The Bronx Bomber Mickey Factz and Brooklyn rapper Asmash released a song entitled New Words just the other day. The song is a remake of the Kanye West song Two Words off his debut College Dropout album. Although the song uses the same melody and the framework of the verses are that of Kanye’s and Mos Def’s, the song is still original in the sense that there are no drums giving the track a more consequential feel.

If your like me then your waiting patiently for Mickey Factz to release Alpha on new years. This probably wont be on the Album but its a sign of things to come.

Click here to hear “New Words” by Asmash and Mickey Factz.

Well, it looks like we survived (sort of).  The unemployment rate did not leap up as predicted, although personally I believe this is because many people went from full-time to part-time work or at least had their hours reduced.

So, while we wait for the inevitable bleating from world governments regarding how they need to massively increase taxes to pay for their amazing stimulus packages, we watch as millions are wasted in Copenhagen.

The merry-go-round continues!

Ric Willmot, CEO of Executive Wisdom consulting group, delivered a number of sessions on management and leadership at CPA Congress in Canberra. He is a a seasoned Congress presenter, attending and delivering a number of events this year and in previous years.

Ric’s passion for the business sector is evident when he discusses his own experiences and ideas for improving relationships and processes in the work place. He writes for business magazines and consults organisations such as Pricewaterhouse Coopers and the Dubai Royal Family Group of companies.

He recently spoke with us about his experiences at CPA Congress and views on businesses emerging from the economic downturn.

Last month, the third Australia at Work (A@W) research paper ‘Australia at Work: In a Changing World’ was released by the University of Sydney’s Workplace Research Centre. A@W is a five year research project that started in 2007 to keep tabs on how changes in Australian labour law impact working life.

The paper’s results are based largely on interviews conducted with ~6,801 workers during February-June 2009. As A@W is a longitudinal study, it is worth remembering that the results are limited to the opinions and experiences of the original sample group (i.e. 2006 workforce participants); the results therefore do not take the experiences of new workforce entrants into account. Read more about the survey methodology here or take a look at pages 6 and 7 of the survey.

Things I found interesting:

What are your thoughts? Are these research findings reflective of your own employment experiences over 2009? I know the information delcaring a large portion of the workforce were unaffected by the downturn came as unexpected news to me (and I still do not buy it).

In Australia, we’re coming out of what is colloquially called the GFC (or Global Financial Crisis). Due to an uncommonly-persistent bout of common sense by past Australian Governments, Australia has weathered the GFC relatively unscathed, although the signs a year ago were substantially more bleak.

This all means that the private sector (and by inference, each company in it) is moving from survival mode to growth mode. From past experience, this is a tricky time to be a manager, because the pendulum rapidly swings from “My employees are lucky to have a job” to “My employees are all leaving for better offers”.

An interesting opinion piece on this subject is The Dead Sea Effect. Check it out – I’m interested in what everyone thinks about it.

I often get asked for my predictions for the year ahead for the BPO sector and usually it has been a relatively straight forward exercise. The crystal ball is a little murky when for the BPO future for 2010. Most of us will agree 2009 was a survival year. Companies outsourcing in 2009 responded to the GFC in various ways. Some downsized, others took services in-house and a few did nothing. As we emerge out of the muck of 2009 many executives can again recommence executing plans for growth and profitability. The general word on the street is that many have taken the last quarter in 2009 to plan for ‘business as usual’ activities in 2010. There are many profit and loss statements with weak numbers that are in desperate need of some beefing-up.

 My predictions for 2010 are based on current market based sentiment around the confidence in the global economy and BPO industry trends in the region. Firstly, if we look at the current state of the economy we could reasonably argue that we are due for a strong re-bound in 2010. This prediction is based on historical similarities with other downturns at the time when market confidence swings from negative to positive (1999, 2003). The question is whether the upturn will be a U, V or J curve. BPO providers in the region have been/will be affected by the consolidation in the industry. In 2009 we saw UCMS acquired by Aegis, Xerox acquired ACS, Sykes acquired ICT, Dell acquired Perot Systems, and high debt and poor timing bankrupted Blueprint Management Group. Huddling together during a crisis is a normal market response. The consolidation amongst the big players will force smaller BPOs to re-position their offerings or face slow but certain extinction. Whenever the playing field changes so do the rules that bind the game. 2010 will present great opportunities for smaller players that can take the courageous path of re-inventing themselves to take advantage of the opportunities presented in 2010.

