Capitalist Information Spaces and the Geography of Corporate Disclosure:
Disconnection, Consolidation and Segmentation

GŁnter Krumme

University of Washington


The large, multi-locality capitalist firm has been associated with vital gatekeeping functions in society including providing access to important economic, social and environmental information. It is suggested that, for a variety of reasons, this access has worsened for many constituents. The geographic complexity of modern organizational structures is generally not matched by geographically differentiated disclosures of corporate events, economic and social performance, inter-organisational dependencies or corporate plans for the future. It is also posited that corporations have an inherent interest in "disconnecting" information thereby restricting its usefulness. The paper discusses corporate disclosure strategies as they relate to geographic segmentation and consolidation of information and focuses on some of the pros and cons of harmonizing disclosure practices across national boundaries.

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PART I: Disclosure Behaviors and Issues


In spite of at least three decades of interest in information phenomena and the recent "electronic comeback of information space" (Hepworth 1989a), geographers have hardly begun to explore information processes in the modern economy. The growth of the telecommunications industry, the "electronification" of organizational relationships and the implications of these changes for industrial restructuring have, however, rekindled the earlier fascination with informational perspectives on the space economy. Reviewing the research on information fields, communication biases, innovation diffusion and contact patterns (Tornqvist 19 ), Pred's (1971) work on inter-urban communication in the re-industrial United States, or Dicken's (1971) systems view of the role of information in organizational behavior, it becomes evident, that the focus has been on search, reception and aggregate flows of information, and its significance for decision-making, but, with the possible exception of proprietary information involved in technology transfers, not on the decision to communicate, or not to communicate, with specific recipient groups or the public at large.

Geographers' concerns with such communication behaviors lie in the fact that information flows are closely related to many other forms of spatial interaction and interdependence. An improved understanding of disclosure behavior may thus throw new light on established areas of interest. More specifically, informational transactions are deemed to be the very essence of modern corporate enterprise (e.g. Williamson, 1989), and the internationalization of capital and organization is largely the result of improved communications (Nijkamp & Salomon 1988). Yet, corporations tend to disclose information-lation about their geographically differentiated activities to geographically dispersed constituents rather inarticulately suggesting either a lack of a geographic understanding of their organization and a lack of appreciation of the significance of geographic information, or, in sharp contrast, a more or less deliberate strategy of withholding or obfuscation of geographic information.

Information flows precede, accompany or follow the more tangible and more researched flows of capital, labor, technology, goods and services (Goddard 1974). The exchange of information is a prerequisite for such economic transactions because it reveals essential complementarities between locations. Governments may also require disclosures to correct transaction- specific information asymmetries. In addition, there are information flows which connect the corporation to unintended or unofficial recipients. These may be the media or government agencies alerted by "whistle blowers" or competitors interested in rumors, "leaks" or other forms of "straying signals" of new technologies or marketing plans.

The geographic significance of corporate information release is thus closely associated with the role of large, multi-locality economic entities in allocating resources at different geographic scales, i.e. redirecting capital, transferring technology or providing employment opportunities. Significantly, the traditional distinction between intra and inter-corporate transactions is becoming blurred due to increasing organisational complexities of multi-locality activities. Thus, disclosures may involve information releases across different kinds of organizational boundaries. Bakis (1987), for example, explores the relationship between the quality of IBM's information system and its willingness to share information with its subsidiaries around the world. A Similar questions would address the appropriate quantity and quality of information to accompany a license agreement, a strategic alliance or a joint venture between "independent" firms. Much conceptual work remains to be done on the appropriability vis-a-vis public-good characteristics of different kinds of information in organizationally complex, interdependent economies.

While little is known about the boundary-spanning geographic and organizational nature of economic communication processes even at subnational levels, a "geography of the information economy" cannot concentrate merely on the popular and admittedly intriguing space conquering repercussions of new telecommunications and network technologies. The flip side presents informational shadow and backwash effects, i.e., differentiation of informational access. It shall be proposed that, in an age of increasing economic sophistication and data overload, this redistribution of informational capital (Hepworth 1989b), more specifically the informational repercussions of organizational change, has led to systematic information losses for place-bound corporate constituents.

