Put your money where your mouth is?

Matt Levine’s newsletter and column are something of an institution in financial services. Very few journalists are able to range so widely across topics yet retain such a profound understanding of even the most arcane areas of finance.

Moreover, the ability to synthesise this knowledge into thought-provoking articles on a daily basis makes him one of the best financial columnists in the media today. (Not to mention, his trademark extensive footnotes underneath every article).

In his Bloomberg View column on Thursday, Levine made the case that securities law is increasingly being used by U.S. regulators to police all manner of issues which should lie far outside the purview of securities regulation.

To summarise Levine’s argument briefly, securities law is highly prescriptive over the way that firms should communicate with shareholders, for the obvious reason that those shareholders need to have access to honest corporate reporting in order to make informed decisions.

Securities law therefore takes “a notably dim view of lying about matters that are material to shareholders. And lots of matters of public policy, it turns out, are material to shareholders.” So, when companies come into conflict with public policy, U.S. regulators are increasingly using securities law, rather than the specific regulation at stake.

While Levine focuses on the legal and even constitutional ramifications of these issues, they have important consequences for communications too. Within securities regulation, there is little room for the normal rhetorical tools of effective and persuasive communications – for example, irony or pathos. This applies across the board, whether the communication is in the form of a submission to a government consultation or a blog on the company website.

Clearly, this is not to say that companies need make factually inaccurate statements in order to communicate. Simply, that the natural subtleties and ambiguities of language proliferate outside of the strict confines of stock exchange filings and financial reporting.

There is broader point here too. The financialisation of corporate regulation is repeated across numerous areas in society, including communications and the media. Those watching the EU referendum have been exposed to a deluge of reports claiming to show the invariably dire financial impact of either remaining or leaving. This relies on two important assumptions: firstly, that the financial impact of a political decision holds primacy over all other arguments; and secondly, that the production of a single figure quantifying this impact is indisputable. In our day-to-day lives, we are taught to think of figures of money as hard, objective, rational, and incontrovertible.

Yet, projections and arguments are not the same as financial accounts. As so many economists are eager to stress, even the most rigorous academic studies rely on huge assumptions, not to mention value judgements. Most people wouldn’t even know where to start questioning these estimates, so it is hardly surprising that when faced with utterly contradictory yet ostensibly authoritative figures, they end up exasperated and apathetic. This issue is something my colleague Matt Battersby is exploring further as part of our new SMARTER behavioural insights unit.

Money has always played an important role in exposing the disjuncture between our rhetoric and our true beliefs, and between our predictions and the reality of a situation. Putting your money where your mouth can be a helpful in some situations, or as another famous saying goes, “a bet is a tax on bullshit”.

Yet, as this article from xkcd illustrates quite wonderfully, weighing up the value of picking up a penny can lead you on the most labyrinthine (and ultimately fruitless) quest of calculation. And for the vast majority of our lives, in the business or personal sphere, we simply don’t and indeed can’t argue on the basis of finance, numbers and quantities.

Marshalling facts and figures are crucial, but persuasion also means appealing to numerous other values, biases and emotions. Understanding the limitations of where information can and should be effectively deployed lies at the very heart of effective communication.

Josh Glendinning

Hill & Knowlton Strategies Search