 In previous years the APAC region has reaped the rewards of its ability to service primarily the US, UK and Australian marketplaces because of its low cost advantage and access to large English speaking resources. The companies that made the decisions to outsource to the region have more than a 10 year history to determine what worked and what could be done better. The region has matured significantly but it is not without its problems: rising costs, operational inefficiencies and competing markets. Markets such as Egypt are emerging as real threats to the region. The region has a lead but is in danger of losing its sustainable competitive advantage if it does not address some of the issues it faces and reinvent itself to ensure it is as attractive as when it identified its first strong sustainable value proposition. I am still surprised by the number of solicitations I receive from providers claiming that they can help reduce my costs and therefore I should send them work to India or the Philippines. The lower cost value proposition has simply been done to death. The region needs to become more entrepreneurial and creative in its offerings. It also has to import leadership from the markets its services to overcome the knowledge and experience gap.

 So where will the opportunities in 2010 be for the region? The opportunities lie in becoming more specialised in what is offered to the marketplace. In 2010 providers should, as a minimum, have the following: 

• A clearly defined area of specialisation
• SIP based telephony
• Self-service technologies
• Back-office platforms
• Creative operational models incorporating home agents
• A robust sales engine capable of attracting clients
• A well-structured service delivery model

 Reports from CallCentres.net, Everest Group, XMG Global and Research and Markets all indicate that 2010 will offer varying levels of growth for the various sectors in the BPO industry. My summary predictions for the region are as follows: 

1. India: further consolidation and reduction in the number of BPO providers. Strong demand for non-voice outsourcing and steady to declining demand for voice. Largest market US.
2. Philippines: strong demand for voice (non-sales) and also back-office outsourcing.  Largest market US but Australia and the UK increasing in 2010. Watch out for exchange rate head winds.
3. China: growing interest in the BPO sector. Companies seeking partners to enter China.
4. Japan: reduced demand for voice BPO and greater demand for self-service technologies.
5. South Korea: increasing demand for voice and non-voice BPO from local providers.
6. Pacific Islands: minimal growth in voice and non-voice BPO
7. Australia: strong demand for specialist voice providers and self-service, especially with sales expertise. Strong demand for offshore back-office and low value voice BPO.

Whatever sector of BPO you may be in there is a strong prediction that if you work hard, remain persistent and surround yourself with good people you will succeed in 2010. Many people in the industry deserve a much better year in 2010 than they had in 2009. Wishing all practitioners a prosperous 2010.

[Click on the pic above for a larger view]

Australia is full of people who claim to be experts at telling other people how they should spend and invest their money.

Everyday, entire sections of newspapers, web sites and magazines are bursting at the seams with these so called financial specialists making ill founded predictions of what may happen in the next 24 hours, 7 days or months ahead.

The reality is, they really haven’t got a clue.

Hardly anyone predicted the global financial crisis. have a look at the picture above to see one example of just how completely devoid from the reality these so called experts are. The team of ‘experts’ predicted that the ASX would reach 7000+ in 2008. Instead it collapsed to half that.

And yet these same people want us to believe what they have to say today?

In the midst of the crisis, we had Professor Steve Keens hogging the media spotlight with his sombre prediction that house prices would crash by 40% in Australia.

And claims that unemployment would reach 12%.

Instead, new fugures out today have once again proven the economists wrong.

The jobless rate has fallen to 5.7 per cent with the number of employed people increasing by an unexpected 31,200 in November according to figures released today from the Australian Bureau of Statistics.

The market had forecast that the unemployment rate would increase from 5.8 per cent to 5.9 per cent with 15,000 jobs lost from the economy.

