8QGHUVWDQGLQJDQG3URYLQJ
,QWHUQDWLRQDO6H[&ULPHV
0RUWHQ%HUJVPR$OI%XWHQVFK¡Q6NUHDQG
(OLVDEHWK-:RRGHGLWRUV
7RUNHO2SVDKO$FDGHPLF(3XEOLVKHU
%HLMLQJ
!
7KLVDQGRWKHUERRNVLQWKH),&+/3XEOLFDWLRQ6HULHVPD\EHRSHQO\DFFHVVHGDQG
GRZQORDGHG WKURXJK WKH )RUXP ZHEVLWH ZZZILFKORUJ 7KLV VLWH XVHV 3HUVLVWHQW
85/V385/VIRUDOOSXEOLFDWLRQVLW PDNHVDYDLODEOH7KH 85/VRIWKHVHSXEOLFD
WLRQV ZLOO QRW EH FKDQJHG 3ULQWHG FRSLHV PD\ EH RUGHUHG IURP GLVWULEXWRUV VXFK DV
ZZZDPD]RQFRXN7KLVERRNZDVILUVWSXEOLVKHGRQ$SULO
‹ 7RUNHO2SVDKO$FDGHPLF(3XEOLVKHU
$OOULJKWVDUHUHVHUYHG<RXPD\UHDGSULQWRUGRZQORDGWKLVERRNRUDQ\SDUWRILW
IURPZZZILFKORUJIRUSHUVRQDOXVHEXW\RXPD\QRWLQDQ\ZD\FKDUJHIRULWVXVH
E\RWKHUVGLUHFWO\RUE\UHSURGXFLQJLWVWRULQJLWLQDUHWULHYDOV\VWHPWUDQVPLWWLQJLW
RU XWLOL]LQJ LW LQ DQ\ IRUP RU E\ DQ\ PHDQV HOHFWURQLF PHFKDQLFDO SKRWRFRS\LQJ
UHFRUGLQJRURWKHUZLVHLQZKROHRULQSDUWZLWKRXWWKHSULRUSHUPLVVLRQLQZULWLQJ
RIWKHFRS\ULJKWKROGHU(QTXLULHVFRQFHUQLQJUHSURGXFWLRQRXWVLGHWKHVFRSHRIWKH
DERYHVKRXOGEHVHQWWRWKHFRS\ULJKWKROGHU<RXPXVWQRWFLUFXODWHWKLVERRNLQDQ\
RWKHUFRYHUDQG\RXPXVWLPSRVHWKHVDPHFRQGLWLRQRQDQ\DFTXLUHU<RXPXVWQRW
PDNHWKLVERRNRUDQ\SDUWRILWDYDLODEOHRQWKH,QWHUQHWE\DQ\RWKHU85/WKDQWKDW
RQZZZILFKORUJ
,6%1
!
BBBBBB
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
(OLVDEHWK-:RRG
:DUWLPHVH[XDOYLROHQFHYDULHVGUDPDWLFDOO\DFURVVZDUVDQGVRPHWLPHV
DFURVVDUPHGJURXSVILJKWLQJLQWKHVDPHZDU'XULQJWKHFRQIOLFWLQ%RV
QLD+HU]HJRYLQDWKHVH[XDODEXVHRI%RVQLDQ0XVOLPZRPHQE\%RVQLDQ
6HUEIRUFHVZDVVRV\VWHPDWLFDQGZLGHVSUHDGWKDWLWTXDOLILHGDVDFULPH
DJDLQVWKXPDQLW\XQGHULQWHUQDWLRQDOODZ,Q5ZDQGDWKHZLGHVSUHDGUDSH
RI7XWVLZRPHQFRPSULVHGDIRUPRIJHQRFLGHDFFRUGLQJWRWKH,QWHUQD
WLRQDO &ULPLQDO 7ULEXQDO IRU 5ZDQGD ,Q VXFK VHWWLQJV VH[XDO YLROHQFH
IUHTXHQWO\WDNHVSODFHLQSXEOLFLQIURQWRIIDPLO\DQGFRPPXQLW\PHP
EHUV 2WKHU QRWDEOH FDVHV LQFOXGH WKH -DQMDZHHG PLOLWLDV LQ 'DUIXU WKH
6RYLHW DQG -DSDQHVH DUPLHV LQ :RUOG :DU 7ZR DQG WKH YDULRXV DUPHG
JURXSVLQWKHHDVWHUQ'HPRFUDWLF5HSXEOLFRIWKH&RQJRµ'5&¶
<HW LQ VRPH FRQIOLFWV VH[XDO YLROHQFH E\ VRPH DUPHG JURXSV LV
UHPDUNDEO\OLPLWHGGHVSLWHWKHLUHQJDJLQJLQRWKHUYLROHQFH6RPHDUPHG
JURXSV VXFK DV WKH 6DOYDGRUDQ LQVXUJHQF\ DSSHDU WR KDYH VXFFHVVIXOO\
SURKLELWHGWKHLUFRPEDWDQWVIURPHQJDJLQJLQVH[XDOYLROHQFHDJDLQVWFL
YLOLDQV (YHQ LQ VRPH FDVHV RI HWKQLF FRQIOLFW VXFK DV WKH ,VUDHOL±
3DOHVWLQLDQFRQIOLFWVH[XDOYLROHQFHLVOLPLWHG
(OLVDEHWK-HDQ:RRGLV3URIHVVRURI3ROLWLFDO6FLHQFHDW<DOH8QLYHUVLW\DQG3URIHV
VRUDWWKH6DQWD)H,QVWLWXWH
7KLV FKDSWHU GUDZV RQ WKH ZRUN RI D QHZ JHQHUDWLRQ RI VRFLDOVFLHQWLVWV ZRUNLQJ RQ
ZDUWLPH VH[XDO YLROHQFH FLWHG KHUHLQ DV ZHOO DV P\ RZQ , DP JUDWHIXO IRU FRP
PHQWV IURP 'DUD .D\ &RKHQ $PHOLD +RRYHU *UHHQ 0LFKHOH /HLE\ DQG (OL]DEHWK
6WDUUIRUUHVHDUFKVXSSRUWIURPWKH+DUU\)UDQN*XJJHQKHLP)RXQGDWLRQWKH8QLWHG
6WDWHV,QVWLWXWHRI3HDFHWKH0DF0LOODQ&HQWHUIRU,QWHUQDWLRQDODQG$UHD6WXGLHVRI
<DOH 8QLYHUVLW\ DQG WKH 6DQWD )H ,QVWLWXWH DQG IRU UHVHDUFK DVVLVWDQFH IURP 0ROO\
'DQLHOO7HVV/HUQHU%\DUV0ROO\2¶*UDG\(OL]DEHWK6WDUUDQG.DL7KDOHU
(OLVDEHWK -HDQ :RRG ³9DULDWLRQ LQ 6H[XDO 9LROHQFH 'XULQJ :DU´ LQ 3ROLWLFV DQG
6RFLHW\YROQRSS±(OLVDEHWK-HDQ:RRG³$UPHG*URXSVDQG
6H[XDO9LROHQFH:KHQ,V:DUWLPH5DSH5DUH"´LQ 3ROLWLFVDQG6RFLHW\YRO
QRSS±
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
:KHQ VH[XDO YLROHQFH GRHV RFFXU WKH SDWWHUQ YDULHV LQ WDUJHWLQJ
IRUP SXUSRVH DV ZHOO DV IUHTXHQF\ 6RPH DUPHG JURXSV WDUJHW ZRPHQ
DQGJLUOVZKREHORQJWRµHQHP\¶JURXSVGXULQJHWKQLFRUSROLWLFDOFOHDQV
LQJ6RPHJURXSVWDUJHWRQO\ IHPDOHVZKLOHRWKHUVWDUJHWPDOHVDVZHOO
7KHIRUPRIVH[XDOYLROHQFHDOVRYDULHV$OWKRXJKVH[XDOL]HGWRUWXUHDQG
JDQJ UDSH DUH SDUWLFXODUO\ FRPPRQ VH[XDO YLROHQFH VRPHWLPHV WDNHV RQ
RWKHU IRUPV VXFK DV IRUFHG SURVWLWXWLRQ RU VH[XDO VODYHU\ ,Q VRPH VHW
WLQJVSDWWHUQVRIZDUWLPHVH[XDOYLROHQFHDSSHDUWREHDPDJQLILFDWLRQRI
SHDFHWLPH FXOWXUDO SUDFWLFHV LQ RWKHUV WKH\ DUH ZDUWLPH LQQRYDWLRQV ,Q
VRPHFRQIOLFWVWKHSDWWHUQRIVH[XDOYLROHQFHLV V\PPHWULFZLWKDOOSDU
WLHVWRWKHZDUHQJDJLQJLQVH[XDOYLROHQFHWRURXJKO\WKHVDPHH[WHQW,Q
RWKHU FRQIOLFWV LW LV YHU\ DV\PPHWULF DV RQH DUPHG JURXS GRHV QRW UH
VSRQGLQNLQGWRVH[XDOYLROHQFHE\WKHRWKHUSDUW\'HVSLWHWKHFKDOOHQJHV
RIJDWKHULQJGDWDRQWKLVVHQVLWLYHWRSLFWKHYDULDWLRQGRHVQRWDSSHDUWR
EHDSURGXFWRILQDGHTXDWHO\UHSRUWHGYLROHQFHWKHUHDUHZHOOGRFXPHQWHG
FDVHVZKHUHVH[XDOYLROHQFHLVUDUHLQFOXGLQJWKRVHPHQWLRQHGDERYHDV
ZHOODVIUHTXHQW
6H[XDOYLROHQFHYDULHVLQIUHTXHQF\WDUJHWLQJDQGIRUPDPRQJFLY
LO ZDUV DV ZHOO DV LQWHUVWDWH ZDUV DPRQJ HWKQLF ZDUV DV ZHOO DV QRQ
HWKQLFDPRQJVHFHVVLRQLVWFRQIOLFWVDPRQJVWDWHDUPLHVDQGDPRQJQRQ
VWDWH DFWRUV 8QWLO UHFHQWO\ ZLWK VRPH H[FHSWLRQV ERWK WKH SROLF\ DQG
DFDGHPLFOLWHUDWXUHIRFXVHGRQFDVHVZLWKSDWWHUQVRIZLGHVSUHDGUDSHRI
JLUOV DQG ZRPHQ DV LQ %RVQLD 5ZDQGD 6LHUUD /HRQH DQG WKH '5&
&RPPRQH[SODQDWLRQVIRUZDUWLPHUDSHUHIOHFWWKDWHPSKDVLVUDSHLVDQ
HIIHFWLYHVWUDWHJ\RIZDUSDUWLFXODUO\RIHWKQLFFOHDQVLQJUDSHLVRQHIRUP
RIDWURFLW\DQGRFFXUVDORQJVLGHRWKHUDWURFLWLHVZDUSURYLGHVWKHRSSRU
WXQLW\IRUZLGHVSUHDGUDSHDQGPDQ\PDOHVROGLHUVZLOOWDNHDGYDQWDJHRI
LW <HW PDQ\ DUPHG JURXSV LQFOXGLQJ ERWK VWDWH PLOLWDULHV DQGQRQVWDWH
DUPHGJURXSVGRQRWHQJDJHLQZLGHVSUHDGUDSHGHVSLWHIUHTXHQWLQWHUDF
WLRQZLWKFLYLOLDQV,QGHHGVRPHDUPHGJURXSVLQFOXGLQJWKH6UL/DQNDQ
LQVXUJHQF\HQJDJHLQHWKQLFFOHDQVLQJZKLFKLVRIWHQVHHQDVWKHFODVVLF
VHWWLQJIRUZLGHVSUHDGUDSHZLWKRXWHQJDJLQJLQVH[XDOYLROHQFH
)RFXVLQJRQDIHZSDWWHUQVLQVWHDGRIWKHIXOOVSHFWUXPRIYDULDWLRQ
LQFOXGLQJWKHDEVHQFHRIZDUWLPHUDSHPLVVHVWKHRSSRUWXQLW\WROHYHUDJH
:RRGVHHVXSUDQRWH(OLVDEHWK-HDQ:RRG³6H[XDO9LROHQFHGXULQJ:DU
7RZDUGDQ8QGHUVWDQGLQJRI9DULDWLRQ´LQ.DO\YDVHWDOHGV2UGHU&RQIOLFWDQG
9LROHQFH&DPEULGJH8QLYHUVLW\3UHVV&DPEULGJHDQG:RRGVHHVXSUD
QRWH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
YDULDWLRQ IRU D EHWWHU XQGHUVWDQGLQJ RI ZDUWLPH VH[XDO YLROHQFH7KH RE
VHUYHGYDULDWLRQUDLVHVVHYHUDOTXHVWLRQV8QGHUZKDWFRQGLWLRQVGRDUPHG
JURXSV QRW HQJDJH LQ VH[XDO YLROHQFH" 8QGHU ZKDW FRQGLWLRQV GR WKH\
HQJDJH LQ UDSH DV D VWUDWHJ\ RI ZDU" 6H[XDO WRUWXUH" 6H[XDO VODYHU\"
:KHQLVZLGHVSUHDGUDSHEHWWHUXQGHUVWRRGDVDSUDFWLFHQDPHO\DIRUP
RIYLROHQFHWKDWLVQRWRUGHUHGEXWWROHUDWHGE\FRPPDQGHUVGHILQHGPRUH
SUHFLVHO\EHORZUDWKHUWKDQDVWUDWHJ\"
7KHREVHUYHGYDULDWLRQLQZDUWLPHVH[XDOYLROHQFHSDUWLFXODUO\WKH
UHODWLYHDEVHQFHRIZDUWLPHVH[XDOYLROHQFHE\PDQ\DUPHGJURXSVDOVR
KDV LPSRUWDQW SROLF\ LPSOLFDWLRQV ,Q SDUWLFXODU UDSH LV QRW DV LV VRPH
WLPHVFODLPHGLQHYLWDEOHLQZDU7KHDEVHQFHRIVH[XDOYLROHQFHE\VRPH
DUPHGJURXSVUHLQIRUFHVWKHDUJXPHQWWKDWFRPPDQGHUVRIDUPHGJURXSV
WKDWGRHQJDJHLQLWVKRXOGEHKHOGDFFRXQWDEOH
6RFLDO VFLHQWLVWV DUH LQFUHDVLQJO\ GRFXPHQWLQJ DQG DQDO\]LQJ WKH
YDULDWLRQLQWKHSDWWHUQVRIZDUWLPHVH[XDOYLROHQFHSDUWLFXODUO\WHPSRUDO
YDULDWLRQRIWKHIRUPIUHTXHQF\WDUJHWLQJDQGSXUSRVHRIVXFKYLROHQFH,
ILUVW LQWURGXFH NH\ FRQFHSWV LQFOXGLQJ GLVWLQFWLRQV DPRQJ GLIIHUHQW GL
PHQVLRQVRIYLROHQFH,WKHQEULHIO\VXPPDUL]HUHFHQWUHVHDUFKGRFXPHQW
LQJ SDWWHUQV RI ZDUWLPH VH[XDO YLROHQFH $IWHU VKRZLQJ WKDW PDQ\ DS
SURDFKHVLQWKHSXEOLVKHGOLWHUDWXUHGRQRWDFFRXQWIRUWKHREVHUYHGYDULD
WLRQ ± LQGHHG PDQ\ SUHGLFW PRUH VH[XDO YLROHQFH WKDQ WKH WUDJLF OHYHOV
REVHUYHG±,DGYDQFHDWKHRUHWLFDOIUDPHZRUNWKDWIRFXVHVRQWKHLQWHUQDO
G\QDPLFV RI DUPHG JURXSV , WKHQ DQDO\]H WKH FRQGLWLRQV XQGHU ZKLFK
DUPHG JURXSV GR QRW HQJDJH LQ UDSH WKRVH XQGHU ZKLFK WKH\ HQJDJH LQ
VWUDWHJLFUDSHDQGWKRVHXQGHUZKLFKUDSHHPHUJHVDVDSUDFWLFH±QDPH
O\DSDWWHUQWKDWLVQRWRUGHUHGEXWLVWROHUDWHGE\FRPPDQGHUVDQGWKDW
RFFXUV ZKHUH WKHUH DUH QR VWUDWHJLF EHQHILWV DV ZHOO DV ZKHUH WKHUH DUH
7KURXJKRXW WKH FKDSWHU , GUDZ RQ UHFHQW ILQGLQJV IURP VRFLDO VFLHQFH
OLWHUDWXUHVRPHRIZKLFKLVQRW\HWSXEOLVKHG,FRQFOXGHZLWKVRPHWHQWD
WLYHSROLF\LPSOLFDWLRQVRIWKLVDQDO\VLV
&RQFHSWVDQG'HILQLWLRQV
%\µDEVHQFHRIVH[XDOYLROHQFH¶,PHDQWKDWVH[XDOYLROHQFHE\DJURXSLV
YHU\ UDUH EXW QRW QHFHVVDULO\ FRPSOHWHO\ DEVHQW 7KURXJKRXW µDUPHG
JURXSV¶UHIHUVWRERWKVWDWHDQGQRQVWDWHJURXSV
,Q DFFRUGDQFH ZLWK UHFHQW LQWHUQDWLRQDO ODZ E\ µUDSH¶ , PHDQ WKH
SHQHWUDWLRQ RI WKH DQXV RU YDJLQD RI WKH YLFWLP ZLWK DQ\ REMHFW RU ERG\
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
SDUW RU WKH SHQHWUDWLRQ RI DQ\ ERG\ SDUW RI WKH YLFWLP RU SHUSHWUDWRU¶V
ERG\ZLWKDVH[XDORUJDQHLWKHUE\IRUFHRUE\WKHWKUHDWRIIRUFHRUFR
HUFLRQRUE\WKHWDNLQJDGYDQWDJHRIDFRHUFLYHHQYLURQPHQWRUDJDLQVWD
SHUVRQLQFDSDEOHRIJLYLQJJHQXLQHFRQVHQW7KXVUDSHFDQRFFXUDJDLQVW
PHQ DV ZHOO DV ZRPHQ µ6H[XDO YLROHQFH¶ LV D EURDGHU FDWHJRU\ WKDW LQ
FOXGHV UDSH QRQSHQHWUDWLQJ VH[XDO DVVDXOW VH[XDO PXWLODWLRQ VH[XDO
VODYHU\HQIRUFHGSURVWLWXWLRQHQIRUFHGVWHULOL]DWLRQDQGIRUFHGSUHJQDQ
F\ 7KH WHUP µVH[XDO YLROHQFH¶ LV IUHTXHQWO\ XVHG DV LI DJJUHJDWLQJ WKLV
YDULHW\ RI IRUP LV D VRXQG EDVLV IRU DQDO\VLV EXW WKH XQGHUO\LQJ FDXVDO
SURFHVVHV PD\ EH YHU\ GLIIHUHQW )RU H[DPSOH WKRVH IDFWRUV WKDW PDNH
VWUDWHJLFUDSHPRUHSUREDEOHRQWKHSDUWRIDQDUPHGJURXSDUHYHU\OLNHO\
GLVWLQFW IURP WKRVH WKDW PDNH VH[XDO PXWLODWLRQ RU IRUFHG VWHULOL]DWLRQ
PRUHSUREDEOH,QZKDWIROORZV,IRFXVP\XVDJHRIWKHWHUPRQUDSHDQG
VH[XDOWRUWXUH EXWHPSOR\ WKH DJJUHJDWH PHDQLQJ RI WKH WHUP ZKHUHDS
SURSULDWHRUZKHQWKHOLWHUDWXUHGRHVVR
(VVHQWLDOWRXQGHUVWDQGLQJDQ\SDWWHUQRIYLROHQFHDJDLQVWFLYLOLDQV
E\DQDUPHGJURXSLQFOXGLQJDQ\SDUWLFXODUIRUPRIVH[XDOYLROHQFHDUH
WKUHHGLPHQVLRQVRIYLROHQFH
7KH ILUVW GLPHQVLRQ LV WKH IUHTXHQF\ RI WKDW IRUP RI YLROHQFH E\ D
SDUWLFXODU DUPHG JURXS GRHV LW RFFXU YHU\ IUHTXHQWO\ PRGHUDWHO\ RIWHQ
RFFDVLRQDOO\RUYHU\UDUHO\"7KLVRIFRXUVHEHJVWKHTXHVWLRQUHOHYDQWWR
