Paul Wilkinson is Chief Strategy Officer of CLOUD, Inc., the Consortium for Local Ownership and Use of Data. He was Senior Adviser to SEC Chairman Christopher Cox from 2005 until 2009, where he oversaw XBRL adoption. From 2001 to 2005 he was Executive Director of the U.S. House of Representatives Majority Policy Committee, handling international and economic policy. He can be reached by email.
This is the second installment of a three-part interview. The first part contains questions 1 through 5; Part 3 has questions 11 to 15.
6. XBRL has not captured the imagination of security analysts and other investment professionals as some had hoped. Why do you think investors have been relatively indifferent about interactive data? As the SEC’s XBRL adoption expands to more companies, do you see that situation changing?
XBRL shouldn’t capture the imagination of analysts, investment professionals, and investors. XBRL isn’t what’s important to them; the data is. Many investors don’t realize it, but they’ve been using XBRL or similar standards for years. The difference is that in the past, third parties have been standardizing and tagging company data, not the companies themselves. The main thing that changed with the public company XBRL mandate is that companies are now responsible for making sure that the data investors actually use is accurate. Companies spend so much money making sure their disclosures are as accurate and complete as possible that it would have been a shame to continue to let all that hard work be subject to third party interpretation, normalization, and potential over-simplification. We’ve all seen what happens in a game of “telephone.” There’s a reason hearsay is inadmissible in court. It may not “capture the imagination,” but eliminating an entire level of hearsay in the world’s leading capital markets has the potential to be a pretty big deal.
What I see changing isn’t necessarily respect for the data standard among non-technical users, although like all successful data standards, the standard must become more useful over time to avoid becoming obsolete. What I see changing is respect for the professionals responsible for preparing the data. Until I became involved in the XBRL project, I didn’t understand the full extent to which the accounting profession is vital to healthy markets. You can see that in the fact that while accountants and auditors were using SOX to improve public company reporting, financial engineers were working to avoid accountants by relying on non-GAAP models for ABS. With XBRL, the accounting profession’s work is transmitted more accurately and more fully to more people who can make more effective use of that work. I suspect that’s one reason the AICPA was such a strong supporter of XBRL from the outset.
7. In a recent blog, you posited the idea that “NIEM is to XBRL as United States customary units are to the Metric System.” Could you expand on that idea and explain more fully how you see the relative contribution of NIEM and XBRL in implementing data standards for Federal government activities?
The main point I hope readers took from my post is that global standards are more efficient than national standards. NIEM is a domestic U.S. standard. Yet we live in a global economy. It’s just a no-brainer to me that when local standards and global standards are both available, you go with the global standard unless there’s a compelling reason for parochialism. That’s why the G-20 leadership supports global accounting standards. Heck, we almost lost Winston Churchill before WWII because he was accustomed to a parochial standard and looked the wrong way when crossing Fifth Avenue in New York City. Who knows how much we’ve lost as a result of parochial standards?
With respect to NIEM, why should one nation’s government care if its information standards are compatible with other governments’ standards? Well, two reasons are terrorism and financial crime. They’re both global challenges. At the SEC and at the House Homeland Security Committee before that, some of our greatest challenges were facilitating international cooperation among law enforcement and intelligence agencies to combat terrorism and financial crime.
Making NIEM global, through collaboration with XBRL standards, could significantly improve how law enforcement officials work with each other across borders. XBRL’s validation capability could also be helpful in the law enforcement domain. With all the smart people working on both standards, there’s no reason they can’t become fully interoperable open standards – or unified into a single standard. I don’t think anyone knows how NIEM and XBRL will ultimately work together, but that’s what makes working on data standards interesting – someone will always find better ways to make standards work.
8. In a post describing health information technology standards, you suggest that the SEC’s adoption of XBRL could be used as a model for adopting standards in other industries. In this respect, what elements of the SEC implementation do you find worthy of emulation?