Instead, an extra 30,800 full-time jobs were created last month, bringing the total seasonally adjusted number of full-time jobs to 7.6 million.

Iroincally, it is Cameron Peacock, a markets analyst, that is prepared to acknowledge they got it wrong.

“Once again we’ve seen the markets ineptness at reading the employment situation, having now been badly off beat for three consecutive months going into (today’s result).”

“Given some strong leading indicators such as the ANZ jobs ads survey, there was always a strong chance today’s numbers would surprise on the upside.

“While on face value the unemployment rate falling to 5.7 per cent is a good thing, it undoubtedly gives the RBA more justification to continue hiking rates from early next year.”

So while economists are very good at explaining what is happening in financial markets at the present moment, or hypothesising about why certain things happened in the past, they have no better idea about what will happen in the next 24 hours or days and weeks ahead than anyone else.

Yet, everyday we hear from these people who claim to be able to predict what is going to happen, and, there is no shortage of people who are prepared to believe them.

It’s different, but it’s not Doomsday has been avoided. Not only is the market recovery well underway, it is actually following a rather ‘normal’ recovery pattern. History shows us that during periods of immense disruption, investment markets tend to rally ahead of economic recovery. The current recovery cycle has proved to be no exception. Figure 1 shows that the turning point for equities occurred relatively early in the economic downturn and sharemarkets in major economies that haven’t convincingly emerged from recession, such as the US, are up by as much as 62 per cent. This early mover trend is part of the reason that a very bad year of investment returns are more often than not followed by a period of very good returns. Figure 2 shows that while the downturn of 2008 was more pronounced than any other, the market correction of 2009 is following a typical recovery pattern that has occurred over the past century.

Risk on, risk off
A more unusual aspect of our current recovery is its ‘risk on, risk off’ nature. During the height of the Global Financial Crisis (GFC) almost all markets fell simultaneously as investors sought to exit any form of risk.

Yet the first phase of the rally – from March to September – was driven by riskier stocks. Depressed markets meant that valuations were very cheap, which boosted returns to the most volatile stocks in every region of the world as shown by figure 3 below.

  We are now transitioning to a new phase of the recovery, which is likely to involve a shift from ‘macro to micro’, where it will become increasingly hard for a company’s share price to rise simply because the market is rising. During this next stage of recovery, after-shocks such as the Dubai World debt concerns will continue to ripple through the global financial system, but most will not represent a new systemic risk.

Earnings now need to do the heavy lifting Generally speaking, sharemarkets are trading at reasonable valuations – they are no longer cheap relative to the current expected level of earnings growth.

This means that for sharemarkets to rise further, company earnings need to increase more than currently expected. The good news is that earning revisions are starting to turn positive, which is a typical occurrence during this stage of the recovery cycle.

What does this mean for investors?
The first stage of the market recovery saw global sharemarkets rise spectacularly, almost without a pause. This is typical of the first stage of a market rally, but not the next.

During this next phase, research will become increasingly important. Winners will include companies that deliver solid earningsimprovements, while stocks that disappoint on this front will be punished. This next stage will encompass difficulties, but offers strong return potential. Emergency measures will continue to be wound back – the Reserve Bank of Australia’s (RBA) recent rate rise is another example of this occurring – as global economic markets are turning around. Over the longer term sharemarkets tend to track economic growth and company earnings
and both of these factors are on the upswing.

A banana smoothie metaphor does Westpac no favours

Days after Westpac CEO, Gail Kelly, said that the none of the bank’s customers would lose their home as a result of the bank’s significant rate rise, the company’s customers received a video on Monday, associating bananas with borrowed cash, and the cost of smoothies with credit, which is about as wacky as a bank can get.

It’s probably not as strange as the bizaare Celebrex Ad – “it won’t kill you… we hope” – but it comes pretty close.

Who advised them on this? I’m guessing the same highly paid genius who advised Kraft to call their beer slops/cheese hybrid “iSnack 2.0″.