Various disciplines have looked into related information issues in environmental, social (labor), political, economic, and business contexts. It appears that academic and professional accounting specialists, in cooperation with their national and international organizations (e.g. the International Accounting Standards Committee [IASC] and the International Federation of Accountants [IFAC]), have been most active in conceptual and empirical terms as well as through political attempts to achieve "harmonization" at the international level ( Belkaoui 1988; Gray 1984; Mueller et al. 1987; Prodhan 1986; Samuels & Piper 1985).

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The Scope of Disclosure Issues

A review of the literature on the broadly defined "corporate disclosure problem" reveals the following research emphases and biases (Table 1): (1) The investor/ shareholder orientation of disclosure issues and requirements. Information interests of other "stakeholders" or "social constituents" have made only gradual inroads. Information needs outside the corporate core are not restricted to investors and stockholders; yet these needs are best articulated and advocated. (2) The emphasis on financial and private accounting data. The realization that non-financial data are also relevant, even for investors, is of more recent vintage (Freedman & Jaggi 1986). The difficulties of developing general social accounting and accountability frameworks need continued attention ( Marcus & Goodman 1986; Ullman 1985). (3) The bias toward information of the corporation as a whole, resulting in a lack of information on corporate components (Emmanuel, Garrod & Frost 1988). (4) Finally, the lack of explicit geographic perspectives in the accounting literature and in disclosure regulations; these deficiencies are paralleled by the lack of attention given to information issues by industrial geographers ( Emmanuel & Garrod 1987; Massey & Meegan 1985).

Table 1. Past and Present Disclosure Issues

	                    Type of Information

Information Users /Stakeholders Financial Non-Financial (including social and environmental)
(I) (III) Investors Past emphasis a) impacting profits Shareholders of discussion b) genuine social and/or (still dominant) environmental concerns
(IV) (II) Employees a) collective numerous issues at different and others bargaining levels: employee & social b) individual reports; health, environmental plans & needs & political issues c) employee stock- ownership programs
Note: The numbers roughly indicate the sequence in which the issues were introduced into the debate.

A few premises and propositions for this emerging interest in corporate information and disclosure will set the stage for focusing on selected, more specific disclosure issues.

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Disclosure Limitations

Deficiencies in geographic and industrial detail in corporate reports and media releases appear to be foremost a function of the interest of investors in the corporation as a whole and the economic concentration and resulting 'consolidation' of corporate information (Scherer 1979). "We know a great deal about small and medium-sized corporations because, almost invariably, they are quite specialized... But not so for large conglomerate corporations, whose annual reports 'conceal more than they reveal'. Not surprisingly, therefore, it is the large corporation that ... resists steps to strengthen disclosure requirements -- steps that in practice would, at most, place it on par with smaller corporations" (Mueller 1973, p.112).

The disclosure system administered, for example, by the U.S. Security and Exchange Commission (SEC) was created to serve their special informational needs and not those of "other constituencies who look to public corporations for information and find that these information needs are not met by the disclosures required by the SEC for investment and corporate suffrage purposes" (SEC 1980, p.323). While many of the disclosure battles which the SEC has fought for investors have become battles for a better informed public at large, they have not appreciably led to more geographic detail. Rapid organizational restructuring leading to diminished locational identity and predictability of local operations and reducing the usefulness of census statistics has made this concern ever more urgent.

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Disclosure Behaviors: a Disconnection View

A better understanding of corporate information and disclosure systems helps to explain geographic investment and employment patterns and to provide early warning systems for economic and social change. Three views of disclosure behaviors shall be proposed which, although based on different conceptual foundations, support the "disconnection argument", namely that corporations may have an incentive to disjoin, obfuscate and confound disclosed information.

(1) The first proposition rests on normative, micro-economic principles (Lamberton 1984) and strategic management concepts ( Mattsson 1987; Ullman 1985). In this view, disclosure (or non-disclosure) behaviors are based on clearly defined objectives of the firm and/or represent strategic tools for managing, possibly conflicting, stakeholder claims to the firm's resources; voluntary disclosures are used as strategies to project the firm's influence beyond some boundaries, specifically to generate favorable market conditions or prompt contractual commitments from its environment as in collective bargaining ( Belkaoui 1988; Latta & Bellace 1983) or in obtaining financial advantages and enhancing the firm's value (Gray 1984). It has been suggested that firms have strong incentives to protect proprietary information in order to exploit its economic value (Dye, 1985), to disguise or distort information (Williamson 1989), to disconnect it from its context (Herman 1981) and to vary the content of disclosures by groups of stakeholders in order to exploit inherent power asymmetries or other differences in their claims to the corporation's resources (Mitnick 1981).