The same leadership gap exists with respect to medical records that existed before the SEC moved forward with XBRL. No perfect standard exists in any domain. After the SEC chose XBRL, much hard work remained to make it capable of supporting high quality GAAP reporting. In medicine, the plethora of incompatible proprietary standards is much worse than in financial reporting. Nevertheless, if patients are to enjoy the benefits of medical records created, transmitted, and used according to open industry standards, someone must overcome the proprietary interests and provide the leadership to choose and develop an open and effective high-quality standard.
In learning, grades can mean different things to different schools and different people. Unique students are taught in identical ways on agricultural calendars in the information age. Someone someday will develop open standards to support a system in which unique students enjoy custom lessons to meet their educational needs and measure their progress. Extensibility, dimensions, presentation layers and more could be big parts of such a standard.
In the end, recognizing the unique worth of every individual – in education, medicine, business, and every sector – requires robust methods to assemble, store, and use complex information. XBRL blazed the trail. I’ve frequently noted that if we could find a way to convert U.S. GAAP to a computer language – when no one is even sure how many tens of thousands of pages of literature comprise the standard – other challenges must be easy in comparison. Other industries have enormous amounts to learn from the XBRL experience.
[Disclosure: I’m the Chief Strategy Officer for CLOUD, Inc., the Consortium for Local Ownership and Use of Data, a new non-profit organization exploring the potential of cross-industry data standards for personal information that would give individual users more control over their own information.]
9. In a post on your blog about a bill to make XBRL the data standard for disclosure to the US government, you wrote “Bringing labor-saving technology to banking and securities regulation is one thing, but making L.A.’s [legislative assistants] on the Hill redundant? What hath sunlight wrought?” Isn’t it possible, however, that XBRL will increase the demand for analysts, because analysis will be easier to do?
As a former L.A., I certainly hope XBRL makes analysis easier and boosts demand! Perhaps I was a bit facetious. The title of Clay Shirky’s book, “Here Comes Everybody,” says a lot. The nice thing about democracy is that we all have something to contribute, and the more high quality information we have – Chris Anderson’s “long tail” of information – the more we can contribute and the less time we waste sorting information that’s not useful. Too often, the toughest part of quality analysis is collecting the data to analyze. Making data available to the world by supporting open standards and open software to analyze that data can’t help but support smarter decisions.
Freerisk.org and Wikinvest are just two examples of how more accessible data can make analysis faster and better, if not easier. Having faster and better data supports deeper thinking about how to analyze the data. And thinking is hard – so I’m not so sure about “easier.” But by reducing the cost of analysis, XBRL pushes the supply curve of analysis to the right – meaning it intersects the demand curve at a point where there’s more analysis in the market at a lower price. By increasing the quality of analysis – less garbage in means less garbage out – the markets subject to analysis should work more efficiently, resulting in more capital being allocated to more productive uses – a virtuous circle.
10. What XBRL developments in other countries do you find noteworthy, and what can the US learn from them?
What I find most noteworthy are the many and flexible uses for XBRL. The greatest lesson the U.S. might learn could be, “XBRL – it’s not just for GAAP anymore.” Australia’s Standard Business Reporting project is impressive, as is the work to standardize corporate actions XBRL US is doing with the International Organization for Standardization (ISO), the Society for Worldwide Interbank Financial Telecommunication (SWIFT), and the Depository Trust & Clearing Corporation (DTCC). Using XBRL for corporate actions on a global basis could be like moving from vinyl records to mp3’s. By cutting overhead costs – time costs and money costs – equity financing has the potential to make gains relative to debt financing. And that means stronger and more efficient global capital markets.
Moreover, smoother global accounting, as the International Financial Reporting Standards taxonomy continues to improve, smoother global trading, and a more standardized corporate actions process all mean that more capital can be allocated to its highest and best uses more quickly. More open and competitive global capital markets simply mean that billions of people will be better off.
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