Unfortunately, the storybook approach won’t convince anyone that Westpac are a good corporate citizen, and were forced by some credit storm to whack their home loan customers with an additional 20 basis points (to 0.45 per cent) on top of the official cash rate rise of the Reserve Bank of 0.25 per cent. To most people, the additional rate rise just looks a bit greedy, which is reinforced by some overly simplistic and somewhat patronising post-hoc rationalisation in this ill-advised video.

It’s different, but not very smart promotion, and continues Westpac’s strange promotional campaigns (such as the “We’re Factor 50″ advertisements)  - which probably do more to confuse consumers about their brand idea than clarify them.

From a marketing and branding perspective, it doesn’t do Westpac any favours, either. Two of the other Big Four, the ANZ and Commonwealth Bank, also increased their interest rates above the Reserve Bank increase (0.35 and 0.37 respectively), as well as the Westpac owned, St George Bank (0.39). But now that all the attention is on Westpac, the ANZ and CBA can sit back and watch the furore being directed at their competitor – simply because of an ill-advised banana smoothie metaphor.

Westpac Chairman, B1, with new CEO, B2

At least the video admits that the bank is a business, which highlights one of the misunderstandings that consumers unconsciously make about banks; that banks are community services. But most consumers will perceive that it is a long stretch to make a connection between bananas and international finance.

When consumers are being told, on one hand that banks continue to post substantial profits (Westpac posted a cash profit of $4.6 billion to September 2009), while on the other hand that the banks are struggling to get cash and therefore need to charge consumers more for their loans, the storybook approach does little more than reinforce beliefs that banks are condescending and don’t respect the intelligence of their customers – particularly the bit where the voiceover in the video says, “We all understand this story right? A plus B equals C. But the same formula seems so much harder to understand when it comes to talking about money, about lending, about mortgages and about banking. In some ways a bank is really just like the company that sells banana smoothies. A bank is a business that buys and then sells something, only in the bank’s case that something is money.”

The promotion is akin to a parent telling their teenage children to sit down, and listen to the very important fable about life, bananas, smoothies, and interest rates… and aren’t those little talks effective? And as my son says, “A plus B makes more sense than bananas and banks”.

I can see what Westpac were attempting to do – using the storybook approach might be useful if people were receptive to the message, and empathetic to the bank’s plight. But the reality is that banks are expected to be serious businesses, and while the cost of cash might be easily reduced to a three minute animation – about bananas and smoothies – most consumers probably expect something more sensible from an industry that deals with their hard-earned cash.

I guess it goes to show that even big corporations do dumb things from time to time – I’m looking at you Kraft, Coke, et al.

~

Interview with Brendan Trembath on ABC AM, 9 December 2009 (yes, I know what you are thinking… what was Paul doing up so early?)

You were right and I was wrong.

Not all of you. But people like Joe Cambria, Kirk Fletcher, Sinclair Davidson, Jim Fryar, Tim Andrews and Michael Sutcliffe were right all along. You warned me about the ALP. You said the days of Hawke/Keating/Walsh were over. I didn’t listen. Mea culpa, mea culpa.

Before the last 2007 election I suggested that Rudd would be a dull but safe Prime Minister who wouldn’t do much, and so would be fairly harmless. And there were people like Tanner and Emerson in the background to keep the party sane. These weren’t particularly high expectations… but they have turned out to be a massive over-estimate of the quality of the Rudd government. He has been a huge disappointment.

In partial defence, I think one reason for Rudd being particularly bad was the global financial crisis (which few people saw coming) and his populist response. Our PM seems like an empty vessel who knows nothing about economics and doesn’t want to know. Perhaps Rudd cares about and understands foreign policy… but I don’t think he cares about or understands economics. And it shows. With little understanding or concern, the only guide to his behaviour was politics, and so we were left with a very dumb stimulus package that totally fails the economics test but passed the populist test. John Howard (or Peter Costello, or Brendan Nelson, or Malcolm Turnbull, or Tony Abbott) would have done a much better job.