(2) This "information first, deliberate action later" model has been challenged, by a rational expectations view ( Grossman & Stiglitz 1980; Verrecchia 1982). Organizational behavior is seldom based on relatively clearly identifiable prior information. Instead, it is based on learning processes during which expectations are formed gradually, uncertainties diminish slowly, and actions often have to precede the definitive news of a "causal" event (Duncan & Weiss). Moreover, the traditional premise of orderly decision-making may be unrealistic due to the characteristics of the information and the relations between corporation and information users. The information may not be connected to sufficiently concrete benchmarks. Disclosures may refer to the past and be only marginally relevant to future- oriented decisions. The performance disclosed for a particular time period or location may at least in part be based on, or aggregated with, operations in other time periods or at other locations; or they may, at best, be based on compromises between the needs of different information users and, at worst, "tuned to the goals of those who prepare the statements" (Heinen 1978, p.2). Transfer pricing, the valuation of inventories or depreciation of assets provide many avenues for such segmental disconnection.

(3) A still more 'ambiguous view' of organizational behavior further strengthens the disconnection argument. Information users and their information needs may be ill defined or not well understood by the corporation. Moreover, information users whose relationships to the corporation are not protected by explicit principal-agent contracts or unambiguous government regulations cannot expect harmonious and compatible information disclosures by the corporation. Indeed, information users may contribute to the loosening of their link to the disclosing corporation; they may avoid specifying their information needs and instead encourage an indiscriminate flow so as to obscure the uses and usefulness of specific types of information and to reduce the incentive to manipulate the signals (March & Sevon 1984). Such a view highlights whatever degree of independence might exist between streams of problems, choice opportunities, solutions, participants and shared information ( Feldman & March 1981; Krumme 1981). Disclosure behaviors may be disconnected from corporate goals and based on their own, more myopic objectives. Decision makers would wait for the fitting information to flow by, for example, information which can be disclosed to stakeholders to justify past actions or at times when they expect information. While it may be inappropriate to generalize this modus operandi, it may be a reasonable approximation for behaviors for which more deliberate and coordinated information processes are inefficient or not yet recognized as important. At the very least, it may resemble the "view from the outside", i.e. the perception of constituents unable to reconnect fragmented disclosures.

In brief, corporate information 'obfuscation' will come about through unintentional or deliberate "disconnection", namely disclosures involving (i) excessive segmentation leading to information overload and confusion; (ii) fragmentation, i.e. uncoordinated segmentation (i.e. segmentation without an evaluative framework) leading to a lack of cross sectional and longitudinal comparability; (iii) the use of performance measures which are linked to corporate segments in inaccurate or misleading ways; (iv) inappropriate or excessive aggregation and consolidation; (v) linguistic obfuscation (plausible, but not pursued in this paper). [Footnote]

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Information and Corporate Complexity

Little is known about how international economic integration, with its associated growth of global corporations and interorganizational alliances, is changing organizational information systems, disclosure behaviors, and information access. One could argue that information channels between locations are enhanced through such internalization, and that peripheral regions may now have better access to, for example, financial information or technological know-how. The public listing of formerly private companies may also improve access to information by non-financial constituents. On the other hand, oligopolistic concentration of information sources makes local stakeholders worse off inasmuch as markets are replaced by intra- organizational fiat and growing and diversifying corporations disclose less about specific locations and types of production. Economic activities are withdrawal from the disclosure realm through consolidation of corporate reporting and the masking of formerly "observable" external linkages. However, organizational forms differ as to disclosure propensities and informational access. In decentralized decision- making structures one would expect disclosures with more geographic detail than in centralized organizations which are less likely to provide geographic identity and location- specific information for spatially dispersed activities.