ZKDW",QWKHOLWHUDWXUHWKHUHIHUHQFHRIWKHFRPSDULVRQLVRIWHQQRWPDGH
H[SOLFLW 7KH FRPSDULVRQ LV RIWHQ WR RWKHU XQLWV RU DUPHG JURXSV LQ WKH
VDPH FRQIOLFW DQG VRPHWLPHV WR RWKHU FRQIOLFWV 7KURXJKRXW , IRFXV RQ
SDWWHUQVRQWKHSDUWRIDUPHGJURXSVFRPSDULQJWKHIUHTXHQF\RISDUWLFX
ODU IRUPV RI VH[XDO YLROHQFH RQ WKH SDUW RI RQH JURXS WR WKRVH RI RWKHU
JURXSV LQ WKH VDPH DQG RWKHU FRQIOLFWV 7KH DSSURSULDWH PHDVXUH RI IUH
TXHQF\ YDULHV GHSHQGLQJ RQ WKH IRFXV WKH QXPEHU RI HYHQWV UDSHV IRU
6HH ,QWHUQDWLRQDO &ULPLQDO &RXUW µ,&&¶ (OHPHQWV RI &ULPHV ,&& 'RF 1R ,&&
$63SDUW,,%6HSWHPEHU$UWLFOHVJDQGE[[LLDYDLOD
EOHDWKWWSZZZLFFFSLLQW15UGRQO\UHV'$$'(&$'%%)'(
'(OHPHQWV2I&ULPHV(QJSGIODVWDFFHVVHGRQ'HFHPEHU
,ELG1RWHWKDWVH[XDOKXPLOLDWLRQLQFOXGLQJIRUFHGQXGLW\LVQRWH[SOLFLWO\OLVWHGZLWK
UDSHVH[XDOVODYHU\IRUFHGSURVWLWXWLRQIRUFHGSUHJQDQF\DQGIRUFHGVWHULOL]DWLRQDV
DGLVWLQFWFULPHEXWPLJKWFRXQWDVDFULPHDJDLQVWKXPDQLW\RIVH[XDOYLROHQFHLILW
ZDVDQDFWRIVH[XDOYLROHQFHDVGHILQHGDERYHWKDWZDV³RIDJUDYLW\FRPSDUDEOHWR
WKHRWKHURIIHQFHV´DQGRUDVDZDUFULPHRIRXWUDJHVXSRQSHUVRQDOGLJQLW\LIWKHDFW
PHW WKH RWKHU UHTXLUHPHQWV RI WKH FULPHV VHH VXSUD QRWH $UWLFOHV J DQG
E[[LUHVSHFWLYHO\
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
H[DPSOH WKH QXPEHU RI HYHQWV SHU PHPEHU RI WKH UHIHUHQW SRSXODWLRQ
LQFLGHQFHRUWKHIUDFWLRQRIWKHUHIHUHQWSRSXODWLRQWKDWVXIIHUHGDWOHDVW
RQH VXFK HYHQW SUHYDOHQFH 1RWH KRZHYHU WKDW µUHIHUHQW SRSXODWLRQ¶
EHJVSUHFLVLRQLVLWWKHSRSXODWLRQRIVRPHJHRJUDSKLFDODUHDDWDUJHWHG
HWKQLFJURXSRUWKHQDWLRQDOSRSXODWLRQ"0RUHRYHUDYDLODEOHGDWDLVRIWHQ
SDUWLDOLPSUHFLVHDQGQRWFRPSDUDEOHDFURVVFRQIOLFWVVRWKHFRPSDULVRQV
, PDNH DUH XVXDOO\ TXDOLWDWLYH H[FHSW ZKHUH , GUDZ RQ QHZO\ DYDLODEOH
VRXUFHV
7DUJHWLQJWKHVHFRQGGLPHQVLRQFRQFHUQVZKRPWKHJURXSWDUJHWV
ZLWKYLROHQFHµ6HOHFWLYHWDUJHWLQJ¶LVWKDWDJDLQVWDQLQGLYLGXDOEHFDXVHRI
KHUEHKDYLRURIWHQWKHSURYLVLRQRIVXSSRUWIRUDULYDOJURXSRUVRPHRWK
HU UHIXVDO WR FRPSO\ ,Q FRQWUDVW µLQGLVFULPLQDWH YLROHQFH¶ LV YLROHQFH
WKDWLVQRWWDUJHWHGLQGHHGLQLWVSURSHUIRUPLWLVUDQGRP,QEHWZHHQLV
µFROOHFWLYH WDUJHWLQJ¶ WKH WDUJHWLQJ E\ DQ DUPHG JURXS RI VRFLDO JURXSV
EHFDXVHRIZKRWKH\DUH±WKDWLVWKHLULGHQWLW\DVPHPEHUVRIWKDWJURXS
([DPSOHV LQFOXGH HWKQLF JURXSV SROLWLFDO SDUWLHV SDUWLFXODU YLOODJHV
WKRXJKWWRVXSSRUWWKHULYDO
7KH WKLUG GLPHQVLRQ EXLOGV RQ WKH GLVWLQFWLRQ EHWZHHQ µVWUDWHJLF
VH[XDOYLROHQFH¶DQGµRSSRUWXQLVWLFVH[XDOYLROHQFH¶,GHILQHµRSSRUWXQLV
WLFVH[XDOYLROHQFH¶DVYLROHQFHFDUULHGRXWIRUSULYDWHUHDVRQVQRWJURXS
REMHFWLYHV DQG µVWUDWHJLF VH[XDO YLROHQFH¶ DV D SDWWHUQ RU LQVWDQFHV RI
VH[XDOYLROHQFHSXUSRVHIXOO\DGRSWHGE\FRPPDQGHUVLQSXUVXLWRIJURXS
REMHFWLYHV
,W LV RI FRXUVH GLIILFXOW WR GHPRQVWUDWH HPSLULFDOO\ WKH SXUSRVHIXO
DGRSWLRQRIYLROHQFHJURXSVZKHUHYLROHQFHVXFKDVUDSHRUVH[XDOWRUWXUH
LV H[SOLFLWO\ RUGHUHG DUH SUREDEO\ UDUH EXW GR H[LVW )ROORZLQJ 0LFKHOH
/HLE\ , LQFOXGH DV VWUDWHJLF DQ\ YLROHQFH ZKRVH HPSLULFDO SDWWHUQ LQGL
FDWHV WKDW WKH DUPHG JURXS FRQWUROV LWV XVH QDPHO\ WKH YLROHQFH RFFXUV
7KHUHLVDQDGGLWLRQDOVRPHWLPHVUHOHYDQWQRWLRQRIIUHTXHQF\ZKLFKLVWKHIUHTXHQ
F\RIHYHQWVFRPSDUHGWRWKHQXPEHURIPHPEHUVRIWKHDUPHGJURXSLQFLGHQWV
RI UDSH IRU H[DPSOH LQGLFDWH D GLIIHUHQW OHYHO RI VH[XDO YLROHQFH E\ DUPHG JURXS
PHPEHUVLIWKH\QXPEHUWKDQLIWKH\QXPEHURQO\
6WDWKLV .DO\YDV 7KH /RJLF RI 9LROHQFH LQ &LYLO :DUV &DPEULGJH 8QLYHUVLW\ 3UHVV
&DPEULGJH
1RWHWKDWLIDVLQJOHFRPPDQGHUSXUSRVHIXOO\DGRSWVUDSHLQSXUVXLWRIJURXSREMHF
WLYHV WKHQ UDSH FRPPLWWHG E\ WKRVH XQGHU KLV FRPPDQG LV VWUDWHJLF 7KH GHILQLWLRQ
GRHVQRWSUHVXPHXQLIRUPLW\DFURVVWKHDUPHGJURXS
6HHWKHVXEVHTXHQWFRQWHQWRIWKLVFKDSWHU
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
ZKHQ LW LV VWUDWHJLFDOO\ EHQHILFLDO PHDQLQJ EHQHILFLDO LQ WHUPV RI JURXS
REMHFWLYHV DQG GRHV QRW RFFXU ZKHQ LW LV QRW $OVR LQFOXGHG DUH FDVHV
ZKHUHUDSHRIFLYLOLDQVLVWROHUDWHGE\JURXSOHDGHUVEHFDXVHLWLVXQGHU
VWRRGE\FRPEDWDQWVDQGRUFRPPDQGHUVDVDIRUPRIFRPSHQVDWLRQ
7KH GLVWLQFWLRQ EHWZHHQ µVWUDWHJLF¶ DQG µRSSRUWXQLVWLF¶ VH[XDO YLR
OHQFH LV LPSRUWDQW IRU ERWK VFKRODUO\ XQGHUVWDQGLQJ DQG SURVHFXWLRQ
+RZHYHU WKH GLVWLQFWLRQ DV XVHG LQ WKH OLWHUDWXUH LV RIWHQ FRQIXVLQJ
µ6WUDWHJLF¶ VRPHWLPHV DSSHDUV WR EH XVHG DV D V\QRQ\P IRU µPDVVLYH¶
ZKLFK FRQIODWHV WKH IUHTXHQF\ ZLWK WKH SXUSRVH RI YLROHQFH 0RUHRYHU
WKHH[LVWHQFHRIDVWUDWHJ\LVVRPHWLPHVLQIHUUHGUDWKHUWKDQGHPRQVWUDW
HG DV ZKHQ ZLGHVSUHDG UDSH LV IROORZHG E\ VRFLDO GLVUXSWLRQ DQG WKH
FRQVHTXHQFH±VRFLDOGLVUXSWLRQ±LVSUHVXPHGWREHWKHSXUSRVHZLWKRXW
IXUWKHU HYLGHQFH 1RWH WKDW ZKLOH LQIHUULQJ WKH H[LVWHQFH RI D VWUDWHJ\
IURPLWVFRQVHTXHQFHVLVSUREOHPDWLFLQIHUULQJWKHH[LVWHQFHRIDVWUDWHJ\
IURPHYLGHQFHWKDWYLROHQFHRFFXUVRQO\XQGHUFRQWURORIFRPPDQGHUVLV
QRW6LPLODUFRQFHUQVDULVHZKHQDSDWWHUQRIYLROHQFHLVFODLPHGWREHD
µZHDSRQ¶µWDFWLF¶RUDµWRRO¶RIZDUZLWKRXWIXUWKHUHYLGHQFHWKDWLWZDV
LQIDFWVWUDWHJLFDVGHILQHGKHUH
7R DGGUHVV WKHVH SUREOHPV , LQWURGXFH D WKLUG FDWHJRU\ EHWZHHQ
µRSSRUWXQLVWLF¶DQGµVWUDWHJLF¶9LROHQFHZKLFKLVQRWRUGHUHGEXWLVWROHU
DWHGE\FRPPDQGHUVDQGRFFXUVZKHQLWLVQRWVWUDWHJLFDVZHOODVZKHQLW
LV,WHUPDµSUDFWLFH¶7\SLFDOO\DSUDFWLFHRULJLQDWHVRQWKHSDUWRIILHOG
XQLWV DV DQLQQRYDWLRQ RUDQ LPLWDWLRQRI XQLWV RI RWKHU JURXSV DQG WKHQ
GLIIXVHVDFURVVXQLWV,QWKHFDVHRIVH[XDOYLROHQFHDVDSUDFWLFHWKHYLR
6HH 0LFKHOH /HLE\ 6WDWH3HUSHWUDWHG :DUWLPH 6H[XDO 9LROHQFH LQ /DWLQ $PHULFD
GRFWRUDO GLVVHUWDWLRQ 8QLYHUVLW\ RI 1HZ 0H[LFR D DQG 0LFKHOH /HLE\ ³:DU
WLPH6H[XDO9LROHQFHDVD:HDSRQRI,UUHJXODU:DUIDUH$Q$QDO\VLVRI6XE1DWLRQDO
9DULDWLRQ LQ 3HUX´ SDSHU SUHVHQWHG WR WKH DQQXDO PHHWLQJ RI WKH $PHULFDQ 3ROLWLFDO
6FLHQFH$VVRFLDWLRQ6HDWWOH$XJXVW±6HSWHPEHUE6XFKFDVHVDUHVLPLODU
WR ZKDW 2VLHO WHUPV ³DWURFLW\ E\ FRQQLYDQFH´ 6HH 0DUN 2VLHO 2EH\LQJ 2UGHUV
$WURFLW\ 0LOLWDU\ 'LVFLSOLQH DQG WKH /DZ RI :DU 7UDQVDFWLRQ 3XEOLVKHUV 1HZ
%UXQVZLFN1-1RWHWKDWLQHDUOLHUZRUN,GHILQHGµVWUDWHJLF¶PRUHEURDGO\LQ
FOXGLQJ SUDFWLFH DV ZHOO EXW , KDYH FRPH WR WKLQN LW FOHDUHU WR GHYHORS WKH VHSDUDWH
FDWHJRU\ RI SUDFWLFH 6HH (OLVDEHWK :RRG ³6H[XDO 9LROHQFH GXULQJ :DU 9DULDWLRQ
DQG $FFRXQWDELOLW\´ LQ $OHWWH 6PHXOHUV DQG (OLHV YDQ 6OLHGUHJW HGV &ROOHFWLYH
&ULPHVDQG,QWHUQDWLRQDO&ULPLQDO-XVWLFHDQ,QWHUGLVFLSOLQDU\$SSURDFK,QWHUVHQ
WLD$QWZHUS
6HHWKHFKDSWHUE\$JLUUHLQWKLVYROXPH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
OHQFHLVWROHUDWHGZKHQLWLVQRWVWUDWHJLFDOO\EHQHILFLDODVZHOODVZKHQLW
LV7KXVP\GHILQLWLRQRIµVWUDWHJLF¶LVQDUURZHUWKDQWKDWRIPRVWVFKRODUV
7KHGLPHQVLRQVDVGHILQHGDUHGLVWLQFW$SUDFWLFHFRXOGEHPRUHRU
OHVVIUHTXHQWDQGWDUJHWHGPRUHRUOHVVQDUURZO\WKDWLVFROOHFWLYHO\RU
HYHQLQGLVFULPLQDWHO\RUVHOHFWLYHO\7DUJHWLQJFRXOGEHQDUURZEXWZLWK
HLWKHU D KLJK RU ORZ IUHTXHQF\ DQG FRXOG EH RSSRUWXQLVWLF VWUDWHJLF RU
WKHUHVXOWRIDSUDFWLFH
$ILQDOFRQFHSWDOVRHVVHQWLDOLQGHVFULELQJYDULDWLRQLQVH[XDOYLR
OHQFHLVWKDWRIUHSHUWRLUH%\µUHSHUWRLUHRIYLROHQFH¶,PHDQWKHVXEVHWRI
EDWWOH GHDWKV DVVDVVLQDWLRQ IRUFHG GLVSODFHPHQW WRUWXUH WKH YDULRXV
IRUPVRIVH[XDOYLROHQFHDQGVRRQUHJXODUO\REVHUYHGRQWKHSDUWRIDQ
DUPHGJURXS7KHFRQFHSWFDSWXUHVLPSRUWDQWGLIIHUHQFHVLQWKHFRQWH[W
RIDFWVIRUH[DPSOHVRPHJURXSVUDSHDQGWKHQNLOOWKHYLFWLPVRPHUDSH
DQG WKHQ GLVSODFH WKH YLFWLP DQG RWKHUV GR QHLWKHU 5HSHUWRLUHV FDQ EH
ZLGH RU QDUURZ DQG YDU\ VKDUSO\ DFURVV DUPHG JURXSV IRU H[DPSOH LQ
VRPH FRQIOLFWV RQH DUPHG JURXS HQJDJHV LQ VLJQLILFDQW VH[XDO YLROHQFH
EXW RWKHU JURXSV GR QRW 6LPLODUO\ WKH µUHSHUWRLUH RI VH[XDO YLROHQFH¶ LV
WKH VXEVHW RI IRUPV RI VH[XDO YLROHQFH LQ ZKLFK WKH JURXS UHJXODUO\ HQ
JDJHVDQGFDQEHZLGHRUQDUURZDQGYDULHVDFURVVJURXSV
7KHSDWWHUQRIVH[XDOYLROHQFHRQWKHSDUWRIDQDUPHGJURXSPD\
YDU\VLJQLILFDQWO\RYHUWKHFRXUVHRIDFRQIOLFW7KHREVHUYHGSDWWHUQVDUH
GLYHUVH LQFOXGLQJ D FKDQJH LQ IRUP IURP UDSH WR VH[XDO VODYHU\ IURP
EHLQJDVWUDWHJ\WRDSUDFWLFHIURPRSSRUWXQLVWLFHYHQWVWRDSUDFWLFHDV
ZHOODVEHFRPLQJPRUHRUOHVVIUHTXHQWRUPRUHRUOHVVQDUURZO\WDUJHWHG
)RUH[DPSOHDJURXSPD\EHJLQWRHQJDJHLQWKHUDSHRIFLYLOLDQVLQUH
VSRQVHWRDQRWKHUJURXS¶VGRLQJVRLWPD\µPLUURU¶WKHRWKHUJURXSHLWKHU
DV D VWUDWHJLF GHFLVLRQ E\ FRPPDQGHUV RU E\ LQGLYLGXDO XQLWV ZLHOGLQJ
YLROHQFH VLPLODU WR WKDW ZKLFK WKH\ REVHUYH 2U VKRXOG FLYLOLDQV UHVLVW D
JURXS¶VUXOHDQDUPHGJURXSPD\WXUQWRUDSHDVDIRUPRISXQLVKPHQW
RQFRPPDQGRUDVDUHVXOWRIFRPEDWDQWIUXVWUDWLRQ6LPLODUO\UHSHUWRLUHV
RI VH[XDO YLROHQFH DOVR YDU\ RYHU WLPH VRPHWLPHV EHFRPLQJ ZLGHU WKH
JURXS HQJDJHV LQ PRUH IRUPV RI VH[XDO YLROHQFH SHUKDSV PLUURULQJ DQ
RWKHUJURXSEXWLQVRPHFDVHVEHFRPLQJPRUHQDUURZ
-DPHV 5RQ ³6DYDJH 5HVWUDLQW ,VUDHO 3DOHVWLQH DQG WKH 'LDOHFWLFV RI /HJDO 5HSUHV
VLRQ´ LQ 6RFLDO 3UREOHPV YRO QR SS ± DQG $PHOLD +RRYHU
*UHHQ 5HSHUWRLUHV RI 9LROHQFH $JDLQVW 1RQFRPEDWDQWV 7KH5ROH RI $UPHG *URXS
,QVWLWXWLRQVDQG,GHRORJLHVGRFWRUDOGLVVHUWDWLRQ<DOH8QLYHUVLW\
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
1RWHWKDWWKHVHGLVWLQFWLRQVPDGHIRUWKHSXUSRVHRIVRFLDOVFLHQFH
DQDO\VLVVKRXOGQRWEHXQGHUVWRRGDVLPSO\LQJGLVWLQFWOHJDOFRQVHTXHQF
HV,QSDUWLFXODUFRPPDQGHUVDQGOHDGHUVDUHUHVSRQVLEOHIRUVH[XDOYLR
OHQFHDVDSUDFWLFHDQGRSSRUWXQLVWLFVH[XDOYLROHQFHDVZHOODVVWUDWHJLF
VH[XDOYLROHQFHLIWKHXVXDOFULWHULDIRUFRPPDQGDQGRUVXSHULRUUHVSRQ
VLELOLW\XQGHULQWHUQDWLRQDOODZDUHPHW
9DULDWLRQLQ3DWWHUQVRI6H[XDO9LROHQFH
5HFHQWUHVHDUFKRQSDWWHUQVRIZDUWLPHVH[XDOYLROHQFHVSDQVWKHPHWKRGV
RI VRFLDO VFLHQFH LQFOXGLQJ TXDOLWDWLYH TXDQWLWDWLYH DQG KLVWRULFDO UH
VHDUFK 6SDFH FRQVWUDLQWV SUHYHQW DQ DGHTXDWH VXPPDU\ RI DOO UHOHYDQW
ZRUN VR , IRFXV KHUH RQ ZRUN WKDW LV H[SOLFLWO\ FURVVQDWLRQDO HLWKHU LQ