But it’s worse than that. With or without the GFC, there is no excuse for the National Broadband Network, or for the proposed internet censorship, or increasing union power and labour market regulation. Denying a special deal for asylum seekers is just weird, and the whole episode was a triumph of politics over policy. As was the pointless 2020 summit. Cass has just drawn my attention to their continued refusal to recognise same-sex unions. Of course, the ETS is horrible policy, and will be the 4th biggest commonwealth tax after income, company and GST. Not to mention other climate regulations and subsidies. And the Rudd government continues to deny private property rights to aboriginals while wasting millions on a non-existent home building project. Then there is the super-nanny state project under the guise of preventative health. Even foreign policy has been a failure, with inconsistent treatment of foreign investment and mixed messages to China. As Sinclair Davidson put it so well… the only real successes from this government has been that they followed through on Howard’s small tax cut and they finally abandoned the idiotic grocery-choice and fuel-choice projects.

I was a vocal critic of the Howard government regarding foreign policy, civil liberties, high tax take, ID card, middle-class welfare, ETS, and lack of liberal reform. I think those criticisms still hold.

However, what I previously failed to stress was that the ALP also supported all of these positions. I didn’t think about it too much at the time, but the policy cowardice showed by the Labor Party while in opposition was an early indicator that they would be a populist and unprincipled government in power. I have absolutely no faith that Rudd is trying to introduce the best policy. The party seems to be run entirely on spin and illusion.

Article published in Lawyers Weekly: Boutique law firms take talent war to the top tier.

The lull in legal services at the top end of town has highlighted the emerging force of boutique firms, and the war is on for the boutiques to secure some top talent. See the full article here …

Article published in Lawyers Weekly: Technology lawyers ride GFC wave.

Technology practice areas have weathered the global financial crisis better than most, with a number of significant developments making up for potential losses of billable work as a result of cutbacks in clients’ IT budgets. See the full article here …

Click to see full size

Click to see full size

Who knows if the GFC is over? Certainly not me.

But, if history is any guide we have a fair way to go. I wonder what the politicians will spend to prop up the economy if there is a further collapse.

House prices are still sky high and bad debts at Fannie Mae have just gone vertical.

First published in X-Press Magazine

Alternate promo poster for Capitalism: A Love Story

CAPITALISM: A Love Story
Directed by Michael Moore
Starring: You, Me… Everybody, Everybody.

Few people could say there’s no need for a hard-hitting documentary providing insight into the people, institutions and circumstances that combined in what is now known as the GFC.  Capitalism: A Love Story has already grossed over US$13.6M at the box office, and that doco still needs to be made.

It’s been said before, but in light of the latest promotional chutzpah Moore has been spraying through Australian media channels in the last week, perhaps once more is appropriate; Michael Moore is the Johnny Knoxville of socialist (or humanist) film-making.

Moore has said he ‘tricked’ his studio backers by saying he was making a sequel to Fahrenheit 9/11, then using their  money to make his story on the GFC.  Well, it wasn’t much of a trick – Moore’s shockumentary tactics are now so well-established that future films may well use roman numerals for titles.

Importantly, given that the GFC has been the subject of more media scrutiny, financial analysis, vox pops, international policy etc – than any other event or phenomenon since 9/11, the truth is that there is very little or new or surprising in Capitalism… it’s Michael Moore weighing in with his two cents.

As a documentary film, Capitalism isn’t exactly a taut, well-executed  argument. There are sympathetic vignettes about the real struggles faced by various communities; inspirational stories of solidarity; alternate business models that empower all participants – but nothing much that hangs them together other than Moore himself.

The first half of the film is designed to connect with audiences the important idea that the economy is not an abstract entity, but the sum of the endeavour of the majority, under the control of a select few.  The failure of the system – incrementally, over decades – has a social cost, and Moore succeeds in putting ‘human faces’ to the flood of red numbers on Wall St stock tickers.

The second half of the film is, in theory, Moore’s attempt to explain the global financial crisis, and some of the self-interested parties that either (a) caused it and/or (b) found a way to profit at the public’s expense from the collapse of the free market – or ‘life as we know it’, if you’re one of those evil Republicans or their Wall St cronies/overlords (depending on how you look at it).

