corliss D., Corporate Reporting For The Professional  Investor - What The Financial Analyst Wants To Know (Auburnale: The Financial Analyst Federation, 1962). Berle, Adolf A., Jr., and Means, Gardiner, C, The Modern Corporation and Private Property (New York: Macmillan, 1932). Bevis, Herman W., Corporate Reporting In A Competitive Economy (New York: Macmillan, 1965). Brayman, Harold, Corporate Management In A World Of Politics (New York: McGraw-Hill, 19677. Bright, James R., Research Development and Technological Innovations (Homewood, 111.: Richard D. Irwin, 1964). Canadian Corporations Act, 1968 (Don Mills: CCH Canadian Limited, 19*687. Canadian Institute of Chartered Accountants, Financial Reporting  In Canada (Toronto: CICA), various volumes. Cheit, Earl P., (ed) The Business Establishment (New York: John Wiley & Sons, 1964). Clark, John M., Competition As A r?ynamic Process (Washington: The Brookings Institution, 1961). De Bedts, Ralph F., The New Deal's SEC (New York: Columbia University Press, 1964). Dennison, Henry S., and Galbraith, John E., Modern Competition  and Business Policy (New York: Oxford University Press, 1938). Dolva, Wenzil K., (ed).Marketing Key To Profits In The I960's (Chicago: American Marketing Association, I960). Edwards, Corwin D., Big Business and The Policy of Competition Cleveland: Western Reserve University Press, 1956). 119 Galbraith, John K., The New Industrial State (Boston: Houghton Mifflin, 1967T Gosse, Richard, The Lav/ on Competition In Canada (Toronto: Carswell, 1962). Hacker, Andrew A., (ed) The Corporation Take-Over (New York: Harper & Row, 1964). Hariss, C. Lowell, (ed) Selected Readings In Economics (Englewood Cliffs, New Jersey: Prentice-Hall, 1962). Henderson, Carter P., and Lasher, Albert C, 20 Million Careless  Capitalists (New York: Doubleday, 1967T " Kaplan, A. D. H., Big Enterprise In A Competitive System (Washington: The Brookings Institution, 1964, rev. ed.). Marcus, Sumner, Competition and The Law (Belmont: Wadsworth, 1967) Mason, Edwards S., (ed) The Corporation In Modem Society (Cambridge: Harvard University Press, 1959). Mautz, Robert K., Financial Reporting By Diversified Companies (New York: Financial Executives Research Foundation, 1968). Patillo, William J., The Foundation of Financial Accounting (Baton Rouge: Louisiana State University Press, 1965). Reagan, Michael D.. The Managed Economy (New York: Oxford University Press, 1963). Samuelson, Paul A., Bishop, Robert L., and Coleman, John R., (ed) Readings In Economics (New York: McGraw-Hill, 1958). Stockman, Lynn H.,•(ed) Advancing Marketing Efficiency (Chicago: American Marketing Association, 1959). United States Securities & Exchange Commission, Regulation S-X  Under The Securities Act of 1935 (Washington: U. S. Government Printing Office, 1962). : . , General Rules and Regulations Under The Securities Exchange Act of 1934 (Washington: U.S. Government Printing•Office, 1962). United States Senate, 84th Congress, 1st Session, Senate Report No. 1280, Factors Affecting The Stock Market, Report of the Committee on Banking and Currency (Washington: U. S. Government Printing Office, 1955). Wade, Worth, Industrial Espionage and Mis-Use of Trade Secrets (Ardmore: Advance House, 1964). V/alton, Clarence, and Eells, Richard, (ed) The Business System (New York: Macmillan, 1967). Watkins, Melville H., et al, Foreign Ownership and The Structure  Of Canadian Industry (Ottawa: Queen's Printer, 1968). Wright, John S., and Goldstucker, Jac L., (ed) New Ideas For Successful Marketing (Chicago: American Marketing Asso-ciation, 1966). 120 Ziegel, Jacob S., Studies In Canadian Company Lav; (Toronto: Butterworths, 1967). II. ARTICLES Bankmann, Joerg, "Financial Reporting Under The New German Company Law", Canadian Chartered Accountants, Vol . 89, No. 1, July 1966. Barnett, George E . , "The Securities Act of 1933 and The English Companies Act", Harvard Business Review, V o l . XIII, No. 1, Oct. 1934-. Birnberg, Jacob G . , and Dupoch, Nicholas, "A Conceptual Approach To The Framework Of Disclosure", Journal of Accountancy, Feb. 1963. Broad, Samuel J . , "The Development of Accounting Standards To Meet Changing Economic Conditions", Journal of Accounting, May 1949. Chetkovich, Michael N . , "Standards of Disclosure and Their Development", Journal of Accounting, Dec. 1955. Davids, Richard C , "Soon That May Not Be Milk You're I)rinking", Reader's Digest, Sept. 1968. Dean, Joel , "Competition Inside and Out", Harvard Business Review, Vo l . XXXII, No. 6, Nov-Dec. 1954. Drucker, Peter P . , "Business Objectives and Survival Needs'', Journal of Business, Vo l . XXXI, No. 2, A p r i l 1953. Eaton, Marquis G . , "Financial Reporting In A