HPSLULFVRULQWKHVFRSHRIWKHWKHRU\DGYDQFHG
0XFK RI WKHOLWHUDWXUH LQLWLDOO\ IRFXVHG RQ VH[XDO YLROHQFH LQ %RV
QLD+HU]HJRYLQDDQG5ZDQGDDVKXPDQULJKWVDGYRFDWHVDQGOHJDOVFKRO
DUVVRXJKWWRKROGSHUSHWUDWRUVRIZLGHVSUHDGVH[XDOYLROHQFHUHVSRQVLEOH
XQGHULQWHUQDWLRQDOODZ7KRVHZRUNVQRWHGYDULDWLRQLQWDUJHWLQJEXWSDLG
OLWWOHDWWHQWLRQWRYDULDWLRQLQIUHTXHQF\DQGPDGHOLWWOHDWWHPSWWRGLVWLQ
JXLVKVH[XDOYLROHQFHDVDSUDFWLFHIURPVWUDWHJLFVH[XDOYLROHQFH:KHQ
RWKHUFDVHV ZHUHFRQVLGHUHG UHVHDUFKHUV RIWHQ UHIHUUHG WR 6XVDQ %URZQ
PLOOHU¶VVZHHSLQJDQDO\VLVRIJOREDODQGKLVWRULFDOSDWWHUQVLQKHUVHPLQDO
ERRN $JDLQVW 2XU :LOO :KLOH %URZQPLOOHU DFNQRZOHGJHV VRPH
YDULDWLRQIRUH[DPSOHWKH1RUWK9LHWQDPHVHDQG9LHW&RQJDSSHDUHGWR
KDYH HQJDJHG LQ OLWWOH UDSH RI FLYLOLDQV WKH RYHUDUFKLQJ DUJXPHQW ZDV
WKDWUDSHGXULQJZDUZDVXELTXLWRXVEXWQRWLQHYLWDEOH:KLOHWKHIRFXV
RQ%RVQLDDQG5ZDQGDFRQWULEXWHGWRWKHGHYHORSPHQWRIVH[XDOYLROHQFH
DVDFULPHXQGHULQWHUQDWLRQDOODZWKHTXHVWLRQRIYDULDWLRQZDVQHJOHFWHG
DQGWKHUKHWRULFRIWKHWLPHHPSKDVL]HGWKHVXSSRVHGXELTXLW\RIZDUWLPH
UDSH
7KDW LV QR ORQJHU WKH FDVH DV VFKRODUV LQFUHDVLQJO\ IRFXV RQ YDULD
WLRQ7KHLQLWLDOZRUNWKDWH[SOLFLWO\GRFXPHQWHGDQGDQDO\]HGYDULDWLRQ
DFURVV DUPHG JURXSV DQG FRQIOLFWV ODUJHO\ GUHZ RQ FDUHIXO TXDOLWDWLYH
6XVDQ%URZQPLOOHU$JDLQVW2XU:LOO%DQWDP1HZ<RUN
6RPH MRXUQDOLVWV KDYH SLFNHG XS RQ WKH WKHPH RI YDULDWLRQ DQG LWV LPSOLFDWLRQV IRU
SROLF\6HH³:DU¶VRYHUORRNHGYLFWLPVUDSHLVKRUULI\LQJO\ZLGHVSUHDGLQFRQIOLFWVDOO
DURXQGWKHZRUOG´ 7KH(FRQRPLVW-DQXDU\DQG -LQD0RRUH³&RQIURQWLQJ
5DSHDVD:DU&ULPH´LQ&4*OREDO5HVHDUFKHUYROQRSS±
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
FRPSDULVRQRIDIHZFDVHVEXWGLGQRWIXOO\OHYHUDJHWKHHQWLUHVSHFWUXP
RI YDULDWLRQ SDUWLFXODUO\ WKH H[LVWHQFH RI JURXSV WKDW GLG QRW HQJDJH LQ
VH[XDO YLROHQFH 7R DGGUHVV WKLV JDS , FKRVH P\ LQLWLDO VHW RI FDVHVWR
UHSUHVHQW WKH HQWLUH VSHFWUXP RI IUHTXHQF\ LQFOXGLQJ DUPHG JURXSV WKDW
HQJDJHGLQOLWWOHVH[XDOYLROHQFHDQGVKRZHGWKDWWKHIUHTXHQF\RIVH[XDO
YLROHQFHYDULHGDFURVVLQWHUVWDWHDVZHOODVFLYLOFRQIOLFWVHWKQLFDVZHOO
DVLGHRORJLFDOFRQIOLFWVDQGVWDWHPLOLWDULHVDVZHOODVLQVXUJHQWJURXSV
%HIRUH SURFHHGLQJ WR GLVFXVV PRUH UHFHQW ZRUN LW LV LPSRUWDQW WR
DGGUHVVDGRXEWVRPHWLPHVUDLVHGDERXWP\FODLPWKDWVH[XDOYLROHQFHRQ
WKH SDUW RI VRPH JURXSV LV YHU\ UDUH *LYHQ WKH LQDGHTXDF\ RI DYDLODEOH
GDWDWKHREVHUYHGDEVHQFHPLJKWUHIOHFWRXULJQRUDQFHRILWVDFWXDORFFXU
UHQFHUDWKHUWKDQLWVUDULW\,QGHHGWKHUHDUHPDQ\UHDVRQVZK\UDSHDQG
RWKHU IRUPV RI VH[XDO YLROHQFH DUH XQGHUUHSRUWHG LQ ZDUWLPH LQFOXGLQJ
WKHUHOXFWDQFHRIYLFWLPVWRUHSRUWWKHFULPHWKHIDLOXUHRIIRUHQVLFDXWKRU
LWLHVWRUHFRUGVH[XDOYLROHQFHDQGWKHOLPLWHGUHVRXUFHVDYDLODEOHWRRU
JDQL]DWLRQV UHSRUWLQJ KXPDQ ULJKWV DEXVHV 7KH UHSRUWHG YDULDWLRQPD\
UHIOHFW GLIIHUHQW LQWHQVLWLHV RI GRPHVWLF DQG LQWHUQDWLRQDO PRQLWRULQJ RI
FRQIOLFWV UDWKHU WKDQ GLIIHUHQW IUHTXHQFLHV YLROHQFH LQ VRPH UHJLRQV DS
SHDUV WR JDUQHUPRUHLQWHUQDWLRQDO DWWHQWLRQWKDQ LQ RWKHUV 1RULV LW UHD
VRQDEOHWRDVVXPHWKDWLWLVXQGHUUHSRUWHGWRWKHVDPHGHJUHHDFURVVFRQ
IOLFWVSDUWLHVDQGUHJLRQVDVWKHUHLVRIWHQUHJLRQDOFODVVDQGSDUWLVDQELDV
LQERWKUHSRUWLQJDQGGDWDFROOHFWLRQ5HSRUWLQJUDWHVPD\DOVRYDU\DFURVV
IRUPVRIVH[XDOYLROHQFHUDSHSDUWLFXODUO\WKHUDSHRIPDOHVLVOLNHO\OHVV
UHSRUWHGWKDQRWKHUIRUPVLQPRVWVHWWLQJV(YHQZKHQVH[XDOYLROHQFHLV
GRFXPHQWHGDYDLODEOHGDWDPD\RQO\LGHQWLI\WKHSHUSHWUDWRUVDV³DUPHG
PHQ´0RUHRYHUWKHGHVFULSWLRQRIVH[XDOYLROHQFHDV³ZLGHVSUHDGDQG
V\VWHPDWLF´ PD\ UHIOHFW DQ RUJDQL]DWLRQ¶V DWWHPSW WR GUDZ UHVRXUFHV WR
&\QWKLD (QORH 0DQHXYHUV 7KH LQWHUQDWLRQDO SROLWLFV RI PLOLWDUL]LQJ ZRPHQ
V OLYHV
8QLYHUVLW\ RI &DOLIRUQLD 3UHVV /LVD 6KDUODFK ³6H[XDO 9LROHQFH DV 3ROLWLFDO
7HUURU´ GLVVHUWDWLRQ 8QLYHUVLW\ RI &DOLIRUQLD 'DYLV DQG 0LD %ORRP ³:DU
DQG WKH 3ROLWLFV RI 5DSH (WKQLF YHUVXV 1RQ(WKQLF &RQIOLFWV´ XQSXEOLVKHG PDQX
VFULSW
:RRGVHHVXSUDQRWHDQG:RRGVHHVXSUDQRWH
:RRGVHHVXSUDQRWH
)RUGLVFXVVLRQRIWKHFKDOOHQJHVRIGRFXPHQWLQJZDUWLPHVH[XDOYLROHQFHVHH )UDQ
FRLVH 5RWK 7DP\ *XEHUHN DQG $PHOLD +RRYHU *UHHQ &RUSRUDFLyQ 3XQWR GH 9LVWD
DQG%HQHWHFK+XPDQ5LJKWV 'DWD$QDO\VLV*URXS ³8VLQJ4XDQWLWDWLYH'DWDWR$V
VHVV &RQIOLFW5HODWHG 6H[XDO 9LROHQFH LQ &RORPELD &KDOOHQJHV DQG 2SSRUWXQLWLHV´
DYDLODEOHRQOLQHDWKWWSZZZKUGDJRUJODVWDFFHVVHGDW'HFHPEHU
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
GRFXPHQW VH[XDO YLROHQFH ZKDWHYHU LWV DFWXDO OHYHO UDWKHU WKDQ WKH SDW
WHUQRILQFLGHQWVSHUVH$QGLQVHWWLQJVZKHUHSROLWLFDOYLROHQFHLVRQJR
LQJRUJDQL]DWLRQVPD\IHHOLWSUXGHQWWRVWDWHWKDWDOOVLGHVHQJDJHLQVH[
XDOYLROHQFHZKHWKHURUQRWWKLVLVVKRZQLQWKHLUGDWD
1RQHWKHOHVVWKHYDULDWLRQLQWKHLQFLGHQFHDQGIRUPRIVH[XDOYLR
OHQFHLVVXIILFLHQWO\ODUJHWKDWLWFOHDUO\H[FHHGVPHDVXUHPHQWHUURULQWKH
EHWWHUGRFXPHQWHG FDVHV WKH H[LVWHQFH RI YHU\ ZHOOGRFXPHQWHG ORZ
LQFLGHQFHFDVHVVWURQJO\VXJJHVWVWKDWWKHFODLPWKDWVRPHDUPHGJURXSV
HQJDJH LQ OLWWOH VH[XDO YLROHQFH LV QRW DQ DUWLIDFW RI LJQRUDQFH )RU H[
DPSOH LW LV XQOLNHO\ WKDW WKH DSSDUHQW DEVHQFH RI VH[XDO YLROHQFH LQ WKH
,VUDHOL3DOHVWLQLDQFRQIOLFWLVGXHWRXQGHUUHSRUWLQJJLYHQWKHVFUXWLQ\RI
YLROHQFHWKHUHE\GRPHVWLFKXPDQULJKWVJURXSVDQGLQWHUQDWLRQDODFWRUV
,Q VKRUW LW LV XQOLNHO\ WKDW WKH OHYHO RI UDSH RI ZRPHQ DQG JLUOV ZDV VR
PXFKOHVVLQ%RVQLD+HU]HJRYLQDRUWKDWLWZDVVRPXFKPRUHLQ,VUDHO
3DOHVWLQHDVWRFRQIRXQGWKHREVHUYDWLRQRIVLJQLILFDQWYDULDWLRQ
)RUWXQDWHO\ PRUH DFFXUDWH GDWD RQ ZDUWLPH VH[XDO YLROHQFH LV EH
FRPLQJDYDLODEOHIRUVRPHFRQIOLFWV0LFKHOH/HLE\IRUH[DPSOHDQDO\]
HVDUDQGRPVDPSOHRIWHVWLPRQLHVRIYLFWLPVDQGZLWQHVVHVFRPSLOHGE\
WKH7UXWK DQG 5HFRQFLOLDWLRQ &RPPLVVLRQ LQ 3HUXFRGLQJ QRW RQO\ YDUL
RXV W\SHV RI VH[XDO YLROHQFH EXW UHPDUNDEO\ DOO KXPDQ ULJKWV YLROD
WLRQV$PRQJKHULPSRUWDQWILQGLQJVLVWKDWWKHLQFLGHQFHRIVH[XDOWRU
WXUH RI PDOH GHWDLQHHV E\ VWDWH IRUFHV ZDV PXFK KLJKHU WKDQ WKH WUXWK
FRPPLVVLRQKDGUHFRJQL]HG)RUWKHFDVHRI(O6DOYDGRU¶VFLYLOZDU$PH
OLD +RRYHU *UHHQ UHFRQVWUXFWHG WKH GDWDEDVHV RI KXPDQ ULJKWV RUJDQL]D
WLRQVDQGWKH7UXWK&RPPLVVLRQIRU(O6DOYDGRULQRUGHUWRDQDO\]HUHSHU
WRLUHV RI YLROHQFH RQ WKH SDUW RI GLVWLQFW VWDWH IRUFHV DQG LQVXUJHQW IDF
WLRQV6KHVKRZVWKDW(O6DOYDGRUZDVDQH[WUHPHO\DV\PPHWULFFRQIOLFW
VWDWH IRUFHV HQJDJHG ERWK LQ UDSH GXULQJ PLOLWDU\ RSHUDWLRQV HDUO\ LQ WKH
ZDUDQGLQVH[XDOWRUWXUHRIERWKPDOHVDQGIHPDOHSULVRQHUVWKURXJKRXW
WKHZDULQPRGHUDWHWRKLJKOHYHOVZKLOHWKHLQVXUJHQWIRUFHVHQJDJHGLQ
OLWWOHVH[XDOYLROHQFHRIDQ\NLQG
:RRGVHHVXSUDQRWHDQG:RRGVHHVXSUDQRWH
6HHKHUFKDSWHULQWKLVYROXPHDVZHOODV/HLE\DVHHVXSUDQRWHDQG/HLE\
EVHHVXSUDQRWH
0RUHSUHFLVHO\VKHGRFXPHQWVDIHZHDUO\LQFLGHQWVRIUDSHDVZHOODVRWKHUDEXVHRI
FLYLOLDQVLQUHVSRQVHWRZKLFKWKHJURXSWUDQVIRUPHGLWVWUDLQLQJDQGVRFLDOL]DWLRQLQ
VWLWXWLRQVVXFKWKDWOLWWOHVH[XDOYLROHQFHRFFXUUHGODWHU6HH+RRYHU*UHHQVHH
VXSUDQRWH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
0RUHRYHULQWKHODVWGHFDGHRUVRUHVHDUFKHUVKDYHLQFOXGHGTXHV
WLRQVDERXWVH[XDOYLROHQFHLQVXUYH\VEDVHGRQUHSUHVHQWDWLYHVDPSOHVLQ
RUGHUWRHVWLPDWHWKHLQFLGHQFHDQGRUSUHYDOHQFHRIFHUWDLQIRUPVRIVH[
XDOYLROHQFHDPRQJSDUWLFXODUSRSXODWLRQVLQLWLDOO\RIWKHUHIXJHHFDPS
SRSXODWLRQV LQ /LEHULD IRU H[DPSOH DQG PRUH UHFHQWO\ RI WKH '5& QD
WLRQDO SRSXODWLRQ XVLQJ WKH QDWLRQDO YHUVLRQ RI WKH 'HPRJUDSKLF +RXVH
KROG6XUYH\+RZHYHUWKHSDWWHUQVLGHQWLILHGLQVXFKVXUYH\VDUHRIWHQ
WRRDJJUHJDWHWRDGGUHVVPDQ\TXHVWLRQVRILQWHUHVWDWWKHQHFHVVDU\OHYHO
RIGHWDLOVXFKDVZKHQDQGZKHUHUDSHGLIIXVHGIURPRQHJURXSWRDQRWK
HU DQG ZKHWKHU VRPH XQLWV RI DQ DUPHG JURXS HQJDJH LQ VH[XDO VODYHU\
PRUHWKDQRWKHUV,WLVUDUHWKDWSHUSHWUDWRUVDUHLGHQWLILHGLQRWKHUWKDQ
YDJXH WHUPV VXFK DV ³DUPHG PHQ´ ³VROGLHUV´ RU ³UHEHO´ ,QGHHG WKH
'5&VXUYH\DVNHGRQO\ZKHWKHURUQRWWKHSHUSHWUDWRUZDVDVH[XDOSDUW
QHU
7KH SUHVHQW VWDWHRIWKHDUW GRFXPHQWDWLRQ RI SDWWHUQV RI UDSH
DFURVVFLYLOZDUVLVWKHZRUNRI'DUD.D\&RKHQDQGFROODERUDWRUVVHH
EHORZ )RU HYHU\ FRQIOLFW EHWZHHQ DQG VKH FROOHFWHG GDWD
IURPWKH866WDWH'HSDUWPHQW+XPDQ5LJKWV&RXQWU\5HSRUWVDQDQQXDO
SXEOLFDWLRQWKDWSURYLGHVGHWDLOHGGDWDRQKXPDQULJKWVYLRODWLRQIRUHYHU\
FRXQWU\7RDGGUHVVWKHSUREOHPRISRRUDQGLQFRPSDUDEOHGDWDVKHFRG
HGWKHUHODWLYHPDJQLWXGHRIUHSRUWHGUDSHWRFRQVWUXFWDQLQGH[LQZKLFK
QRUHSRUWVZDVFRGHGDV³´LVRODWHGUHSRUWVDV³´QXPHURXVUHSRUWVDV
³´DQGZLGHVSUHDGUHSRUWVDV³´
/\QQ / $PRZLW] &KHQ 5HLV .ULVWLQD +DUH /\RQV %HWK 9DQQ %LQWD 0DQVDUD\
$G\LQND0$NLQVXOXUH6PLWK/RXLVH7D\ORUDQG9LQFHQW,DFRSLQR³3UHYDOHQFHRI
:DUUHODWHG 6H[XDO 9LROHQFH DQG 2WKHU +XPDQ 5LJKWV $EXVHV $PRQJ ,QWHUQDOO\
'LVSODFHG3HUVRQVLQ6LHUUD/HRQH´LQ-RXUQDORIWKH$PHULFDQ0HGLFDO$VVRFLDWLRQ
YRO QR SS ± DQG $PEHU 3HWHUPDQ 7LD 3DOHUPR DQG &DU\Q
%UHGHQNDPS³(VWLPDWHVDQG'HWHUPLQDQWVRI6H[XDO9LROHQFH$JDLQVW:RPHQLQWKH
'HPRFUDWLF 5HSXEOLF RI &RQJR´ LQ$PHULFDQ -RXUQDO RI 3XEOLF +HDOWK YRO
QRSS±
)RU DQ DVVHVVPHQW RI TXDQWLWDWLYH DQDO\VLV EDVHG RQ UHSUHVHQWDWLYH VDPSOH VXUYH\V
VHH+RRYHU*UHHQVHHVXSUDQRWHDQG5RWKHWDO8VLQJ4XDQWLWDWLYH'DWD
VHHVXSUDQRWH)RUGLVFXVVLRQRIWKHXVHRIVWDWLVWLFDOHYLGHQFHLQWKHSURVHFXWLRQ
RIZDUWLPHVH[XDOYLROHQFHVHH+RRYHU*UHHQ¶VFKDSWHULQWKLVYROXPH
'DUD.D\&RKHQ³([SODLQLQJ6H[XDO9LROHQFHGXULQJ&LYLO:DU´GRFWRUDOGLVVHUWD
WLRQ6WDQIRUG8QLYHUVLW\DQG'DUD.D\&RKHQ³&DXVHVRI5DSHGXULQJ&LYLO
:DU&URVV1DWLRQDO(YLGHQFH±´XQSXEOLVKHGSDSHUD
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
$PRQJ KHU PRVW LPSRUWDQW ILQGLQJV DUH DV IROORZV 6XE6DKDUDQ
$IULFDKDGDVPDOOHUSURSRUWLRQRIFLYLOZDUVZLWKWKHKLJKHVWOHYHORIUDSH
RI WKDQ GLG (DVWHUQ (XURSH IRXU RI QLQH WKHUHE\ EHO\LQJ WKH
LPDJHU\RIPDQ\MRXUQDOLVWLFUHSRUWV2IWKHFRQIOLFWVZLWKVRPHQRQ]HUR
OHYHO RI UDSH LQ SHUFHQW RI WKRVH FRQIOLFWV ERWK VWDWH DQG LQVXUJHQW
