More, please: Honest moments in SEC filings

You’ve probably read more than enough over the past few weeks about the very public dispute between J.C. Penney and hedge fund titan Bill Ackman. Without getting too into the weeds, Ackman’s choice of CEO, Ron Johnson, was fired in April and things have gotten increasingly circus-like since. As the words ratcheted up, other big guns, including Starbucks’ Howard Schultz and George Soros weighed in.

This morning, the big news is that Ackman has resigned from Penney’s board. You can find plenty of stories about that online.

What caught our attention was the 8-K that accompanied the press release. Specifically, this sentence: “Mr. Ackman’s resignation was the result of a disagreement with decisions made by the Board of Directors related to the timing and process surrounding the CEO search.”

Trust us. We read a lot of 8-Ks on directors leaving boards, often suddenly. Many of these are filed late on a Friday, so as not to attract much attention. In nearly 10 years of reading filings, we can count the number of times on two hands (and still have fingers left over) when a director resigns over a dispute with the board. We wrote about the irony of this last January, when Yahoo co-founder Jerrry Yang suddenly resigned from that board, which the filing helpfully noted was “not due to any disagreement”.

Now maybe this is just wishful thinking, but wouldn’t it be nice if a director (or the company) could be honest with their investors about why a director was stepping down? And by honest, we don’t mean trotting out the oft-used “personal reasons” or “more time with the family”.

There’s very few Ackman’s out there that can command this type of media attention. But there are a lot of directors who sit on public company boards, many of whom probably have legitimate differences with the direction of the company and/or its top executives. Would it really be that damaging to be honest? Or for regulators to stop turning a blind-eye to the no disagreements language?

This morning, there’s a great WSJ article about bringing more honesty to the audit letters that accompany most annual reports. As the article notes, that’s another area where disagreements are very rare, even when auditors are dismissed.

After all, if the director resignation filings and audit letters are shaded versions of the truth, what are investors supposed to make of the rest of the stuff that companies routinely file?