Esther Dyson: Can Transparency Be a Business Model? Yes.

In the March 30 edition of Advertising Age, Esther Dyson asks if transparency can be a business model. She makes “a proposal for a place to talk to your critics and tell the world how your products are made.” It is, like every word I’ve heard her utter, simply brilliant.

I submitted a 500-word comment on the article. Since then, two more thoughts come to mind.

First, my comment linked to Charlie Hoffman’s remarkable two-page overview of XBRL. It’s also worth linking to Charlie’s home page. If you haven’t seen it recently, it’s worth your time because it transcends the language he invented to make accounting faster, more useful, and less expensive and speaks to the future of all business information.

Second, there’s a difference between telling the world how your product is made and telling the world the exact proportions of the precise ingredients that comprise your product. The exact Coca-Cola formula is secret to keep people from copying it. Similarly, some investment fund managers claim that certain facts about their investment products must be at least temporarily secret to prevent free riders from copying the facts and using identical strategies. However, disclosing historical information that empowers investors to separate alpha from beta for the purpose of analyzing performance would fail to implicate the free rider problem.

ETFs, unlike mutual funds, must disclose their holdings every day, and are an example of a successful transparent business model. It’s possible to compare them with the indices they’re intended to track in nearly real time. They may not be as popular as mutual funds yet, but they’re gaining. ETFs do seem more popular than Open Cola.