Changing Economy" Journal of Accounting, August 1957. Financial Executive, "New Disclosures Noted In Annual Reports", Financial Executive, June 1967. Flowers, V/. Baker, "Some C r i t e r i a For Post Statement Disclosure", Journal of Accounting, Jan. 1961. Fortune, "The Hew Competition", Fortune, June 1952. Fox, Mortimer J . , J r . , "The Annual Report: An Objective Appraisal", Financial Executives, Jan. 1965. Furash, Edward E . , "Industrial Espionage", Harvard Business Review, V o l . XXXVII, No. 6, Nov-Dec. 1959. Goodrich, L . Keith, "Executive's View of Corporate Reporting Responsibilitiips", Financial Executive, Dec. 1966. G r i f f i n , Charles H . , and Williams, Thomas H . , "Measuring Adequate Disclosure", Journal of Accounting, A p r i l I960. Hobgood, George, "Voluntary Disclosure In 1967 Annual Reports", Financial Executive, June, 1968. 121 Horngren, Charles T., "Disclosure: 1957", Accounting Review, Vol. XXXII, No. 4, Oct. 1957. , "Disclosure: What Next?", Accounting Review, Vol. XXXIII, No. 1, Jan. 1958. Hunt, Bishop C, "Recent English Company Lav/ Reform", Harvard  Business Review, Vol. VIII, No. 2, Jan. 1930. Journal of Accounting, "Disclosure of Supplemental Financial Information By Diversified Companies", Journal of Accounting, Oct. 1967. KLan, Spencer, "The Soap Wars: A Strategic Analysis", Barksdale, Hiran C., (ed) Change and Exchange (New York: Holt, Rinehart and Winston, 1964). Lanterman, Joseph B., "How To Resolve The Financial Reporting Controversy", Financial Executive, Dec. 1966. Mautz, Robert K., "Full Disclosure Of Financial Transactions", The Controller, Vol. XXI, Jan. 1953. McLean, John G., and Haigh, Robert V/., "How Business Corporations Grow", Harvard Business Review, Vol. XXXII, No. 6, Nov-Dec. 1954. Morgan, Robert T., "The Financial Analysts and The Financial Statements", Canadian Chartered Accountants, Vol. 82, No. 3, March 1963. Murray, Angus F., "What Investors Want From Company Accounts", The Accountant, Vol. CLIII, No. 4724 and 4725, July 1965. Penny, Louis H., "Financial Statements For Credit Purposes", Journal of Accounting, Sept. 1957. Rappaport, Alfred, "Establishing Objectives For Published Corporate Accounting Reports", Accounting Review, Vol. XXXIX, No. 4, Oct. 1964. Scitovsky, Tibor, "A Note On Profit Maximisation and Its Implications" Tibor Scitovsky, Papers On Welfare and Growth (Stanford, California: Stanford University Press, 1964). Trumbull, Wendell P., "Disclosure As A Standard Of Income Reporting", Accounting Review, Vol. XXVIII, No. 4, Oct. 1953. van Vlerken, J. H. M., "Financial Reporting In Holland", Canadian  Chartered Accountants, Vol. 87, No. 5, Nov. 1965. 122' III. UNPUBLISHED MATERIALS Benston, George J . , "The Impact of The SEC's Accounting Disclosure Requirements", a paper presented at the 52nd Meeting of .the American Accounting Association, Aug, 27, 1968, Working Paper Series 1968, No. 68-09. Devji , Raaahussein, Effective Competition and Corporate Disclosure (unpublished Master Thesis, University of B r i t i s h Columbia, Aug. 1968). Goh, S. Siah, A Descriptive Study Of The Notes To Financial State- ments In The Annual Reports Of 75 Selected Canadian  Public Companies, 1958 - 196% (Unpublished Master Thesis, University of B r i t i s h Columbia, A p r i l 1965). Tan, Y. Pin, An Analysis Of Supplementary Data In The Annual  Reports Of Selected Canadian Public Companies, 1958- 1963 (Unpublished Master Thesis, University of B r i t i s h Columbia, A p r i l , 1965). Williamson, Dalbert E . , Concept Of Disclosure On Financial State- ments (Unpublished Doctoral Dissertation, Stanford University, I960).. 

Cite

Citation Scheme:

        

Citations by CSL (citeproc-js)

Usage Statistics

Share

Embed

Customize your widget with the following options, then copy and paste the code below into the HTML of your page to embed this item in your website.
                        
                            <div id="ubcOpenCollectionsWidgetDisplay">
                            <script id="ubcOpenCollectionsWidget"
                            src="{[{embed.src}]}"
                            data-item="{[{embed.item}]}"
                            data-collection="{[{embed.collection}]}"
                            data-metadata="{[{embed.showMetadata}]}"
                            data-width="{[{embed.width}]}"
                            async >
                            </script>
                            </div>
                        
                    
IIIF logo Our image viewer uses the IIIF 2.0 standard. To load this item in other compatible viewers, use this url:
http://iiif.library.ubc.ca/presentation/dsp.831.1-0102335/manifest

Comment

Related Items