IRUFHVHQJDJHGLQLWLQSHUFHQWRQO\VWDWHIRUFHVGLGVRDQGLQVHYHQ
SHUFHQWRQO\LQVXUJHQWJURXSVGLG7KXVVWDWHIRUFHVDUHPRUHRIWHQWKH
SHUSHWUDWRUVRIUDSH
5HVHDUFKHUVDWWKH3HDFH5HVHDUFK,QVWLWXWHRI2VORLQFROODERUDWLRQ
ZLWK&RKHQDUHH[WHQGLQJ&RKHQ¶VDSSURDFKDQGGDWDWREXLOGDGDWDEDVH
EDVHGRQDPXFKEURDGHUUDQJHRIVRXUFHVLQFOXGLQJUHSRUWVE\$PQHVW\
,QWHUQDWLRQDO+XPDQ5LJKWV:DWFKDQGWKH,QWHUQDWLRQDO&ULVLV*URXSDV
ZHOO DV 6WDWH 'HSDUWPHQW UHSRUWV 7R GDWH WKH UHVHDUFK JURXS KDV SXE
OLVKHGWKHILQGLQJVIURPWKHSLORWSURMHFWQDPHO\DQDQDO\VLVRIFRQIOLFWV
DQG WKH ILUVW ILYH \HDUV DIWHU WKH FRQIOLFW ZKHUH UHOHYDQW LQ $IULFDQ
FRXQWULHV2IWKHFRQIOLFWVDQDO\]HGWKHUHZHUHQRUHSRUWVRIVH[XDO
YLROHQFHLQ SHUFHQW RI WKH FRQIOLFWV ZKLOH WKH KLJKHVW OHYHO RI VH[XDO
YLROHQFH ³´ ZDV UHSRUWHG LQ SHUFHQW RI WKH FRQIOLFWV DQG WKH QH[W
KLJKHVWLQSHUFHQW:KLOHWKHSHUFHQWDJHRIDUPHGJURXSVWKDWHQJDJH
LQWKHKLJKHVWOHYHORIVH[XDOYLROHQFHKDVQRWFKDQJHGWKHSHUFHQWDJHRI
WKRVH WKDW HQJDJH LQ WKH µLVRODWHG¶ DQG µQXPHURXV¶ FDWHJRULHV ³´ DQG
³´ GHFOLQHG IURP WR 7KH VWXG\ FRQILUPV &RKHQ¶V HDUOLHU
ILQGLQJWKDWLWLVVWDWHIRUFHVQRWUHEHOJURXSVWKDWHQJDJHLQVH[XDOYLR
OHQFHPRUHIUHTXHQWO\WKHIRUFHVRISHUFHQWRIWKHVWDWHVDQDO\]HGHQ
JDJH LQ VH[XDO YLROHQFH DW VRPH SHULRG ZKLOH RQO\ SHUFHQW RI UHEHO
JURXSV DQG SHUFHQW RI PLOLWLDV KDG GRQH VR $FFRUGLQJ WR WKH SLORW
VWXG\ WKH WDUJHWLQJ RI VWDWH UHEHO DQG PLOLWLD IRUFHV DOLNH DSSHDUV WR EH
LQGLVFULPLQDWH)LQDOO\KLJKOHYHOVRIVH[XDOYLROHQFHRIWHQRFFXUGXULQJ
SHULRGVZLWKIHZNLOOLQJV
&RKHQDVHHVXSUDQRWH7KLVODVWILQGLQJFRQILUPHGWKHHDUOLHUZRUNRI-HQ
QLIHU*UHHQ³8QFRYHULQJ&ROOHFWLYH5DSH$&RPSDUDWLYH6WXG\RI3ROLWLFDO6H[XDO
9LROHQFH´,QWHUQDWLRQDO-RXUQDORI6RFLRORJ\YROQRSS±$IWHU
V\VWHPDWLFDOO\ FRGLQJ 1HZ <RUN 7LPHV DUWLFOHV IURP ± IRU UHSRUWHG HSL
VRGHVRIPDVVUDSH*UHHQIRXQGWKDWPDVVUDSHZDVFDUULHGRXWE\VWDWHQRWLQVXUJHQW
IRUFHV LQ DSSUR[LPDWHO\ WZR WKLUGV RI WKH FDVHV VKH LGHQWLILHG +RZHYHU WKH 1HZ
<RUN7LPHVLVQRWDVGHWDLOHGDVRXUFHDVWKH6WDWH'HSDUWPHQWUHSRUWVIRUVHYHUDOUHD
VRQVVHH&RKHQVHHVXSUDQRWH
5DJQKLOG 1RUGnV ³6H[XDO 9LROHQFH LQ $UPHG &RQIOLFWV´ &HQWHU IRU WKH 6WXG\ RI
&LYLO:DU2VOR
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
,QFRPSOHWH([SODQDWLRQV
:KDW PLJKW DFFRXQW IRU WKH REVHUYHG YDULDWLRQ LQ ZDUWLPH VH[XDO YLR
OHQFH",QHDUOLHUZRUN,GLVFXVVHGWKHYDULRXVH[SODQDWLRQVDWWLPHVLP
SOLFLWLQWKHOLWHUDWXUHSXEOLVKHGWRGDWHDQGVKRZHGWKDWWKH\DUHDWEHVW
LQFRPSOHWH ,QFUHDVHG RSSRUWXQLW\ GXULQJ ZDU FRPELQHG ZLWK D SUH
VXPSWLRQ SUHVHQW LQ VRPH RI WKH OLWHUDWXUH WKDW PDQ\ PHQ ZLOO UDSH LI
JLYHQ WKH RSSRUWXQLW\ GRHV QRW H[SODLQ YDULDWLRQ PDQ\ QRQVWDWH DFWRUV
ZKRGRQRWHQJDJHLQVH[XDOYLROHQFHKDYHDPSOHRSSRUWXQLW\WRGRVRDV
WKH\OLYHFORVHWRFLYLOLDQSRSXODWLRQVDVZDVWKHFDVHRIWKH6DOYDGRUDQ
DQG 6UL /DQNDQ UHEHO JURXSV 1RU GRHV RSSRUWXQLW\ H[SODLQ FDVHV ZKHUH
WDUJHWLQJLVQDUURZXVXDOO\WKHDUPHGJURXSVHQJDJLQJLQVXFK YLROHQFH
KDYHDFFHVVWRFLYLOLDQVWKDWWKH\GRQRWWDUJHWDVZHOODVWKRVHWKH\GR,Q
ERWK %RVQLD+HU]HJRYLQD DQG 5ZDQGD SHUSHWUDWRUV KDG URXJKO\ HTXDO
DFFHVVWRFLYLOLDQVRIYDULRXVHWKQLFLWLHV\HWWDUJHWHGSDUWLFXODURQHV
1RUGRLQFUHDVHGLQGLYLGXDOLQFHQWLYHVWRHQJDJHLQVH[XDOYLROHQFH
H[SODLQWKHREVHUYHGSDWWHUQ6H[XDOYLROHQFHLVVRPHWLPHVVDLGWRRFFXU
LQUHWDOLDWLRQIRUVH[XDOYLROHQFHSUHYLRXVO\VXIIHUHGRUUXPRUHGWRKDYH
EHHQ VXIIHUHG E\ FRHWKQLFV %XW LQ PDQ\ FRQIOLFWV DW OHDVW RQH DUPHG
JURXS GRHV QRW UHVSRQG LQ NLQG WR VH[XDO YLROHQFH UHFDOO WKDW &RKHQ
IRXQG WKDW DERXW SHUFHQW RI FRQIOLFWV H[KLELWHG DV\PPHWU\ ZLWK RQH
JURXS HQJDJLQJ LQ VH[XDO YLROHQFH DQG WKH RWKHU QRW 7KH µVXEVWLWXWLRQ¶
DUJXPHQW WKDW ZDUWLPH UDSH µVXEVWLWXWHV¶ IRU VH[ ZLWK SURVWLWXWHV FDPS
IROORZHUV IHPDOH FRPEDWDQWV RU ZLOOLQJ FLYLOLDQV DOVR GRHV QRW H[SODLQ
WKHREVHUYHGYDULDWLRQ,WGRHVQRWDFFRXQWIRUWKHWDUJHWLQJRISDUWLFXODU
JURXSVRIZRPHQWKHRIWHQH[WUHPHYLROHQFHWKDWIUHTXHQWO\DFFRPSDQLHV
ZDUWLPH UDSH RU WKH RFFXUUHQFH RI VH[XDO WRUWXUH 0RUHRYHU LI LW ZHUH
DGHTXDWHDV WKH VROHH[SODQDWLRQ RI YDULDWLRQ UDSH E\ IRUFHV ZLWK DPSOH
DFFHVVWRSURVWLWXWHVZRXOGQRWRFFXUEXWWKDWLVEHOLHGE\WKHUDSHRIJLUOV
DQG ZRPHQ E\ PHPEHUV RI WKH $PHULFDQ PLOLWDU\ LQ 9LHWQDP DQG WKH
UDSHRIFLYLOLDQVE\WKHFRPEDWDQWVRIWKH5HYROXWLRQDU\8QLWHG)URQWRI
6LHUUD/HRQHGHVSLWHWKHLUDFFHVVWRJLUOVDQGZRPHQKHOGDVVH[VODYHV
)XUWKHUPRUH VRPH DUPHG JURXSV ZLWK VLJQLILFDQW QXPEHUV RI IHPDOH
FRPEDWDQWVGRHQJDJHLQKLJKOHYHOVRIVH[XDOYLROHQFHWKH5HYROXWLRQDU\
8QLWHG)URQWRI6LHUUD/HRQHLVDQH[DPSOH$GGLWLRQDOO\IHPDOHFRPEDW
:RRGVHHVXSUDQRWHDQG:RRGVHHVXSUDQRWH
*LQD:HDYHU,GHRORJLHVRI)RUJHWWLQJ5DSHLQWKH9LHWQDP:DU6WDWH8QLYHUVLW\RI
1HZ<RUN3UHVV$OEDQ\
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
DQWVWKHPVHOYHVDFWLYHO\SDUWLFLSDWHLQUDSHLQVRPHFRQIOLFWVDFFRUGLQJWR
'DUD&RKHQIHPDOHFRPEDWDQWVSDUWLFLSDWHGLQSHUFHQWRIWKH5HYROX
WLRQDU\ 8QLWHG )URQW¶V JDQJ UDSHV ZKLFK FRPSULVH DERXW SHUFHQW RI
WKHWRWDO
7KH PLOLWDUL]HG PDVFXOLQLW\ DSSURDFK DUJXHV WKDW VRFLHWLHV LQ ZDU
GHYHORSRUGUDZRQLQVWLWXWLRQVDQGQRUPVWKDWLQFXOFDWHDKLJKO\PLOLWD
UL]HGPDVFXOLQLW\EDVHGRQVKDUSGLVWLQFWLRQVEHWZHHQJHQGHUVWREHFRPH
PHQER\VPXVWEHFRPHZDUULRUV7KHUHVXOWLVWKDWFRPEDWDQWVUHSUHVHQW
GRPLQDWLRQ RI WKH HQHP\ LQ KLJKO\ JHQGHUHG WHUPV DQG XVH VSHFLILFDOO\
VH[XDO YLROHQFH DJDLQVW HQHP\ SRSXODWLRQV 7KH DUJXPHQW WKXV DFFRXQWV
IRUWKHWDUJHWLQJRIHQHP\ZRPHQDQGPHQDQGZLWKVSHFLILFDOO\ VH[XDO
YLROHQFH+RZHYHUWKHDUJXPHQWGRHVQRWH[SODLQWKHDEVHQFHRIVH[XDO
YLROHQFHRQWKHSDUWRIVRPHYHU\HIIHFWLYHLQVXUJHQWDQGVWDWHDUPLHV
,QFRQWUDVWWRWKHDERYHDUJXPHQWVEDVHGRQJUDWLILFDWLRQLQFUHDVHG
LQFHQWLYHV RU D JHQHUDO SURGXFW RI PLOLWDU\ WUDLQLQJ WKH LQVWUXPHQWDODU
JXPHQW IRU VH[XDO YLROHQFH KROGV WKDW ZKHQ LW LV ZLGHVSUHDG LW RFFXUV
EHFDXVH DUPHG JURXSV HQJDJH LQ LW DV D VWUDWHJ\ ,Q DGGLWLRQ WR WKH RIW
FLWHG %RVQLDQ 6HUE PLOLWLDV DQG +XWX IRUFHV LQ 5ZDQGD LQ *XDWHPDOD
ZKHUH VWDWH IRUFHV HQJDJHG LQ ZLGHVSUHDG UDSH GXULQJ VZHHSV WKURXJK
LQGLJHQRXV YLOODJHV WKH 7UXWK &RPPLVVLRQ IRXQG GLUHFW HYLGHQFH RI
FRPPDQGHUSURPRWLRQRIUDSHRIFLYLOLDQVLQWKHIRUPRIULGLFXOHRIFRP
EDWDQWV ZKR LQLWLDOO\ GHFOLQHG WR SDUWLFLSDWH 6RPH RI WKH OLWHUDWXUH LQ
WKLV YHLQ DOVR KROGV WKDW ZDUWLPH UDSH LV PXFK PRUH IUHTXHQW LQ UHFHQW
\HDUVWKDQLQWKHSDVW+RZHYHUKLJKOHYHOVRIUDSHE\DUPHGJURXSVDUH
QRW D QHZ SKHQRPHQRQ DV VRPH KDYH DUJXHG VRPH PLOLWDULHV LQ :RUOG
:DU 7ZR HQJDJHG LQ UDSH VH[XDO VODYHU\ DQG IRUFHG SURVWLWXWLRQ ZLWK
JUHDWIUHTXHQF\
5HSRUWHGLQ'DUD.D\&RKHQ³)HPDOH&RPEDWDQWVDQG9LROHQFHLQ$UPHG*URXSV
:RPHQDQG:DUWLPH5DSHLQ 6LHUUD /HRQH´XQSXEOLVKHGSDSHUEZKLFKDQD
O\]HVGDWDLQ-DQD$VKHUHGDQG+XPDQ5LJKWV'DWD$QDO\VLV*URXSRI%HQHWHFK
³6LHUUD /HRQH :DU &ULPHV 'RFXPHQWDWLRQ 6XUYH\ 'DWDEDVH Y ´ XQSXEOLVKHG GD
WDVHW
0DGHOLQH0RUULV³%\)RUFHRI$UPV´LQ'XNH/DZ-RXUQDOYROQRSS
±DQG-RVKXD*ROGVWHLQ:DUDQG*HQGHU+RZ*HQGHU6KDSHVWKH:DU6\V
WHPDQG9LFH9HUVD&DPEULGJH8QLYHUVLW\3UHVV1HZ<RUN
&LWHGLQ0LFKHOH/HLE\³:DUWLPH6H[XDO9LROHQFHLQ*XDWHPDODDQG3HUX´LQ,QWHU
QDWLRQDO6WXGLHV4XDUWHUO\YROQRSS±
:RRGVHHVXSUDQRWH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
6XFKVWUDWHJLFYLROHQFHDSSHDUVWRWDNHIRXUEURDGIRUPV7KHILUVW
LVVH[XDOWRUWXUHDJDLQVWSHUVRQVGHWDLQHGE\DQDUPHGJURXS ZKHQLWRF
FXUVDVDQLPPHGLDWHVWUDWHJLFEHQHILW7KHVHFRQGLVVH[XDOVODYHU\DQ
RWKHU IRUP RI FXVWRGLDO VH[XDO YLROHQFH 7KH WKLUG LV ZLGHVSUHDG VH[XDO
YLROHQFHDVDIRUPRIWHUURURUSXQLVKPHQWWDUJHWHGDWDSDUWLFXODUJURXS
ZKLFK IUHTXHQWO\ WDNHV WKH IRUP RI JDQJ DQG RIWHQ SXEOLF UDSH PRVW
QRWRULRXVO\ DV SDUW RI VRPHFDPSDLJQV RI µHWKQLFFOHDQVLQJ¶ WR IRUFH WKH
PRYHPHQW RI HQWLUH SRSXODWLRQV IURP SDUWLFXODU UHJLRQV FODLPHG DV WKH
KRPHODQGDQGDVSDUWRIVRPHJHQRFLGHV7KHIRXUWKLVWKHGHFLVLRQSHU
KDSVLPSOLFLWE\FRPPDQGHUVWRUHZDUGWURRSVIRUVHUYLFHZLWKUDSH2I
FRXUVH WKH FRPPRQ UHVSRQVH RI PLOLWDU\ DQG SROLWLFDO OHDGHUV WR DFFXVD
WLRQVRIVWUDWHJLFVH[XDOYLROHQFHE\WKHLUIRUFHVLVWRFODLPWKDWWKHWURRSV
ZHUHQRWXQGHUWKHLUFRQWURODQLVVXH,UHWXUQWRLQWKHFRQFOXVLRQ
+RZHYHU WKLV DUJXPHQW SUHGLFWV PRUH VH[XDO YLROHQFH WKDQ LV RE
VHUYHGLIVH[XDOYLROHQFHLVDQHIIHFWLYHVWUDWHJ\RIZDUZK\LVLWWKHFDVH
WKDWQRWDOODUPHGJURXSVHQJDJHLQLW"7KHFRQGLWLRQVIRUVXFKLQVWUXPHQ
WDOHQJDJHPHQWLQVH[XDOYLROHQFHDUHQRWZHOOLGHQWLILHGLQWKHOLWHUDWXUH
6RPHDXWKRUVVXJJHVWWKDWSDWULDUFKDOFXOWXUHSURYLGHVWKHUHOHYDQWFRQGL
WLRQZKHUHDUPHGJURXSVXQGHUVWDQGVH[XDOYLROHQFHDVDYLRODWLRQRIWKH
HQHP\IDPLO\DQGFRPPXQLW\¶VKRQRUWKH\DUHOLNHO\WRHQJDJHLQVH[XDO
YLROHQFHDVDZHDSRQRIZDU+RZHYHUVXFKEHOLHIVDUHSUHVHQWLQPDQ\
VRFLHWLHV ZKHUH PDVVLYH VH[XDO YLROHQFH RQ WKH VFDOH SUHGLFWHG E\ WKLV
DUJXPHQW KDV QRW RFFXUUHG DV LQ 6UL /DQND DQG ,VUDHO3DOHVWLQH 0RUHR
YHU VXFK EURDG QRWLRQV RI FXOWXUDO SURFOLYLW\ GR QRW DFFRXQW IRU FDVHV
ZKHUHRQHSDUW\WRWKHZDUSURPRWHVVH[XDOYLROHQFHZKLOHWKHRWKHUGRHV
QRW:KLOHGHYDOXDWLRQRIZRPHQLVDQHFHVVDU\FRQGLWLRQIRUWKHRFFXU
UHQFHRIVH[XDODEXVHRI ZRPHQWKLVJHQHUDOQRWLRQRISDWULDUFK\LVWRR
EURDGWRDFFRXQWIRUWKHREVHUYHGYDULDWLRQLWLVQRWDVXIILFLHQWFRQGLWLRQ
5DWKHU WKDQ IRFXV RQ EURDG QRWLRQV RI FXOWXUH PDQ\ UHFHQW VFKRODUO\
ZRUNVIRFXVRQWKHFXOWXUHDQGLQVWLWXWLRQVRIWKHDUPHGRUJDQL]DWLRQ
7KXV PDQ\ RI WKH H[SODQDWLRQV LQ WKH SXEOLVKHG OLWHUDWXUH DW EHVW
H[SODLQRQO\SDUWRIWKHREVHUYHGYDULDWLRQ,QGHHGWKH\JHQHUDOO\SUHGLFW
PRUHZDUWLPHVH[XDOYLROHQFHWKDQWKHWUDJLFOHYHOVREVHUYHG7KH\IDLOWR
H[SODLQWKHIDFWWKDWPDQ\DUPHGJURXSVGRQRWHQJDJHLQHYHQPRGHUDWH
OHYHOVRIVH[XDOYLROHQFH
(QORHVHHVXSUDQRWH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
$7KHRUHWLFDO)UDPHZRUNIRU([SODLQLQJ9DULDWLRQLQ:DUWLPH
6H[XDO9LROHQFH
%HFDXVHVXFKDUJXPHQWVGRQRWH[SODLQWKHREVHUYHGYDULDWLRQUHVHDUFK