Moore’s attempt to explain the sub-prime market is no attempt at all — just a pretext to rail against the complexity of a scam that has been perpetrated on the American people (and countries like Australia that invest in their financial instruments and institutions) – incidentally, there’s an interesting take on it that most people can understand here: www.youtube.com/watch?v=EsA9lR2XB3A.

Moore requires the bad guys to be bad, so he can be the white knight storming the gates. He names names, points the finger and then films himself being refused entry to a number of buildings. Rinse, lather, repeat.

Where Moore does succeed,  is in his look back on recent US history – in reminding the audience of Roosevelt’s ‘New Deal’ and the proposed Second Bill of Rights, of the importance of the collective will to improve life for all – in short, the promise which America made to itself, and then sold… and then hope, again, with Obama.

In Michael Moore’s latest film, we learn ‘Greed is Bad’, OK? Sure Oliver Stone made the phrase ‘Greed is good’ famous 21 years ago in Wall Street, but apparently the ironic overtones were lost on some people and now we all have to pay.

There’s a saying that goes like this: In the country of the blind, the one-eyed man is king.

In the world of American film-making, it is all too easy to imagine Michael Moore and Oliver Stone beating each other to death over who gets to have the eye. Come to think of it, that would make for pretty entertaining television. Perhaps Simon Cowell can get on that.

But until that happy day, we will get to live in a world where certain American film-makers feel that it is their duty to explain America to itself, knowing that a significant percentage of the ticket and DVD sales will come from other territories eager to hate the U.S. a little more for being… well… so gosh-darn arrogant and smug about everything, despite aggravated terrorism and a few armed conflicts around the world.

Well screw that. That is a job for film reviewers.

As everyone knows by now, the RBA increased the cash rate yesterday by 25 basis points (or what normal folk call .25%).

This is expected to add an extra $46 each month to the average repayments on a mortgage of $300,000.

The Opposition has been particularly vocal in recent months in its opposition to the Government’s extensive stimulus spending, with calls for the spending to be dramatically cut back in the context of better than predicted employment figures and strong demand for resources and commodities.

As we have witnessed, Australia technically avoided a recession and has weathered the storm of the Global Financial Crisis far better than American and European economies.

The Treasurer Wayne Swan, maintains that the stimulus spending must continue arguing that any premature withdrawal would result in a sharp rise in unemployment. Although he has conceded in recent weeks that some cut backs could be on the cards.

However, figures out this week suggest that retail sales have fallen sharply in September possibly affected by the gradual withdrawal of government economic stimulus as well as concerns about rising interest rates.

Of course the lead up to Christmas is the peak period for Australian retail and it is the level of spending over this period that will provide an interesting indicator of the ‘confidence’ of the Australian consumer.

The strong Aussie dollar will be a boost for companies like JB Hi-Fi, however it does not bode well for the farming and agriculture sector who will be competing on international markets with cheaper exports from other countries.

While the strong Aussie dollar – buoyed by recent rate hikes – provides an indication of the strong Australian economy, Australia remains the first developed nation to raise interest rates since the beginning of the GFC.

Given the still precarious nature of the economy, did the RBA move too soon?

The homie Stalley’s Video off Madstalley: The Autobiography
Via GFC NY

The Autobiography from Creative Control on Vimeo.

Thankfully last weeks SydAng Synod covered more than just the mountain of cash lost from the Diocesan endowment. Raj Gupta reports on some mods to the whole Mission Area concept which were pushed through during the week.

I tend to have an automatic cynical reaction to new strategies/programs related to evangelism. This is not necessarily positive, I know.

Anyway, Raj’s assessment on the mission area concept is honest and frank, which I like. He observes that

“…20 percent of the people in churches do 80 percent of the work; 20 percent of the people give 80 percent of the budget; and 20 percent of the people do 80 percent of the evangelism.”

Disappointing, painful and so true. But the question begs – why is this the case?