Increased organizational complexities have led to many policy initiatives to resolve conflicts between corporate and territorial interests. Such conflicts arise due to the lack of territorial identity and taxability of corporate activities and the lack of understanding of corporate behavior by local stakeholders and planners; for example, an understanding of the industrial structure of a region requires information by line of business and by region; an understanding of the dependence of a regional economy upon other regions may depend on the disclosure of intra-corporate transactions ( Little 1987); for identifying regional profits, income, value added or gross regional product levels, intra-corporate pricing practices may have to be known by regional authorities; for economic development planners, projections of firm- specific environments or location- specific plans for capital allocations may be vital information.

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Corporate Disclosures and Social Mandates

Many of the forces impacting our daily lives originate in the environment of those organizations for which we work, which produce the goods we consume, pollute the air we breathe, use the capital we save, or develop the technologies we ultimately depend on. We 'permit' these organizations to connect us to largely hidden, complex environments. How accurate is our perception of these environments? How much do we know about the corporate gatekeepers' perception of, and response to, these environments? Dicken's suggestion still rings true: While progress has been made in studying environmental perception, "business organizations perceive their environment in a far more complex manner and, as yet, we know virtually nothing about this fundamental process" (Dicken 1971, p.435)

Industrial corporations disclose information either voluntarily or by legal obligation. The need for regulation depend on the extent of voluntary disclosure, otherwise available information, society's views on desirable levels of information, and the strength of business resistance to increased disclosure. Thus, it is not surprising that regulatory climates for information disclosure vary widely.

Disclosure mandates have become a crucial, if not always effective tool for solving conflicts between democratic and free-market principles. Disclosures help to restrain the politically least acceptable, socially most offensive and economicly most anti-competitive repercussions of bureaucratic or competitive secrecy. Such mandates include (i) shareholder and investor information, designed to protect the functioning of the capital market; (ii) information related to environmental emissions and other health hazards; and (iii) labor, employment and other social information, exemplified by requirements to provide advanced notification in cases of redundancies or plant closure. Clearly, the latter two categories have the most immediate local significance, while the first is traditionally the best regulated and information- richest category.

Ardent supporters of corporate secrecy have argued that disclosure regulations are unnecessary since anti-fraud provisions in the criminal code would prevent abuses. In defending regulations, three points are presented: (i) Corporate disclosures induce positive and negative externalities and therefore have public good characteristics; (ii) regulation can be used to counteract asymmetrical information distribution among stakeholders; and (iii) regulation can counteract management's incentives to disclose only favorable information (Beaver 1977).

A priori, criteria for the appropriate level of jurisdiction for disclosure mandates do not differ from those for other governmental regulations. Since large, multinational enterprises (MNE) are operating also at local levels, we could expect a regulatory interest at all levels. The increased size, international spread and economic power of MNEs have made lower levels of government more aware of their regulatory limitations and shifted some standard- setting functions to International Labour Office, European Community and more specialized boards and committees (Blanpain 1985; Gray 1984).

Not surprisingly, multi-locality firms interested in expanding their operations into new disclosure environments resist and lobby against new disclosure obligations. The potential for uncoordinated proliferation of disclosure and accounting requirements, particularly at relatively low governmental levels, and the alleged danger that "MNEs may be rendered naked or demurely covered from the gaze of outsiders" ( Borrow & Kudrle 1984, p.437) may support coordination and disclosure consolidation. However, without accompanying harmonization of disclosure practices, consolidation complicates the comparison of local performances of different corporations and may necessitate separate consolidations for different users or jurisdictions with different consolidation criteria.

As we focus on specific types of information and policy responsibilities, it becomes evident that governmental interests vary between regions. Thus, calls for harmonization and simplification are countered by increased calls for retaining local, regional or national identity, information autonomy and segmented disclosures (see Table 2).

Table 2. Basic Interjurisdictional Disclosure Issues

			Extent of Disclosure Differentiation

Degree of Geog. Aggregation of Local Autonomy Harmonization Disclosures: /Identity Standardization
Segmentation Disclosure adapts to Segmentation criteria local information are harmonized across needs or mandates geographic boundaries; improved comparability
Consolidation Consolidation practices Consolidation criteria and mandates differ and practices are between jurisdictions standardized (e.g. E.C.'s (e.g. states' unitary Seventh Directive) tax rules in U.S.)

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