HUV KDYH WXUQHGWKHLU IRFXV WR WKH G\QDPLFV LQWHUQDO WRDUPHG JURXSV ,Q
ZKDWIROORZV,GHYHORSDWKHRUHWLFDOIUDPHZRUNWKDWHPSKDVL]HVFRPEDW
DQWQRUPVOHDGHUV¶VWUDWHJLFFKRLFHVDERXWIRUPVRIYLROHQFHWKHG\QDP
LFVZLWKLQVPDOOXQLWVRQFHGHSOR\HGLQZDUDQGDUPHGJURXSLQVWLWXWLRQV
,QGLYLGXDO&RPEDWDQWV
$UPHGJURXSVGUDZWKHLUPHPEHUVIURPSDUWLFXODUFXOWXUDOVHWWLQJVXVX
DOO\ D SDUWLFXODU SDWULDUFK\ ,QFRPLQJ UHFUXLWV FDUU\ ZLWK WKHP FXOWXUDO
QRUPV DQG EHOLHIV FRQFHUQLQJ WKH DSSURSULDWHQHVV RI GLIIHUHQW NLQGV RI
YLROHQFHLQFOXGLQJVH[XDOYLROHQFHDJDLQVWSDUWLFXODUSRSXODWLRQV$UPHG
JURXSVPD\GUDZIURPSDUWLFXODUVXEJURXSVIRUH[DPSOHDVSHFLILFHWK
QLF JURXS SUHFLVHO\ IRU WKHVH UHDVRQV 6RPH JURXSV IRU H[DPSOH VRPH
SDUDPLOLWDU\JURXSVDFWLYHO\DWWHPSWWRUHFUXLWIURPFULPLQDOSRSXODWLRQV
,Q FRQWUDVW VWDWH PLOLWDULHV RIWHQ DWWHPSW WR GUDZ RU FRQVFULSW UHFUXLWV
IURP D ZLGH UDQJH RI VXEFXOWXUHV LQ RUGHU WR EXLOG QDWLRQDO XQLW\ 7KH
UHOHYDQWSRRORIUHFUXLWVPD\DOVRUHIOHFWWKHRUJDQL]DWLRQ¶VUHVRXUFHEDVH
WKRVHZLWKRXWHFRQRPLFUHVRXUFHVPD\EHPRUHOLNHO\WRDWWUDFWµDFWLYLVW¶
UHFUXLWV ZLOOLQJ WR PDNH ORQJ WHUP FRPPLWPHQWV WR LGHRORJLFDO JRDOV
ZKLOHWKRVHZLWKHFRQRPLFUHVRXUFHVPD\DWWUDFWµRSSRUWXQLVWLF¶UHFUXLWV
DQ DUJXPHQW WKDW QHJOHFWV WKH LPSDFW RI VXEVHTXHQW VRFLDOL]DWLRQ RI WKH
UHFUXLW E\ WKH JURXS :KHWKHU RU QRW UHFUXLWV HQWHU DQ DUPHG RUJDQL]D
WLRQZLWKUHODWLYHO\KRPRJHQHRXVQRUPVDQGEHOLHIVWKXVGHSHQGVRQWKH
UHFUXLWLQJSUDFWLFHVRIWKHRUJDQL]DWLRQ7KRVHQRUPVDQGEHOLHIVDUHRIWHQ
SURIRXQGO\ DOWHUHG DV UHFUXLWV DUH LQGXFWHG LQWR WKH JURXS WKURXJK ERWK
IRUPDODQGLQIRUPDOSUDFWLFHVDVGLVFXVVHGEHORZ
-HUHP\ :HLQVWHLQ ,QVLGH 5HEHOOLRQ 7KH 3ROLWLFV RI ,QVXUJHQW 9LROHQFH &DPEULGJH
8QLYHUVLW\3UHVV&DPEULGJH+RZHYHULQKLVHPSKDVLVRQFRQWUDVWLQJSRROVRI
UHFUXLWV :HLQVWHLQ XQGHUHVWLPDWHV WKH SRZHU RI VRFLDOL]DWLRQ SUDFWLFHV DQG GLVFLSOL
QDU\LQVWLWXWLRQVWRPHOGUHFUXLWVW\SLFDOO\PDOHWHHQDJHUVLQWRJURXSPHPEHUVLUUH
VSHFWLYHRIWKHLULQLWLDOPRWLYHVIRUMRLQLQJ'LVWLQFWSDWWHUQVRIYLROHQFHPD\ UHIOHFW
JURXSVWUDWHJ\FRQFHUQLQJWUDLQLQJGLVFLSOLQHDQGLQFHQWLYHVDQGJURXSLGHRORJ\UD
WKHUWKDQGLVWLQFWSRROVRIUHFUXLWV6HHEHORZDQGDOVR:RRGVHHVXSUDQRWH
+RRYHU*UHHQVHHVXSUDQRWHDQG)UDQFLVFR*XWLpUUH]6DQtQ³7HOOLQJWKH
'LIIHUHQFH*XHUULOODVDQG3DUDPLOLWDULHVLQWKH&RORPELDQ:DULQ3ROLWLFVDQG6RFLH
W\YROQRSS±
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
/HDGHUVKLS6WUDWHJ\
0LOLWDU\OHDGHUVVHHNWRFRQWUROWKHUHSHUWRLUHWDUJHWLQJDQGIUHTXHQF\RI
YLROHQFH ZLHOGHG E\ WKHLU FRPEDWDQWV QRW OHDVW EHFDXVH RI WKH IHDU WKDW
ZHDSRQVZLHOGHGE\VROGLHUVPD\EHWXUQHGDJDLQVW RIILFHUV/LNHO\FRQ
VLGHUDWLRQVLQFOXGHQRWRQO\LVVXHVRIPLOLWDU\WDFWLFVDQGVWUDWHJ\EXWDOVR
LPSOLFDWLRQVIRUWKHRQJRLQJVXSSO\RIUHFUXLWVLQWHOOLJHQFHRWKHUQHFHV
VDU\µLQSXWV¶WRWKHZDUHIIRUWDQGIRUWKHOHJLWLPDF\RIWKHZDUHIIRUWLQ
WKH H\HV RI GHVLUHG VXSSRUWHUV GRPHVWLF DQG LQWHUQDWLRQDO DOLNH (YHQ
ZKHQ DQ DUPHG JURXS DSSHDUV WR HPEUDFHWHUURUL]LQJ FLYLOLDQV WKHUH DUH
GHFLVLRQV WR EH PDGH DERXW WDUJHWLQJ DQG WLPLQJ ,Q SDUWLFXODU PLOLWDU\
OHDGHUVPD\PDNHH[SOLFLWGHFLVLRQVWRSURKLELWRUWRSURPRWHVH[XDOYLR
OHQFHRIGLIIHUHQWIRUPVDJDLQVWSDUWLFXODUJURXSV,ILWRFFXUVDWDVLJQLIL
FDQW OHYHO OHDGHUV ZKR KDYH QRW \HW PDGH DQ H[SOLFLW GHFLVLRQ PD\ EH
SUHVVHGWRGRVRDQGPD\GHFLGHWRWROHUDWHLWVRFFXUUHQFHZLWKRXWDQH[
SOLFLW GHFLVLRQ WR SURKLELW RU SURPRWH &RPPDQGHUV PD\ DOVR SURPRWH
KLJKOHYHOVRIYLROHQFHWRZDUGVFLYLOLDQVZLWKRXWDIRUPDOGHFLVLRQWRGR
VR XVLQJ HXSKHPLVPV XQGHUVWRRG DV VLJQDOLQJ WR FRPEDWDQWV WKDW WKH\
ZLOOQRWEHSXQLVKHG/HDGHUVPD\ IXUWKHUGHOHJDWHFHUWDLQIRUPVRIYLR
OHQFHWRJURXSVWKH\FODLPQRWWRFRPPDQGIRUH[DPSOHPLOLWLDVRUGHDWK
VTXDGV ,Q RUGHU WR FRQWURO YLROHQFH WR DW OHDVW WKH PLQLPXP QHFHVVDU\
GHJUHHJURXSOHDGHUVRUWKHLUGHOHJDWHVGHYHORSLQVWLWXWLRQVIRUWKHVRFLDO
L]DWLRQ DQG WUDLQLQJ RI UHFUXLWV DQG IRU WKH GLVFLSOLQH RI PHPEHUV 7R
KLJKO\YDU\LQJGHJUHHVWKRVHLQVWLWXWLRQVPD\DOVRDWWHPSWWRGLVWLOOJURXS
LGHRORJ\GLVFXVVHGEHORZ
,QVWLWXWLRQVIRU6RFLDOL]DWLRQRI5HFUXLWV
7REXLOGDQHIIHFWLYHDUPHGJURXSUHFUXLWVKDYHWREHPHOGHGLQWRHIIHF
WLYHFRPEDWDQWVWKURXJKWUDLQLQJDQGVRFLDOL]DWLRQ7KHPLOLWDU\VRFLDOL]D
WLRQOLWHUDWXUHDUJXHVWKDWFRPEDWDQWVKROGIDVWXQGHUILUHQRWEHFDXVHRI
JUDQGFRQFHSWVVXFKDVSDWULRWLVPRUJURXSLGHRORJ\EXWEHFDXVHRIWKHLU
FRPPLWPHQWV WR WKHLU µSULPDU\ JURXS¶ RI IHOORZ FRPEDWDQWV 7UDLQLQJ
DQG VRFLDOL]DWLRQ WR WKH VPDOO JURXS WDNH SODFH ERWK IRUPDOO\ WKURXJK
JURXS LQVWLWXWLRQV VXFK DV ERRW FDPS DQG LQIRUPDOO\ WKURXJK LQLWLDWLRQ
ULWXDOVDQGKD]LQJ,QVWDWHPLOLWDULHVWKHSRZHUIXOH[SHULHQFHVRIHQGOHVV
+RRYHU*UHHQVHHVXSUDQRWH
(GZDUG6KLOVDQG0RUULV-DQRZLW]³&RKHVLRQDQG'LVLQWHJUDWLRQLQWKH:HKUPDFKW
LQ:RUOG:DU,,´LQ3XEOLF2SLQLRQ4XDUWHUO\YROQRSS±
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
GULOOLQJGHKXPDQL]DWLRQWKURXJKDEXVHDWWKHKDQGVRIWKHGULOOVHUJHDQW
DQG GHJUDGDWLRQ DQG WKHQ µUHELUWK¶ DV JURXS PHPEHUV WKURXJK LQLWLDWLRQ
ULWXDOV W\SLFDOO\ PHOG UHFUXLWV LQWR FRPEDWDQWV ZKRVH OR\DOWLHV DUH RIWHQ
IHOW WR EH VWURQJHU WKDQ WKRVH WR IDPLO\ %UXWDOL]DWLRQ RI UHFUXLWV LV LQ
WHQGHGWRHQKDQFHDJJUHVVLRQZKLFKWKHGLVFLSOLQHRIGULOOLVLQWHQGHGWR
FRQWURO7RWKHH[WHQWWKDWWKHRUJDQL]DWLRQUHOLHVRQFKLOGUHFUXLWVWUDLQ
LQJ DQG VRFLDOL]DWLRQ DUH SDUWLFXODUO\ OLNHO\ WR UHVRFLDOL]H FRPEDWDQWV
7KHVHSURFHVVHVRFFXUWRDOHVVHURUJUHDWHUGHJUHHQRQHWKHOHVVWKHUHVXOW
LVDVHWWLQJZKHUHFRQIRUPLW\HIIHFWVDUHOLNHO\WREHH[WUHPHO\VWURQJ
:DUWLPH'\QDPLFV
&RPEDWDQWQRUPVDQGSUDFWLFHVERWKJHQHUDOFXOWXUDORQHVDQGDOVRWKRVH
LQVWLOOHG GXULQJ LQLWLDO VRFLDOL]DWLRQ PD\ HYROYH GUDPDWLFDOO\ GXULQJ DF
WLYHHQJDJHPHQW%RWKWKHVXIIHULQJDQGZLHOGLQJRI YLROHQFHPD\EULQJ
SURIRXQGFKDQJHVWRFRPEDWDQWV¶XQGHUVWDQGLQJRIWKHDSSURSULDWHQHVVRI
UHSHUWRLUHVWDUJHWLQJDQGIUHTXHQF\RIYLROHQFH7KHLQFUHDVLQJGHVHQVL
WL]DWLRQ RI FRPEDWDQWV WR YLROHQFH DQG WKH GHKXPDQL]LQJ RI YLFWLPV WKH
DQ[LHW\DQGXQFHUWDLQW\RIFRPEDWDQGWKHWKUHDWRIYLROHQFHDQGWKHGLV
SODFHPHQW RI UHVSRQVLELOLW\ QRW RQO\ RQWR WKH JURXS EXW RQWR WKH HQHP\
ZKR µGHVHUYHV ZKDW WKH\ JRW¶ EODPH DWWULEXWLRQ DUH SRZHUIXO ZDUWLPH
SURFHVVHV WKDW PD\ UHVKDSH JURXS UHSHUWRLUHV WRZDUGV WKH ZLGHU XVH RI
YLROHQFHZLGHUERWKLQWKHVHQVHRIZLGHUWDUJHWLQJDQGDEURDGHUUHSHU
WRLUHZKLFKPD\LQFOXGHPDQ\IRUPVVH[XDOYLROHQFH&ROOHFWLYHUHVSRQ
VLELOLW\IRUDWURFLWLHVFDQLWVHOIEHFRPHDVRXUFHRIJURXSFRKHVLRQDQGD
'RQQD:LQVORZ³5LWHVRI3DVVDJHDQG*URXS%RQGLQJLQWKH&DQDGLDQ$LUERUQH´LQ
$UPHG)RUFHVDQG6RFLHW\YROQRSS±DQG+DQN1XZHU³0LOL
WDU\ +D]LQJ´ LQ 7KH +D]LQJ 5HDGHU ,QGLDQD 8QLYHUVLW\ 3UHVV %ORRPLQJWRQ SS±
'DYH*URVVPDQ2Q.LOOLQJ7KH3V\FKRORJLFDO&RVWRI/HDUQLQJWR.LOOLQ:DUDQG
6RFLHW\%DFN%D\%RRNV/LWWOH%URZQDQG&RPSDQ\DQG2VLHOVHHVX
SUDQRWH
&KULVWRSKHU %URZQLQJ 2UGLQDU\ 0HQ 5HVHUYH 3ROLFH %DWWDOLRQ DQG WKH )LQDO
6ROXWLRQLQ3RODQG+DUSHU&ROOLQV1HZ<RUN$OH[DQGHU+LQWRQ:K\GLGWKH\
NLOO"&DPERGLDLQWKH6KDGRZRI*HQRFLGH8QLYHUVLW\RI&DOLIRUQLDDQG'DQ
LHO&KLURWDQG&ODUN0F&DXOH\:K\1RW.LOO7KHP$OO"7KH/RJLFDQG3UHYHQWLRQRI
0DVV 3ROLWLFDO 0XUGHU 3ULQFHWRQ 8QLYHUVLW\ 3UHVV 3ULQFHWRQ DQG +RRYHU
*UHHQVHHVXSUDQRWH)RUDQDUJXPHQWDERXWKRZDQLQLWLDOSDWWHUQRIOLP
LWHGVH[XDOYLROHQFHPD\HVFDODWHWRPRUHEUXWDOIRUPVDQGZLGHUWDUJHWLQJVHH-DPLH
/HDWKHUPDQ6H[XDO9LROHQFHDQG$UPHG&RQIOLFW3ROLW\3UHVV&DPEULGJH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
EXOZDUNDJDLQVWEHWUD\DO,QGHHGVPDOOJURXSG\QDPLFVFDQXQGHUPLQH
PLOLWDU\ GLVFLSOLQH ZKHQ VPDOO JURXS OR\DOWLHV DQG FRQIRUPLW\ G\QDPLFV
ZLWKLQ WKH JURXS OHDG WR ZLWKKROGLQJ RI LQIRUPDWLRQ IURP FRPPDQGLQJ
RIILFHUVGLVREHGLHQFHRUHYHQWRWKHµIUDJJLQJ¶RIRIILFHUVDVVHHQLQWKH
FDVHRIWKH86$UP\LQ9LHWQDP
$UPHG*URXS,QVWLWXWLRQV'LVFLSOLQHDQG,QGRFWULQDWLRQ
7KH VWUHQJWK RI WKH DUPHG JURXS¶V LQVWLWXWLRQ IRU GLVFLSOLQH DQG RQJRLQJ
LQGRFWULQDWLRQGHWHUPLQHVZKHWKHUWKHOHDGHUVKLS¶VFKRLFHVDERXWWKHIUH
TXHQF\WDUJHWLQJDQGUHSHUWRLUHRIYLROHQFHGRPLQDWHSDWWHUQVGULYHQE\
WKH ZDUWLPH VRFLDO SV\FKRORJLFDO G\QDPLFV MXVW GLVFXVVHG :LWKLQ DQ
DUPHG RUJDQL]DWLRQ ± SDUWLFXODUO\ LQ WKH FKDQJLQJ DQG RIWHQ FRYHUW FLU
FXPVWDQFHVRILUUHJXODUZDUIDUH±WKHUHDUHDVHULHVRIUHODWLRQVKLSVGRZQ
WKHFKDLQRIFRPPDQGLQZKLFKWKHVXSHULRURIILFHUDWWHPSWVWRLQIOXHQFH
WKHEHKDYLRURIWKRVHEHORZZKRRIWHQKDYHGLIIHUHQWSUHIHUHQFHVIRUWKH
OHYHO WDUJHWLQJ DQG IRUP RI YLROHQFH EXW ZLWKRXW GLUHFW DFFHVV WR ZKDW
WKRVH EHORZ DUH LQ IDFW GRLQJ 7KH FKDOOHQJH DSSOLHV WR LQVXUJHQW
JURXSVDVZHOOOHDGHUVDWWHPSWWRFRQWUROWKHYLROHQFHRIWKHLUFRPEDWDQWV
DQG ZKHWKHU WKH\ VXFFHHG LQ GRLQJ VR GHSHQGV RQ WKH VWUHQJWK RI WKH
JURXS¶VLQVWLWXWLRQV$UPHGJURXSVWKDWDGRSWDQLUUHJXODUZDUIDUHVWUDW
HJ\IDFHWKLVFKDOOHQJHLQSDUWLFXODUO\VKDUSIRUPXQLWVPD\RSHUDWHLQGH
2VLHOVHHVXSUDQRWHDQG*ROGVWHLQVHHVXSUDQRWH
5REHUW0DF&RXQ³8QLW&RKHVLRQDQG0LOLWDU\3HUIRUPDQFH´LQ 6H[XDO2ULHQWDWLRQ
DQG86PLOLWDU\SHUVRQQHOSROLF\3ROLF\RSWLRQVDQGDVVHVVPHQW1DWLRQDO'HIHQVH
5HVHDUFK,QVWLWXWH5$1'6DQWD0RQLFDDQG-RDQQD%RXUNH$Q,QWLPDWH+LV
WRU\ RI .LOOLQJ )DFHWR)DFH .LOOLQJ LQ 7ZHQWLHWK &HQWXU\ :DUIDUH *UDQWD %RRNV
/RQGRQ
6FRWW *DWHV ³5HFUXLWPHQW DQG $OOHJLDQFH WKH 0LFURIRXQGDWLRQV RI 5HEHOOLRQ´ LQ
-RXUQDO RI &RQIOLFW 5HVROXWLRQ YRO QR SS ± 1HLO 0LWFKHOO
$JHQWV RI $WURFLW\ /HDGHUV )ROORZHUV DQG WKH 9LRODWLRQ RI+XPDQ 5LJKWV LQ &LYLO
:DU3DOJUDYH0DF0LOODQ1HZ<RUN&KULVWRSKHU%XWOHU7DOL*OXFKDQG1HLO
0LWFKHOO³6HFXULW\)RUFHVDQG6H[XDO9LROHQFH$&URVV1DWLRQDO$QDO\VLVRID3ULQ
FLSDO$JHQW$UJXPHQW´LQ-RXUQDORI3HDFH5HVHDUFKYROQRSS±
+RRYHU*UHHQVHHVXSUDQRWHDQG/HLE\VHHVXSUDQRWH
+XPSKUH\V HW DO IRXQG WKDW XQLW FRKHVLRQ DQG GLVFLSOLQH UDWKHU WKDQ WKH OHYHO RI
FRQWHVWDWLRQVRFLDOVWUXFWXUHVXFKDVFRPPXQLW\RU HWKQLFWLHVRUWKHH[LVWHQFHRID