In some cases, the 80% are not doing/giving/evangelising because they are sinful, lazy or possibly not even Christians. The lazy/sinful Christians need to be told to repent and get with the program and the non-Christians need to be introduced to Jesus.

Perhaps, however, for most of the 80%  there are a number of other factors at play:

1. There has been a failure to adequately ackowledge that there is a biblical gift of evangelism and that most Christians don’t have it,
2. Discipleship and instruction in biblical stewardship and giving has been non-exisitent at worst and haphazard and reactionary at best,
3. The only “work” recognised in a church sense relates to Sunday services and attractional/outreach events that the church runs.

#1 is a particular bug-bear of mine. In one sense I get the hesitance on the part of Pastors. To talk about giftedness in evangelism, it is thought, opens the opportunity to “get-off-the-evangelism hook” for some people. Better to just emphasise the responsibility of everyone to share the news of Christ.

On the other hand, by not acknowledging this reality, the regular people who, for the term of their natural lives, will remain ungifted as evangelists, just feel guiltier and less motivated.

One book which has helped my own thinking about this has been Evangelism without Additives, by Jim Henderson. I recommend you check it out.

“But if insider trading is legal, then that would be unfair to all the regular people in the market who don’t have the same access to information that insiders do.”

This is a commonly held view, but it ignores the way the economy works. Some people have specialised knowledge in certain industries and they use this to be able to produce goods more efficiently than others. Would you say that this is unfair? Does it really make sense to say that someone who’s been in the mining industry for 10 years shouldn’t use their increased knowledge so that a mining newcomer may ‘fairly’ compete with them? If anything, people with increased knowledge or information should be encouraged to use that information, and I’ll elaborate on this.

Here are some (brief) arguments for Insider Trading being legal:

1. Equity prices would disclose relevant information more accurately/quickly

What does this mean? It means the share price for a stock should reflect the sum of information relating to that stock’s value. If there is good news for the company, we should expect the price of the stock to rise as people buy it.  If there’s bad news coming up, then we should expect the stock price to fall as people sell.

Why is this important? Equity prices function as a price signal to groups such as investors and shareholders. Investment decisions turn on these things, and it makes the difference whether or not somebody wants to go for a takeover or decide to undertake new investment etc. Insider trading prohibitions slow the flow of trading and information, which means that the equity price is not as accurate as it could be.

2. It reduces the need for corporate whistle blowers

It’s not easy to be a corporate whistle blower when a firm is committing accounting fraud, but it is easier to effectively achieve a similar result by selling/shortselling stocks based on this inside information – because if you know that something’s not right, then you’ll make money by doing this. As a person with knowledge of company fraud, your profit incentive to sell or short sell stocks helps everybody else because it functions to tip off the rest of the market to the problem. So this is why we actually want people to act on the improved information/knowledge that they have, rather than trying to live under this facade that nobody ever trades on information that is not publicly available.

3. Insider Trading prohibitions never catch people who refrain from taking an action because of inside information

Insider Trading laws are unbalanced in a sense. If you have access to inside information and trade based on this information, then you are in trouble with the law. But, if you have access to inside information and this information encourages you not to take any action (where you would have otherwise taken action), you are not in trouble with the law. To give you an example of this, let’s say you hold stocks in company Z, and you were going to sell them – until you learn (before everybody else does) that company Z has just invented a revolutionary new technology that would vastly increase its market value. Given this information, of course you would choose to not to sell the stocks in company Z and gain from the upcoming price rise. So this is the disparity between action and non-action with Insider Trading prohibition and it demonstrates an inconsistency with the Insider Trading prohibitions.

“What if you’re wrong about all this and Insider Trading is detrimental?”

At the end of the day, even if Insider Trading turns out to be detrimental, it wouldn’t be very costly – all that is required is for companies to put the restriction against insider trading in their employment contracts.  If this is truly what shareholders want, then corporations would do this. However, it’s more likely that things would function better with Insider Trading permitted because fundamentally as a shareholder you don’t want to lose your investment. So therefore you should favour measures that keep firms honest.