ORFDOHFRQRPLFVXUSOXVEHVWH[SODLQHGSDWWHUQVRIFLYLOLDQDEXVHDFURVVDUPHGJURXSV
LQ 6LHUUD /HRQH VHH 0DFDUWDQ +XPSKUH\V DQG -HUHP\ :HLQVWHLQ ³+DQGOLQJ DQG
0DQKDQGOLQJ &LYLOLDQV LQ &LYLO :DU´ LQ $PHULFDQ 3ROLWLFDO 6FLHQFH 5HYLHZ YROQRSS±
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
SHQGHQWO\ IRU VLJQLILFDQW SHULRGV RI WLPH ZLWK OLWWOH GLUHFW FRQWDFW ZLWK
VXSHULRUVZLWKWKHUHVXOWWKDWVXSHULRUVNQRZOLWWOHDERXWWKHSUDFWLFHVRQ
WKHJURXQGDQGKDYHOLWWOHRSSRUWXQLW\WRSXQLVKLQIUDFWLRQV
$PHOLD+RRYHU*UHHQDUJXHVWKDWWKHUHDUHLQSULQFLSOHWZRZD\V
LQZKLFKDUPHGJURXSVUHVROYHWKLVµFRPPDQGHU¶VGLOHPPD¶DVVKHWHUPV
WKH WHQVLRQ EHWZHHQ QHHGLQJ ERWK WR SURGXFH DQG WR FRQWURO YLROHQFH
7KH ILUVW LV WKURXJK VWURQJ GLVFLSOLQDU\ LQVWLWXWLRQV FRPEDWDQWV REH\ RU
GHUV EHFDXVH WKH\ DUH SXQLVKHG LI WKH\ GR QRW *LYHQ WKH FKDOOHQJHV RI
RUJDQL]LQJ DQG FRQWUROOLQJ YLROHQFH WRZDUG JURXS JRDOV DUPHG JURXSV
WHQGWREHKLHUDUFKLFDOLQYDU\LQJGHJUHHV7KHDELOLW\RIWKHKLHUDUFK\
WRHQIRUFHGHFLVLRQVGHSHQGVRQWKHIORZRILQIRUPDWLRQFRQFHUQLQJWKRVH
SDWWHUQVXSWKHFKDLQRIFRPPDQGDQGWKHZLOOLQJQHVVRIVXSHULRUVWRKROG
WKRVHEHORZWKHPDFFRXQWDEOH
0LOLWDU\ VRFLRORJLVWV VWUHVV WKH LPSRUWDQFH RI GLVFLSOLQH EXW RIWHQ
DUJXH WKDW GLVFLSOLQDU\ LQVWLWXWLRQV DUH LQVXIILFLHQW 6WURQJ LGHQWLILFDWLRQ
ZLWKJURXSXQLWVDERYHDQGZLWKWKHDUPHGJURXSDVDZKROHµVHFRQGDU\
JURXSFRKHVLRQ¶LVRQHZD\WRUHVROYHVXFKWHQVLRQVDQGHQVXUHDVWURQJ
KLHUDUFK\:KHQPLOLWDU\VXSHULRUVDUHVHHQDVOHJLWLPDWHDXWKRULWLHVWKH
OLNHOLKRRG RI REHGLHQFH HYHQ LQ WKH ZLHOGLQJ RI H[WUHPH YLROHQFH LV HQ
KDQFHG 6XFK FRKHVLRQ DQG OHJLWLPDF\ HQKDQFHV WKH SUREDELOLW\ WKDW
LQIRUPDWLRQ DERXW LQIUDFWLRQV RI JURXS UXOHV DQG QRUPV LV SDVVHG XS WKH
FKDLQRIFRPPDQGVRWKDWWKHQHHGIRUDGLVFLSOLQDU\UHVSRQVHLVUHFRJ
QL]HG 0DLQWDLQLQJ GLVFLSOLQH WKURXJK WKH YDJDULHV RI FRPEDW RIWHQ UH
TXLUHV WKH GHYHORSPHQW RI VWURQJ LQWHUQDO LQWHOOLJHQFH LQVWLWXWLRQV WR HQ
VXUHWKHIORZRIVXFKLQIRUPDWLRQ)RUH[DPSOHWKH/LEHUDWLRQ7LJHUVRI
7DPLO(HODP LQVXUJHQF\ LQ 6UL /DQND GHSOR\HG D SDUDOOHO FKDLQ RI FRP
PDQGGHGLFDWHGWRLQWHUQDOLQWHOOLJHQFH
$FFRUGLQJWR+RRYHU*UHHQWKHVHFRQGZD\LQZKLFKRUJDQL]DWLRQV
PD\LQSULQFLSOHUHVROYHWKHµFRPPDQGHU¶VGLOHPPD¶LVWKURXJKLQVWLWX
+RRYHU*UHHQVHHVXSUDQRWH
6DPXHO +XQWLQJWRQ 7KH 6ROGLHU DQG WKH 6WDWH 7KH 7KHRU\ DQG 3ROLWLFV RI &LYLO
PLOLWDU\ 5HODWLRQV %HONQDS 3UHVV RI +DUYDUG 8QLYHUVLW\ 3UHVV %RVWRQ DQG
*X\ 6LHEROG &RUH LVVXHV DQG WKHRU\ LQ PLOLWDU\ VRFLRORJ\´ LQ -RXUQDO RI 3ROLWLFDO
DQG0LOLWDU\6RFLRORJ\YROSS±
6LHEROGVHHVXSUDQRWH
6WDQOH\0LOJUDP2EHGLHQFHWR$XWKRULW\$Q([SHULPHQWDO9LHZ+DUSHU1HZ<RUN
DQG*URVVPDQVHHVXSUDQRWH
:RRGVHHVXSUDQRWH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
WLRQVZKLFKLQFXOFDWHUHFUXLWVVRVWURQJO\WKDWWKH\LQWHUQDOL]HJURXSLGH
RORJ\ DQG QRUPV DQ DUJXPHQW WKDWFDOOV IRU LQGRFWULQDWLRQ VWURQJHU WKDQ
WKDWRIWKHµVHFRQGDU\FRKHVLRQ¶MXVWGHVFULEHG7KURXJKRQJRLQJLQWHQ
VLYHSROLWLFDOHGXFDWLRQWKHJURXSLQVWLOOVDQXQGHUVWDQGLQJRIWKHSXUSRVH
RIWKHFRQIOLFWDQGDQXQGHUVWDQGLQJWKDWVRPHIRUPVRIYLROHQFHXQGHU
PLQHWKDWSXUSRVH,QWKHLGHDOFDVHFRPEDWDQWVWKXVFRPHWRLQWHUQDOL]H
WKHOHDGHUVKLS¶VFKRLFHVDERXWYLROHQFHDQGLPSOHPHQWLWZLWKOLWWOHQHHG
IRUGLVFLSOLQH,QSUDFWLFHDUPHGJURXSVLQFXOFDWHJURXSLGHRORJ\WRKLJK
O\ YDU\LQJ GHJUHHV 6RPH DUPHG JURXSV RIWHQ OHIWLVW JURXSV WKDW XQGHU
VWDQGWKHFRQIOLFWLVOLNHO\WRFRQWLQXHRYHUPDQ\\HDUVDQGSHUKDSVGHF
DGHVJRWRLPSUHVVLYHOHQJWKVWRLQFXOFDWHJURXSLGHRORJ\DQGLGHQWLILFD
WLRQORQJDIWHUWKHLQLWLDOWUDLQLQJSHULRG1RWHWKDWWKLVGLVFXVVLRQUDLVHV
WKHTXHVWLRQRIZKDWDFFRXQWVIRUWKHSDUWLFXODULQVWLWXWLRQVGHYHORSHGE\
WKHDUPHGJURXSDGLVFXVVLRQWKDWZRXOGWDNHXVWRRIDUDILHOG
:KHQLV:DUWLPH5DSHD6WUDWHJ\RU3UDFWLFHRI:DU"
:KHQLVLW5DUH"
7KLV WKHRUHWLFDO IUDPHZRUN LV RI FRXUVH UHOHYDQW IRU WKH DQDO\VLV RI DOO
IRUPVRIYLROHQFHQRWMXVWWKHYDULRXVIRUPVRIVH[XDOYLROHQFH,QZKDW
IROORZV,IRFXVRQWKHLPSOLFDWLRQVWKDWDUHHVSHFLDOO\UHOHYDQWIRUDQDO\
VLVRISDWWHUQVRIUDSHSDUWLFXODUO\IRUWKHDEVHQFHRIUDSHRQ WKHSDUWRI
WKH JURXS UDSH DV D VWUDWHJ\ RI ZDU DQG UDSH DV D SUDFWLFH RI ZDU
7KURXJKRXW,GUDZRQUHOHYDQWXQSXEOLVKHGZRUNVZLWKSHUPLVVLRQRIWKH
DXWKRUVDVZHOODVRWKHUVRXUFHV
%HIRUHGRLQJVRKRZHYHUZKDWKDSSHQVZKHQWKHRUGHUVRIVXSHUL
RUV DQG WKH LQWHQWLRQV RI FRPEDWDQWV DERXW VH[XDO YLROHQFH FROOLGH" ,I
LQGRFWULQDWLRQ RI FRPEDWDQWV LV FRPSOHWH LQ SULQFLSOH QR FRQIOLFW ZLOO
DULVH :KHQ FRQIOLFWV GR DULVH LI GLVFLSOLQDU\ DQG LQWHUQDO LQWHOOLJHQFH
LQVWLWXWLRQV DUH VXIILFLHQWO\ VWURQJ WKH FKRLFH RI WKH OHDGHUVKLS ZLOO SUH
YDLOZKHWKHULWLVSURPRWLRQSURKLELWLRQRUWROHUDQFHRIUDSHRIFLYLOLDQV
)RUH[DPSOHLIOHDGHUVMXGJHVH[XDOYLROHQFHWREHFRXQWHUSURGXFWLYHWR
WKHLU LQWHUHVWV DQG LI WKHJURXS¶V LQVWLWXWLRQV DUH VXIILFLHQWO\ VWURQJ OLWWOH
VH[XDOYLROHQFHZLOOEHREVHUYHG,QWKHFRQWUDVWLQJFDVHDQRUJDQL]DWLRQ
ZLWKVWURQJLQVWLWXWLRQVFRXOGMXGJHVH[XDOYLROHQFHDVLQLWVLQWHUHVWDQG
HIIHFWLYHO\ HQIRUFH VXFK YLROHQFH E\ LWV FRPEDWDQWV ,I RUJDQL]DWLRQDO
VWUHQJWKLVLQVXIILFLHQWLQGLYLGXDODQGXQLWQRUPVZLOOGRPLQDWHZLWKWKH
RUJDQL]DWLRQXQDEOHWRGHWHURURFFDVLRQEHKDYLRULWZRXOGUDWKHUSUHYHQW
RU SURPRWH UHVSHFWLYHO\ 7KXV XQGHU VRPH SUREDEO\ UDUH FRQGLWLRQV WKH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
SUHYDOHQFHRIVH[XDOYLROHQFHPD\EHORZZLWKRXWUHO\LQJRQKLHUDUFKLFDO
GLVFLSOLQH QDPHO\ ZKHQ VXIILFLHQWO\ PDQ\ FRPEDWDQWV KDYH WKHPVHOYHV
LQWHUQDOL]HGQRUPVDJDLQVWVH[XDOYLROHQFHVHHEHORZ0RUHIUHTXHQWLV
WKHRWKHUFDVHRIDQRUJDQL]DWLRQ¶VSURKLELWLQJVH[XDOYLROHQFHEXWZLWK
RXWWKHKLHUDUFK\RUZLOOWRHIIHFWLYHO\GRVR
7KHVWUHQJWKRIDUPHGJURXSLQVWLWXWLRQV±WKHDELOLW\RIWKHKLHUDU
FK\ WR HQIRUFH GHFLVLRQV WDNHQ E\ WKH OHDGHUVKLS WKURXJK GLVFLSOLQDU\
DQGRUWKURXJKRQJRLQJLQGRFWULQDWLRQ ±LVWKXVFHQWUDOWRWKHWKHRUHWLFDO
IUDPHZRUNDQGLWVLPSOLFDWLRQV)RUWKHIUDPHZRUNWREHXVHIXOLQDQDO\]
LQJSDWWHUQVRIVH[XDOYLROHQFHWKHGHJUHHRIRUJDQL]DWLRQDOVWUHQJWKPXVW
EHREVHUYDEOHDSDUWIURPWKRVHSDWWHUQV2EVHUYDEOHLQGLFDWRUVLQFOXGHWKH
DELOLW\WRHIIHFWLYHO\WD[WKHFLYLOLDQSRSXODWLRQDQGWRFKDQQHOWKHUHVXOW
LQJ UHVRXUFHV WKURXJKRXW WKH RUJDQL]DWLRQ ZLWK ORZ OHYHOV RI FRUUXSWLRQ
WKHRUJDQL]DWLRQ¶VURXWLQHSXQLVKPHQWRIFRPEDWDQWVZKREUHDNUXOHVDQG
QRUPV RWKHU WKDQ WKRVH JRYHUQLQJ UDSH D VXIILFLHQW EXW QRW D QHFHVVDU\
FRQGLWLRQ IRU VWURQJ LQVWLWXWLRQV DV LQGRFWULQDWLRQ PD\ EH VR VWURQJ WKDW
FRPEDWDQWVQHYHUEUHDNWKHUXOHVDQGWKHRUJDQL]DWLRQ¶VFDSDFLW\WRFDUU\
RXW ZLGHVSUHDG DQGRU FRPSOH[ RIIHQVLYH RU GHIHQVLYH PDQHXYHUV WKDW
UHTXLUHH[WHQVLYHFRRUGLQDWLRQRIPXOWLSOHXQLWV
([SODLQLQJWKH$EVHQFHRI6H[XDO9LROHQFH
:KDW FRQVLGHUDWLRQV ZRXOG OHDG FRPPDQGHUV DQG OHDGHUV WR DWWHPSW WR
HIIHFWLYHO\ SURKLELW VH[XDO YLROHQFH E\ FRPEDWDQWV" $Q DUPHG JURXS¶V
OHDGHUVKLSPD\SURKLELWVH[XDOYLROHQFHIRUVWUDWHJLFQRUPDWLYHRUSUDF
WLFDOUHDVRQV0DQ\DUPHGJURXSVIHDUWKHFRQVHTXHQFHVRIXQFRQWUROOHG
YLROHQFH E\ WKHLU FRPEDWDQWV VXFK IRUFHV PD\ EH XQUHDG\ WR FRXQWHU D
VXUSULVHDWWDFNWKH\PD\SURYHGLIILFXOWWREULQJEDFNXQGHUFRQWURODQG
WKH\ PD\ HYHQ WXUQ WKHLU VLJKWV RQ WKHLU FRPPDQGHUV WKH XQLQWHQGHG
FRQVHTXHQFHV PD\ EH VHYHUH VXFK DV WKH HQWU\ RI DQ DOO\ RI WKH HQHP\
LQWRWKHIUD\7KDWDVLGHLIDQRUJDQL]DWLRQDVSLUHVWRJRYHUQWKHFLYLOLDQ
SRSXODWLRQOHDGHUVZLOOSUREDEO\DWWHPSWWRUHVWUDLQFRPEDWDQWV¶HQJDJH
PHQWLQVH[XDOYLROHQFHDJDLQVWWKRVHFLYLOLDQVWKRXJKSHUKDSVHQGRUVLQJ
:RRGVHHVXSUDQRWH
*XWLpUUH] 6DQtQ VHH VXSUD QRWH 7KH 6DOYDGRUDQ LQVXUJHQF\ DWWHPSWHG WR
VKDSHLQGLYLGXDOORQJLQJVIRUUHYHQJHWRZDUGDPRUHJHQHUDODVSLUDWLRQIRUMXVWLFHEH
FDXVHUHYHQJHVHHNLQJE\LQGLYLGXDOVZRXOGXQGHUPLQHLQVXUJHQWGLVFLSOLQHDQGREH
GLHQFH 6HH (OLVDEHWK -HDQ :RRG ,QVXUJHQW &ROOHFWLYH $FWLRQ DQG &LYLO :DU LQ (O
6DOYDGRU&DPEULGJH8QLYHUVLW\3UHVV1HZ<RUN
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
LW DJDLQVW RWKHU FLYLOLDQ JURXSV IRU IHDU RI XQGHUPLQLQJ VXSSRUW IRU WKH
JURXS6LPLODUO\LIDQDUPHGJURXSLVGHSHQGHQWRQFLYLOLDQVIRUVXSSOLHV
RU KLJK TXDOLW\ LQWHOOLJHQFH WKH ODWWHU RI ZKLFK LV GLIILFXOW WR FRHUFH
OHDGHUV ZLOO SUREDEO\ DWWHPSW WR UHVWUDLQ VH[XDO YLROHQFH DJDLQVW WKRVH
FLYLOLDQV
5HDVRQVIRUSURKLELWLQJVH[XDOYLROHQFHPD\UHIOHFWQRUPDWLYHFRQ
FHUQV DV ZHOO DV SUDFWLFDO FRQVWUDLQWV /HDGHUV RI D UHYROXWLRQDU\ JURXS
VHHNLQJWRFDUU\RXWDVRFLDOUHYROXWLRQPD\VHHWKHLUJURXSDVWKHGLVFL
SOLQHGEHDUHURIDQHZPRUHMXVWVRFLDORUGHUIRUDOOFLWL]HQVDQGWKHUH
IRUHSURKLELWVH[XDOYLROHQFHEHFDXVHVXFKYLROHQFHYLRODWHVWKHQRUPVRI
WKHQHZVRFLHW\RUEHFDXVHLWVSURKLELWLRQOHJLWLPL]HVLWVLGHRORJ\ERWKWR
PHPEHUVDQGWRLWVOLNHO\FRQVWLWXHQWV'HVSLWHV\VWHPDWLFFHOHEUDWLRQRI
PDUW\UGRP LQ SXUVXLW RI YLFWRU\ WKH 6DOYDGRUDQ LQVXUJHQF\ GLG QRW HQ
GRUVH VXLFLGH PLVVLRQV DQG HIIHFWLYHO\ SURKLELWHG VH[XDO YLROHQFH 1D
WLRQDOLVWDQGDQWLFRORQLDO LQVXUJHQFLHV PD\ SURKLELW VH[XDO YLROHQFH DQG
VHHN IHPDOH FDGUHV DV SDUW RI LWV LGHRORJLFDO FRPPLWPHQW WR EHFRPLQJ D
PRGHUQ VWDWH DUP\ /HQLQLVW JURXSV PD\ VXSSUHVV VH[XDO YLROHQFH DV
SDUW RI D JHQHUDO HPSKDVLV RQ GLVFLSOLQH DQG VHOIVDFULILFH DQG RI LWV
FRPPLWPHQWLQYDU\LQJGHJUHHVWRJHQGHUHTXDOLW\/HDGHUVPD\UHJXODWH
VH[XDOUHODWLRQVRQWKHSDUWRILWVFRPEDWDQWVDVSDUWRIDJHQHUDOQRUPRI
VHOIVDFULILFHDQGHIIHFWLYHO\SURKLELWVH[XDOYLROHQFHDVZHOO)RUH[DP
SOH WKH 6UL /DQNDQ LQVXUJHQF\ HQJDJHG LQ OLWWOH VH[XDO YLROHQFH WRZDUG
FLYLOLDQVHYHQZKHQLWHQJDJHGLQWKHHWKQLFFOHDQVLQJRI0XVOLPVIURP
WKHQRUWKHUQSDUWRIWKHFRXQWU\LQDQGDOVRNLOOHGWKRXVDQGVRIFLYLO
LDQV LQ WKH FRXUVH RI DVVDVVLQDWLRQV E\ VXLFLGH ERPELQJ DQG FROOHFWLYH
UHSULVDOV 5HODWHGO\ LQ FRQIOLFWV ZKHUH RQH SDUW\ HQJDJHV LQ PDVVLYH
YLROHQFH DJDLQVW FLYLOLDQV WKH RWKHU SDUW\ PD\ QRW GR VR DV DQ H[SOLFLW
VWUDWHJ\WRGHPRQVWUDWHPRUDOVXSHULRULW\$QRUPDJDLQVWVH[XDOYLROHQFH
PD\WDNHDGLVWLQFWIRUPVH[XDOYLROHQFHDFURVVHWKQLFERXQGDULHVPD\EH
XQGHUVWRRGE\OHDGHUVDVSROOXWLQJWKHLQVWLJDWRUUDWKHUWKDQKDUPLQJDQG
KXPLOLDWLQJ WKH WDUJHWHGLQGLYLGXDODQGFRPPXQLW\ )LQDOO\ OHDGHUVPD\
SURKLELWVH[XDOYLROHQFHRXWRIGHIHUHQFHWRLQWHUQDWLRQDOODZIRUYDULRXV
:RRGVHHVXSUDQRWH
,ELGDQG+RRYHU*UHHQVHHVXSUDQRWH
$UPHGJURXSVWKDWUHO\RQIHPDOHFRPEDWDQWVPD\KDYHDGGLWLRQDOUHDVRQVWRUHVWUDLQ
VH[XDOYLROHQFHRQWKHSDUWRIWKHLUWURRSV6HH:RRGVHHVXSUDQRWH
:RRGVHHVXSUDQRWH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
UHDVRQVSHUKDSVEHFDXVHWKH\DVSLUHWRVRPHVRUWRILQWHUQDWLRQDOUHFRJQL
WLRQRUEHFDXVHWKH\IHDUILQDQFLDOEDFNHUVPD\FXUWDLOIXQGLQJ
:KHWKHURUQRWWKHGHFLVLRQWRSURKLELWVH[XDOYLROHQFHLVHIIHFWLYH
O\LPSOHPHQWHGGHSHQGVRQWKHVWUHQJWKRIWKHJURXS¶VLQVWLWXWLRQV,IGLV
FLSOLQDU\ DQG LQWHUQDO LQWHOOLJHQFH LQVWLWXWLRQV DUH VXIILFLHQWO\ VWURQJ
FRPEDWDQWV ZLOO QRW HQJDJH LQ LW LI SURKLELWHG +RZHYHU JLYHQ WKH
VWUHQJWKRIWKHVRFLDOSV\FKRORJLFDOSURFHVVHVGXULQJZDUWKDWWHQGWRZLG
HQUHSHUWRLUHVDQGWKHFKDOOHQJHVRIFRQWLQXHGDFFHVVE\VXSHULRUVWRGH
WDLOHG LQIRUPDWLRQ DERXW WKH EHKDYLRU RI FRPEDWDQWV +RRYHU *UHHQ DU
JXHVWKDWWKHVHLQVWLWXWLRQVDUHQHFHVVDU\EXWWKDWDORQHWKH\DUHQRWVXIIL
FLHQW WR HQVXUH DQ DEVHQFH RI VH[XDO YLROHQFH 5DWKHU DQ DUPHG JURXS
PXVW DOVR GHYHORS VWURQJ LQVWLWXWLRQV IRU RQJRLQJ SROLWLFDO HGXFDWLRQ RI
FRPEDWDQWVVRWKDWWKH\GHYHORSDQGPDLQWDLQLQWHUQDOL]HGQRUPVDJDLQVW
UDSH'LVFLSOLQDU\LQVWLWXWLRQVUHPDLQQHFHVVDU\DVDOLJQPHQWRIQRUPVRI
DOOFRPEDWDQWVZLWKWKRVHRIWKHOHDGHUVKLSLVQRWOLNHO\WRRFFXU,QKHU
DQDO\VLV RI FRQWUDVWLQJ UHSHUWRLUHV RI YLROHQFH RQ WKH SDUW RI WKH YDULRXV
LQVXUJHQW IDFWLRQV DQG VWDWH PLOLWDU\ RUJDQL]DWLRQV GXULQJ (O 6DOYDGRU¶V
FLYLOZDU+RRYHU*UHHQGHPRQVWUDWHVWKDWDUPHGJURXSVWKDWHPSOR\ERWK
VWURQJGLVFLSOLQDU\V\VWHPVDQGFRQVLVWHQWSROLWLFDOHGXFDWLRQLQVWLWXWLRQV
XVH QDUURZHU UHSHUWRLUHV RI YLROHQFH DQG LQ SDUWLFXODU HQJDJH LQ OLWWOH
VH[XDOYLROHQFH
,I FRPPDQGHUV SURKLELW VH[XDO YLROHQFH RU SURPRWH LW EXW LQVWLWX
WLRQVDUHWRRZHDNWRHQIRUFHWKDWSROLF\ZKHWKHURUQRWFRPEDWDQWVHQ
JDJH LQ VH[XDO YLROHQFH GHSHQGV RQ LQGLYLGXDO DQG VPDOO XQLW QRUPV ,I
LQGLYLGXDOFRPEDWDQWVDQGWKHLUXQLWVHQGRUVHDQGHQIRUFHQRUPVDJDLQVW
VH[XDO YLROHQFH OLWWOH VH[XDO YLROHQFH E\ WKRVH FRPEDWDQWV ZLOO RFFXU
6XFKQRUPVPD\WDNHWKHIRUPRILQWHUQDOL]HGFXOWXUDOQRUPVZKHUHE\LQ
WKHFDVHRIVRPHHWKQLFFRQIOLFWVFRPEDWDQWVWKHPVHOYHVXQGHUVWDQGWKDW
VH[XDO UHODWLRQV ZLWK FLYLOLDQV DVVRFLDWHG ZLWK WKH HQHP\ LV SROOXWLQJ WR
WKHSHUSHWUDWRURUIRURWKHUUHDVRQVLVQRUPDWLYHO\SURKLELWHG+RZHYHU
DV+RRYHU*UHHQDUJXHVWKHFRQGLWLRQVIRUVXFKVKXQQLQJRIVH[XDOYLR
OHQFHE\FRPEDWDQWVDUHGHPDQGLQJ7KHZDUWLPHSURFHVVHVRIEUXWDOL
]DWLRQ GHVHQVLWL]DWLRQ DQG GHKXPDQL]DWLRQ GLVFXVVHG DERYH PXVW QRW
KDYH HURGHG VXFK QRUPDWLYH FRQVWUDLQWV $QG JLYHQ WKH SRZHUIXO LQIOX
+RRYHU*UHHQVHHVXSUDQRWH
$PHOLD +RRYHU ³'LVDJJUHJDWLQJ 9LROHQFH GXULQJ $UPHG &RQIOLFW :K\ DQG +RZ´
XQSXEOLVKHGPDQXVFULSWDQG+RRYHU*UHHQVHHVXSUDQRWH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
HQFHRIVPDOOJURXSG\QDPLFVLQDUPHGXQLWVDOORUQHDUO\DOOFRPEDWDQWV
PXVW HQGRUVH WKH QRUP DQG HQIRUFH LW DJDLQVW WKH IHZ ZKR DWWHPSW WR
WUDQVJUHVVLW7KHOLNHOLKRRGWKDWFRPEDWDQWVFRQWLQXHWRDGKHUHWRVXFKD
QRUP LV VLJQLILFDQWO\ KLJKHU LI WKH DUPHG JURXS LWVHOI HQGRUVHV DQG DW
WHPSWVWRUHLQIRUFHVXFKQRUPV
([SODLQLQJ5DSHDVD6WUDWHJ\RI:DU
$VZHVDZDERYHVH[XDOYLROHQFHPD\EHDGRSWHGE\FRPPDQGHUVDVD
VWUDWHJ\ RI ZDU DJDLQVW SDUWLFXODU SRSXODWLRQV DV LQ WKH FDVH RI VH[XDO
WRUWXUH RI SROLWLFDO SULVRQHUV RU WKH SXEOLF UDSH RI PHPEHUV RI SDUWLFXODU
JURXSVDVWKH\DUH³FOHDQVHG´IURPDQDUHDDVDIRUPRIFROOHFWLYHSXQ
LVKPHQW XVXDOO\ LQ WKH FRQWH[W RI RUGHUV WR WHUURUL]H FLYLOLDQV RU DV D
IRUP RI FRPSHQVDWLRQ 7KH FRQGLWLRQV IRU LWV WRSGRZQ HPHUJHQFH DV D
VWUDWHJ\DUHWKHLQYHUVHRIWKRVHIRUWKHDEVHQFHRIVH[XDOYLROHQFHFRP
PDQGHUVPXVWSHUFHLYHWKHEHQHILWVRIWKHVWUDWHJ\±DWHUURUL]HGGHWDLQHH
FRPPXQLW\ RU SRSXODWLRQ D WHUULWRU\ QRW RQO\ µFOHDQVHG¶ RI WKH WDUJHWHG
SRSXODWLRQ EXW ZLWK PHPRULHV PDNLQJ UHWXUQ XQOLNHO\ DQG WURRSV FRP
SHQVDWHGE\UDSHRIFLYLOLDQV±DVRXWZHLJKLQJLWVFRVWV±OHVVGLVFLSOLQHG
WURRSV ZKR PD\ HQJDJH LQ UDSH LQ FRQWH[WV ZKHUH LW LV QRW VWUDWHJLFDOO\
EHQHILFLDO GHFUHDVHG FLYLOLDQ OR\DOW\ DQG FRRSHUDWLRQ DQG YLRODWLRQ RI
GRPHVWLFDQGLQWHUQDWLRQDOQRUPV,QWKLVFDVHFRPEDWDQWVDUHQHYHUSXQ
LVKHG IRU HQJDJLQJ LQ VH[XDO YLROHQFH LQGHHGWKHUH PD\ EH HYLGHQFH RI
SXQLVKPHQWIRU IDLOLQJWRGRVRDVLQWKHFDVHRI *XDWHPDODPHQWLRQHG
DERYH,IVWUDWHJLFWKHRYHUDOOSDWWHUQVKRXOGEHWKDWVH[XDOYLROHQFHRF
FXUVZKHQVWUDWHJLFDOO\EHQHILFLDODQGLVDEVHQWZKHQQRW
0LFKHOH/HLE\DQDO\]HVUDSHDVDFRXQWHULQVXUJHQF\VWUDWHJ\RQWKH
SDUWRIVWDWHVHQJDJHGLQLUUHJXODUZDUIDUH,QWKLVFDVHZKHUHDQGZKHQ
UHEHOIRUFHVDUHYLVLEO\DFWLYHEXWQRWVWURQJHQRXJKWRHQJDJHWKHVWDWHLQ
IUHTXHQWFRPEDWVWDWHIRUFHVHQJDJHLQVH[XDOWRUWXUHDQGUDSHDVZHOODV
RWKHU IRUPV RI YLROHQFH DJDLQVW SXUSRUWHG DQG SRWHQWLDO VXSSRUWHUV DV
ZHOO DV UHEHOV WR H[WUDFWLQIRUPDWLRQ EXW DOVR WR SXQLVK DQG WHUURUL]H ,I
VXFK HIIRUWV IDLO DQG WKH UHEHO RUJDQL]DWLRQ JDLQV VXIILFLHQW VWUHQJWK WR
HQJDJH LQ QXPHURXV DWWDFNV LQ WKH DUHD VWDWH IRUFHV DEDQGRQ VWUDWHJLF
YLROHQFHDJDLQVWFLYLOLDQVLQIDYRURIFRPEDW8VLQJWKH3HUXYLDQGDWDVKH
FRPSLOHGDVWKHGHSHQGHQWYDULDEOHLQDVWDWLVWLFDODQDO\VLVVKHVKRZVWKDW
/HLE\DDQGEVHHVXSUDQRWH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
VH[XDOYLROHQFHRQWKHSDUWRIVWDWHIRUFHVFRQIRUPVWRWKHSDWWHUQSUHGLFW
HGE\KHUDQDO\VLVRIUDSHDVFRXQWHULQVXUJHQF\DQGZDVWKXVVWUDWHJLF
0DULD (ULNVVRQ %DD] DQG 0DULD 6WHUQDQDO\]H KRZ VROGLHUV RI WKH
'5& VWDWH PLOLWDU\ XQGHUVWDQG WKH ZLGHVSUHDG UDSH RI FLYLOLDQV E\ WKH
JURXS ,Q WKH FRQWH[W RI GHHSO\ LQDGHTXDWH VDODULHV WKDW RIWHQ JR XQSDLG
IRUH[WHQGHGSHULRGVPDQ\RIWKHVROGLHUVLQWHUYLHZHGE\WKHDXWKRUV
OLQNHG WKH KLJK UDWHV RI UDSH ZLWKWKH IUXVWUDWLRQDQG DQ[LHW\RFFDVLRQHG
E\WKHIDLOXUHWROLYHXSWRPDVFXOLQHLGHDOVRIHVWDEOLVKLQJDQGSURYLGLQJ
IRUDIDPLO\6ROGLHUVDOVRGLVWLQJXLVKHGEXWQRWVKDUSO\DQGZLWKVRPH
DPELYDOHQFHEHWZHHQZKDWWKH\VHHDVµOXVW¶UDSHV±QDPHO\UDSHLQYROY
LQJIRUFHGVH[XDOLQWHUFRXUVHERUQRXWRIIUXVWUDWLRQEXWZLWKRXWPXWLOD
WLRQDQGJUDWXLWRXVYLROHQFH±DQGZKDWWKH\WHUPµHYLO¶UDSHV±QDPHO\
UDSH LQYROYLQJ ERWK IRUFHG VH[XDO LQWHUFRXUVH DV ZHOO DV PXWLODWLRQ DQG
JUDWXLWRXVYLROHQFH7KHIRUPHUZHUHUDSHVWKDWDUH³VRPHKRZPRUHµRN¶
PRUDOO\ GHIHQGDEOH HWKLFDOO\ SDODWDEOH DQG VRFLDOO\ DFFHSWDEOH DQG
WKHUHZLWK DUJXDEO\ QRW UHDOO\ UDSHV LQ WKHLU H\HV DQG WKRVH WKDW DUH
µHYLO¶ DQG QRW DFFHSWDEOH ± EXW VWLOO µXQGHUVWDQGDEOH¶´ :KLOH VH[XDO
YLROHQFH GRHV QRW DSSHDU WR KDYH EHHQ RUGHUHG LW DSSHDUV WR EH EURDGO\
WROHUDWHG E\ WKH PLOLWDU\ DUJXDEO\ DV D IRUP RI FRPSHQVDWLRQ 2Q WKH
RWKHUKDQGLWFRXOGEHWKHFDVHWKDWWKHKLHUDUFK\WROHUDWHVWKHYLROHQFHDV
DSUDFWLFHZKRVHFXUWDLOPHQWZRXOGEHWRRFRVWO\0RUHHYLGHQFHLVQHHG
HGIRUDGHILQLWLYHMXGJPHQW
([SODLQLQJ5DSHDVD3UDFWLFHRI:DU
5DSHPD\HPHUJHDVDSUDFWLFHRIZDU±WKDWLVXQRUGHUHGDQGRFFXUULQJ
HYHQ ZKHQ QRW SURYLGLQJ D VWUDWHJLF EHQHILW ± IRU D QXPEHU RI UHDVRQV
H[SORUHGLQFXUUHQWOLWHUDWXUH:KHQFRPPDQGHUVWROHUDWHUDSHDVDSUDF
WLFHE\FRPEDWDQWVWKH\ GRVRQRWEHFDXVHWKH\SHUFHLYHWKHEHQHILWVRI
UDSHDVRXWZHLJKLQJWKHFRVWVEXWEHFDXVHWKH\SHUFHLYHWKHFRVWVRIHI
IHFWLYH SURKLELWLRQ DV WRR KLJK 6XFK FRVWV PD\ LQFOXGH WKH GLYHUVLRQ RI
VFDUFH UHVRXUFHV WR VWUHQJWKHQ UHOHYDQW LQVWLWXWLRQV SDUWLFXODUO\ GLVFLSOL
QDU\DQGLQWHOOLJHQFHLQVWLWXWLRQVRUWKHFRQVHTXHQFHVRIPRYLQJDJDLQVW
0DULD (ULNVVRQ %DD] DQG 0DULD 6WHUQ ³:K\ 'R 6ROGLHUV 5DSH" 0DVFXOLQLW\ 9LR
OHQFHDQG6H[XDOLW\LQWKH$UPHG)RUFHVLQWKH&RQJR'5&´,QWHUQDWLRQDO6WXGLHV
4XDUWHUO\ YRO S 6HH DOVR -RFHO\Q .HOO\ ³5DSH LQ :DU 0RWLYHV RI
0LOLWLDLQ'5&´86,36SHFLDO5HSRUWQR
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
WKHSUDFWLFHIRULQVWDQFHWKHORVVRIH[SHULHQFHGILHOGFRPPDQGHUVZHUH
WKH\KHOGDFFRXQWDEOHIRUUDSH
'DUD .D\ &RKHQ DUJXHV WKDW JDQJ UDSH UHLQIRUFHV FRKHVLRQ LQ
JURXSV WKDW UHO\ RQ IRUFHG UHFUXLWPHQW DQG WKXV KDYH WR FUHDWH FRKHVLRQ
DPRQJKRVWLOHDQGEHZLOGHUHGUHFUXLWV*DQJUDSHHIIHFWLYHO\EXLOWFRKH
VLRQ VKH DUJXHV EHFDXVH LW ZDV DQ DFW XQGHUVWRRG E\ SDUWLFLSDQWV WR EH
YHU\FRVWO\LQWHUPVRIWKHEUHDNLQJRIORFDOVRFLDOQRUPVDQGWKHOLNHOL
KRRGRIYHQHUHDOGLVHDVHZKLFKPLJKWJRXQWUHDWHG'UDZLQJRQWKHOLWHU
DWXUHRQXUEDQDQGSULVRQJDQJVVKHDUJXHVWKDWLWZDVHIIHFWLYHLQFUHDW
LQJ FRKHVLRQ SUHFLVHO\ EHFDXVH RI LWV FRVWOLQHVV SXEOLF JDQJ UDSH EURNH
UHFUXLWV¶ WLHV WR WKHLU FRPPXQLWLHV DQG FHPHQWHG QHZ RQHV WR WKH JURXS
&RKHQGRHVQRWDUJXHWKDWUDSHLQWKHVHFDVHVLVRUGHUHGRUSXUSRVHIXOO\
DGRSWHGE\WKHJURXS¶VOHDGHUVKLS5DWKHUVHQLRUPHPEHUVRIVPDOOXQLWV
LQVLVWWKDWQHZUHFUXLWVDOVRUDSHDQGLWRFFXUVLQQRQVWUDWHJLFDVZHOODV
VWUDWHJLF VHWWLQJV 7KXV DFFRUGLQJ WR KHU WKHRU\ LQ WKH WHUPV RI WKLV SD
SHUJDQJUDSHLVDSUDFWLFH
&RKHQ VKRZV WKDW JDQJ UDSH SOD\HG WKLV UROH LQ WKH 5HYROXWLRQDU\
8QLWHG )RUFHV RI 6LHUUD /HRQH 7KH 5HYROXWLRQDU\ 8QLWHG )RUFHV ZDV
KHDYLO\UHOLDQWRQIRUFHGUHFUXLWPHQWRIFRPEDWDQWVUHSRUWHGEHLQJ
IRUFHGWRMRLQ7KHSDWWHUQRIJDQJUDSHZDVXQGHUVWRRGDVFRVWO\DFFRUG
LQJWRKHULQWHUYLHZVZLWKSHUSHWUDWRUVDQGZDVHQIRUFHGE\PHPEHUVRI
VPDOOXQLWV,QGHHGLQDQDO\]LQJDKRXVHKROGVXUYH\RIZDUWLPHYLROHQFH
VKH ILQGV WKDW IHPDOH FRPEDWDQWV SDUWLFLSDWHGLQDSSUR[LPDWHO\D TXDUWHU
RI JDQJ UDSH HYHQWV ,Q WKH DQDO\VLV RI KHU FURVVQDWLRQDO GDWD RQ ZDU
WLPHVH[XDOYLROHQFH&RKHQVKRZVWKDWQRQVWDWHDUPHGJURXSVWKDWSUDF
WLFHDEGXFWLRQDUHPRUHOLNHO\WRHQJDJHLQKLJKOHYHOVRIVH[XDOYLROHQFH
DV DUH VWDWH PLOLWDULHV WKDW HQJDJH LQ SUHVVJDQJLQJ RI FRQVFULSWV +HU
IRUFHG UHFUXLWPHQW H[SODQDWLRQ H[SODLQV PRUH RI WKH REVHUYHG YDULDWLRQ
WKDQWKHRWKHUWKHRULHVWKDWVKHWHVWV+RZHYHULWLVQRW\HWFOHDUZKHWKHU
WKHPHFKDQLVPVRIJDQJUDSHDVVRFLDOL]DWLRQLVDVJHQHUDODVVKHVXJJHVWV
DV WKHUH DUH RWKHU FDXVDO SURFHVVHV WKDW PD\ OLQN JDQJ UDSH ZLWK IRUFHG
UHFUXLWPHQW
&RKHQDVHHVXSUDQRWHDQG&RKHQEVHHVXSUDQRWH
&RKHQEVHHVXSUDQRWH
&RKHQDVHHVXSUDQRWHLQKHUDQDO\VLVRI$VKHUVHHVXSUDQRWH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
&RQFOXVLRQ3ROLF\,PSOLFDWLRQV
7KHYDULDWLRQLQSDWWHUQVRIZDUWLPHUDSHDQGRWKHUIRUPVRIVH[XDOYLR
OHQFHGRFXPHQWHGDQGDQDO\]HGKHUHVXJJHVWVWKDWPDQ\FRPPRQEHOLHIV
DERXWZDUWLPHVH[XDOYLROHQFHDUHXQVXEVWDQWLDWHGRUDWEHVWRQO\SDUWLDO
O\WUXH5DSHRIFLYLOLDQVLVQRWWKURXJKRXWKLVWRU\XELTXLWRXVLQZDURU
FRPPLWWHGE\DOODUPHGJURXSVDVLVVRPHWLPHVDVVHUWHG7KHYLFWLPVRI
ZDUWLPHVH[XDOYLROHQFHDUHQRWDOZD\VRYHUZKHOPLQJO\IHPDOHPHQDQG
ER\VVXIIHUKLJKOHYHOVRIUDSHDQGVH[XDOWRUWXUHE\VRPHDUPHGJURXSV
$QDUPHGJURXSPD\HQJDJHLQIUHTXHQWUDSHZLWKRXWLWEHLQJDVWUDWHJ\
RIZDU&RQIOLFWVZLWKKLJKOHYHOVRIUDSHDVPHDVXUHGE\WKHSHUFHQWDJH
RI FRQIOLFWV FKDUDFWHUL]HG E\ VXFK KLJK OHYHOV DUH QRW PRUH IUHTXHQW LQ
6XE6DKDUDQ$IULFDWKDQRWKHUUHJLRQV1RULVLWOLNHO\WKHFDVHWKDWZDU
WLPHUDSHLVPRUHIUHTXHQWWRGD\WKDQKLVWRULFDOO\
0RVW LPSRUWDQWO\ UDSH LV QRW LQHYLWDEOH GXULQJ ZDU 5HFRJQLWLRQ
WKDWVRPHDUPHGJURXSVGRQRWHQJDJHLQVH[XDOYLROHQFHVKRXOGVWUHQJWK
HQ HIIRUWV WR KROG DFFRXQWDEOH WKRVH JURXSV WKDW GR ZKHQHYHU WKH XVXDO
FULWHULD IRU FRPPDQG DQGRU VXSHULRU UHVSRQVLELOLW\ XQGHU LQWHUQDWLRQDO
ODZDUHPHWLUUHVSHFWLYHRIZKLFKDQDO\WLFDOQRWOHJDOFDWHJRU\EHVWGH
VFULEHVWKHSDWWHUQRIYLROHQFHVWUDWHJLFRSSRUWXQLVWLFRUDVDSUDFWLFH
7KH H[LVWHQFH RI VXFK JURXSV GHPRQVWUDWHV WKDW LW LV SRVVLEOH IRU DUPHG
JURXSVWREXLOGLQVWLWXWLRQVWKDWLQFXOFDWHDQGHQIRUFHQRUPVDJDLQVWUDSH
VH[XDOVODYHU\IRUFHGSURVWLWXWLRQVH[XDOWRUWXUHDQGRWKHUIRUPVRIVH[
XDOYLROHQFHRIFLYLOLDQV
7KXV UHFHQW DQDO\VLV E\ VRFLDO VFLHQWLVWV RI YDULDWLRQ LQ SDWWHUQV RI
ZDUWLPHVH[XDOYLROHQFHLQFOXGLQJYDULDWLRQLQIRUPIUHTXHQF\DQGWDU
JHWLQJ PD\ KHOS SROLF\PDNHUV HVWDEOLVK DFFRXQWDELOLW\ IRU VH[XDO YLR
OHQFH ,Q WKH KRSH WKDW WKH DUJXPHQW SUHVHQWHG KHUH PD\ VWUHQJWKHQ WKH
HIIRUWVRISROLF\PDNHUVZKRVHHNWRHQGVH[XDOYLROHQFHDQGRWKHUYLROD
WLRQVRIWKHODZVRIZDU±EHWKH\JRYHUQPHQWPLOLWDU\RULQVXUJHQWOHDG
HUV8QLWHG1DWLRQVRIILFLDOVRUPHPEHUVRIQRQJRYHUQPHQWDORUJDQL]D
WLRQV±,KHUHRIIHUVRPHWHQWDWLYHSROLF\LPSOLFDWLRQVRIWKLVDQDO\VLV
,WZRXOGEHUDVKWRVXJJHVWWKDWSROLF\PDNHUVWU\WRFRPSHODUPHG
JURXSVWRFRS\WKHLQVWLWXWLRQVRIWKRVHJURXSVWKDWGRQRWHQJDJHLQVH[X
DO YLROHQFH 1RQHWKHOHVV VRPH PRUH LPSOHPHQWDEOH SROLF\ LPSOLFDWLRQV
IROORZ IURP WKLV GLVFXVVLRQ 3ROLF\PDNHUV FDQ SRLQW WR WKH H[LVWHQFH RI
:RRGVHHVXSUDQRWHDQG+RRYHU*UHHQVHHVXSUDQRWH
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
WKHODWWHUJURXSVWREULQJWRJHWKHUWZRFRQVWLWXHQFLHVWKDWRIWHQKROGGUD
PDWLFDOO\GLIIHUHQWSUHVXPSWLRQVDERXWZDUWLPHVH[XDOYLROHQFHQDPHO\
IHPLQLVW DGYRFDWHV DQG PLOLWDU\ FRPPDQGHUV 7KH IDFW WKDW VRPH RI WKH
DUPHGJURXSVSURKLELWLQJVH[XDOYLROHQFHDUHVWURQJSURIHVVLRQDOVWDWHRU
UHEHODUPLHVVKRXOGXQGHUPLQHDQ\QRWLRQWKDWDWUXO\SURIHVVLRQDOJURXS
QHHG QRW FRQFHUQ LWVHOI ZLWK VXFK µVRIW¶ LVVXHV(IIHFWLYH ILJKWLQJ IRUFHV
WKDWLVH[FHOOHQWµZDUULRUV¶QHHGQRWHQJDJHLQWKHSURIRXQGO\PLVRJ\QLV
WLFULWXDOVWRRRIWHQFHOHEUDWHGDVµPDVFXOLQH¶YDOXHV
2IFRXUVHLWLVSUHFLVHO\LQWKHVHWWLQJVZKHUHFKDQJHLVPRVWQHHG
HG QDPHO\ ZKHUH JURXS PHPEHUV DUH DOUHDG\ HQJDJHG LQ ZDUWLPH UDSH
DQGRWKHUIRUPVRIVH[XDOYLROHQFHDVDVWUDWHJ\RUSUDFWLFHWKDWUHVLVWDQFH
WRFKDQJLQJLQVWLWXWLRQVLVOLNHO\WKHPRVWVWURQJ$SSHDOWRWKHQRUPDWLYH
FRQGHPQDWLRQRIUDSHXQGHUWUDGLWLRQDOWHDFKLQJIRUH[DPSOHLVQRWOLNHO\
WR EH VXFFHVVIXO ZKHUH DUPHG JURXSV KDYH GLVSODFHG DQG VKDUSO\ XQGHU
PLQHG WKH DXWKRULW\ RI WUDGLWLRQDO OHDGHUV /HVVRQV FRXOG SHUKDSV EH
OHDUQHGIURPFDPSDLJQVDJDLQVWWKHSUDFWLFHRIIHPDOHJHQLWDOFXWWLQJWKH
VXFFHVV RI ZKLFK RIWHQ GHSHQGV QRW RQ SHUVXDVLRQ RI LQGLYLGXDO IDPLO\
PHPEHUVEXWRQZLGHVSUHDGFRPPXQLW\SOHGJHVQRWWRUHTXLUHFXWWLQJDV
D FRQGLWLRQ RI PDUULDJHDELOLW\ RI GDXJKWHUV ,GHDOO\ UHLQIRUFLQJ WUDGL
WLRQDO QRUPV DJDLQVW VH[XDO YLROHQFH ZRXOG EH SRVVLEOH ZLWKRXW DOVR UH
HQIRUFLQJJHQGHULQHJDOLWDULDQSUDFWLFHVDQGEHOLHIV
$GLVWLQFWDSSURDFKLVWRDGGUHVVWKHKLVWRULFDOLPSXQLW\RIZDUWLPH
OHDGHUV IRU VH[XDO YLROHQFH WKH SURVHFXWLRQ RI FRPPDQGHUV DV ZHOO DV
SHUSHWUDWRUV ZRXOG LQFUHDVH WKH FRVWV WR WKH DUPHG JURXS VWUHQJWKHQLQJ
LQFHQWLYHV WR HIIHFWLYHO\ SURKLELW LWV RFFXUUHQFH 6HH WKH PDQ\ UHOHYDQW
FKDSWHUVRIWKLVYROXPH3URVHFXWLRQRIVH[XDOYLROHQFHDVDZDUFULPH
DVDFULPHDJDLQVWKXPDQLW\ZKLFKLVSRVVLEOHRQO\ZKHUHWKHVH[XDOYLR
OHQFHLVSDUWRIZLGHVSUHDGRUV\VWHPDWLFDWWDFNRQFLYLOLDQSRSXODWLRQRU
DV JHQRFLGH ZRXOGOLNHO\ LQFUHDVH WKRVH FRVWV PRUH WKDQLWV SURVHFXWLRQ
XQGHU RWKHU UHOHYDQW ODZ 7KH VDPH DUJXPHQW DSSOLHV WR JURXSV ZKHUH
*HUU\ 0DFNLH ³(QGLQJ )RRWELQGLQJ DQG ,QILEXODWLRQ $ &RQYHQWLRQ $FFRXQW´ LQ
$PHULFDQ 6RFLRORJLFDO 5HYLHZ YRO QR SS ± *HUU\ 0DFNLH
³)HPDOH *HQLWDO &XWWLQJ 7KH %HJLQQLQJ RI WKH (QG´ LQ %HWWLQD 6KHOO'XQFDQ DQG
<OYD +HUQOXQG HGV )HPDOH &LUFXPFLVLRQ LQ $IULFD &XOWXUH &RQWURYHUV\ DQG
&KDQJH/\QQH5LHQQHU3XEOLVKHUV%RXOGHUSS±DQG(OL]DEHWK/HY\
3DOXFN DQG /DXULH %DOO 6RFLDO QRUPV PDUNHWLQJDLPHG DWJHQGHU EDVHG YLROHQFH $
OLWHUDWXUH UHYLHZ DQG FULWLFDO DVVHVVPHQW ,QWHUQDWLRQDO 5HVFXH &RPPLWWHH 1HZ
<RUN
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
8QGHUVWDQGLQJDQG3URYLQJ,QWHUQDWLRQDO6H[&ULPHV
VH[XDO YLROHQFH LV D SUDFWLFH LQFUHDVLQJ WKH FRVWV RI WROHUDWLRQ E\ FRP
PDQGHUVZRXOGVWUHQJWKHQWKHLULQFHQWLYHVWRSXQLVKFRPEDWDQWVIRUVH[X
DO YLROHQFH ,Q VKRUW WKH LPSOLFDWLRQ LV WR VWUHQJWKHQ FRPPDQGHU LQFHQ
WLYHVWREXLOGVWURQJGLVFLSOLQDU\LQVWLWXWLRQVDQGSRVVLEO\VWURQJSROLWLFDO
HGXFDWLRQLQVWLWXWLRQVWRHIIHFWLYHO\SURKLELWVH[XDOYLROHQFH
'LUHFWLQGLFDWRUVRIVWUDWHJLFVH[XDOYLROHQFHLQFOXGHVFRSLHVRIRU
GHUV FUHGLEOH FRPEDWDQW RU ZLWQHVV UHSRUWV RI VXFK RUGHUV FUHGLEOH UH
SRUWV WKDW FRPEDWDQWV ZKR UHIXVHG WR SDUWLFLSDWH ZHUH SXQLVKHG DQG WKH
DEURJDWLRQIURPDERYHRIDWWHPSWVWRFXUWDLOWKHSUDFWLFH6XFKGLUHFWHYL
GHQFHLVLQFUHDVLQJO\XQOLNHO\DVLQWHUQDWLRQDODQGSHUKDSVGRPHVWLFSURV
HFXWLRQ RI VH[XDO YLROHQFH RFFXUV PRUH IUHTXHQWO\ &RPPDQGV WKDW XVH
HXSKHPLVPVIRUJHQHUDOWHUURUPD\VXSSRUWDFODLPRIVH[XDOYLROHQFHDVD
VWUDWHJ\RIZDUIRUH[DPSOHFRPPDQGVVXFKDVµWRWDOZDU¶RUµDOOIRUPV
RIYHQJHDQFH¶ZKHQWKH\DUHXQTXDOLILHGE\DQ\SKUDVHVXFKDVµDJDLQVW
HQHP\WURRSV¶RUZKHUHWKH\H[SOLFLWO\LQFOXGHYLROHQFHDJDLQVWFLYLOLDQV
6XFK FRPPDQGV HVWDEOLVK D FOLPDWH RI WROHUDQFH IRU KXPDQ ULJKWV YLROD
WLRQV LQ WKH VDPH ZD\ WKDW DOORZLQJ D KRVWLOH ZRUNSODFH FOLPDWH WKDW LV
SHUPLVVLYHRIKDUDVVPHQWVXSSRUWVFKDUJHVRIVH[XDOKDUDVVPHQWLQVRPH
FRXQWULHV
0RUHUHDOLVWLFDOO\SHUKDSVWKHDSSURDFKDGYRFDWHGKHUH ±WRGRFX
PHQWDQGDQDO\]HSDWWHUQVRIVH[XDOYLROHQFH±VKRXOGFRQWULEXWHWRSURY
LQJ FRPPDQG UHVSRQVLELOLW\ IRU VH[XDO YLROHQFH LQ WKH DEVHQFH RI GLUHFW
SURRI,QWKHDEVHQFHRIVXFKHYLGHQFHDQGLQWKHIDFHRIOHDGHUV¶FODLPV
WKDWWKH\GLGQRWH[HUFLVHFRQWURORIWURRSVKRZPLJKWWKHµHIIHFWLYHFRQ
WURO¶ QHFHVVDU\ WR VKRZ FRPPDQG UHVSRQVLELOLW\ EH GRFXPHQWHG" 7KLV
GLVFXVVLRQ VXJJHVWV VRPH LQGLFDWRUV RI DQ HIIHFWLYH FKDLQ RI FRPPDQG
)LUVW WKH DELOLW\ RI OHDGHUV WR FRPPDQG FRPEDWDQWV LQWR KDUP¶V ZD\ LV
LWVHOIHYLGHQFHRIHIIHFWLYHFRPPDQGDNH\LQGLFDWRURIORVVRIFRPPDQG
LVWKHUHIXVDORIWURRSVWRHQJDJHLQFRPEDWDQGWRILUHZHDSRQVDWFRP
PDQGHUV(YLGHQFHRIHIIHFWLYHFRQWUROLVVWLOOVWURQJHULQWKHFDVHZKHUH
WKH DUPHG JURXS FDUULHV RXW RIIHQVLYH RU GHIHQVLYH PDQHXYHUV RYHU DQ
H[WHQGHG DUHD RU SHULRG EHFDXVH RUGHUV PXVW EH WUDQVPLWWHG GRZQ WKH
FKDLQRIFRPPDQGDQGLQIRUPDWLRQDERXWSUHVHQWSRVLWLRQDQGFDSDFLW\
DVZHOODVLQWHOOLJHQFHDERXWHQHP\SRVLWLRQPXVWWUDYHOXSWKHFKDLQRI
FRPPDQG$QGLWLVVWURQJHUVWLOOLIVXFKPRYHPHQWVUHTXLUHFRRUGLQDWLRQ
DFURVV PDQ\ GLIIHUHQW XQLWV 6HFRQG DQDO\VLV RI ORFDO SDWWHUQV RI ZKHUH
DQGZKHQVH[XDOYLROHQFHRFFXUVPD\KHOSHVWDEOLVKWKHSXUSRVHIXODGRS
WLRQRIVH[XDOYLROHQFHDVVXJJHVWHGE\WKHDQDO\VLVRIVH[XDOYLROHQFHE\
),&+/3XEOLFDWLRQ6HULHV1R±SDJH
5DSH'XULQJ:DULV1RW,QHYLWDEOH
9DULDWLRQLQ:DUWLPH6H[XDO9LROHQFH
VWDWH IRUFHV LQ 3HUX GLVFXVVHG DERYH ,I SURVHFXWRUV FDQ VKRZ WKDW UDSH
RFFXUUHGRQO\ZKHUHDQGZKHQLWZDVVWUDWHJLFDOO\EHQHILFLDODQGGLGQRW
RFFXU ZKHUH DQG ZKHQ LW ZDV QRW D FKDUJH RI FRPPDQG RU VXSHULRU UH
VSRQVLELOLW\VKRXOGEHPRUHFUHGLEOH
7KLUGDQDUPHGJURXSWKDWLVDEOHWRJDWKHUDQGGLVWULEXWHILQDQFLDO
UHVRXUFHV DFURVV YDULRXV EUDQFKHV RI LWV RUJDQL]DWLRQ ZLWKRXW VXEVWDQWLDO
µGHYLDWLRQ¶ RI WKRVH UHVRXUFHV IRU SULYDWH SXUSRVHV GHPRQVWUDWHV D FRKH
VLYHFRPPDQGVWUXFWXUH)RXUWKLIDQDUPHGJURXSURXWLQHO\SXQLVKHVLWV
PHPEHUVIRUEUHDNLQJUXOHVRWKHUWKDQWKRVHQRPLQDOO\SURKLELWLQJVH[XDO
YLROHQFHLWFRXOGDOVRSXQLVKFRPEDWDQWVIRUVH[XDOYLROHQFH
2WKHULQGLUHFWLQGLFDWRUVWKDWVH[XDOYLROHQFHRFFXUVXQGHUDQHIIHF
WLYHFKDLQRIFRPPDQGLQFOXGHWKHRFFXUUHQFHRIVH[XDOYLROHQFHLQPLOL
WDU\ EDVHV SULVRQV RU VWDWHUXQ IDFLOLWLHV WKDW LV VLWHV WKDW DUH HYLGHQWO\
XQGHUFRPPDQGHUFRQWURO DJDLQVW SROLWLFDO RSSRQHQWV ZKHQ FRPPDQG
LQJ RIILFHUV DUH SUHVHQW XQGHU RUGHU RI FRPPDQGLQJ RIILFHUV RU ZKHQ
FRPPDQGLQJRIILFHUVWKHPVHOYHVSDUWLFLSDWHLQVH[XDOYLROHQFH,QVRPH
FRQWH[WV HYLGHQFH RI FROOHFWLYH WDUJHWLQJ RI SDUWLFXODU JURXSV LPSOLHV
SXUSRVHIXOHQJDJHPHQWLQVH[XDOYLROHQFHDVLWVXJJHVWVWKDWFRPPDQGHUV
VXFFHVVIXOO\SURKLELWVH[XDOYLROHQFHDJDLQVWJURXSVQRWVRWDUJHWHG
5DSH LV QRW DQ XQDYRLGDEOH FROODWHUDO GDPDJH RI ZDU ,WV YLFWLPV
ZRPHQ DQG PHQ RI DOO DJHV ZHUH QRW EURXJKW GRZQ E\ FURVVILUH RU DQ
HUUDQWPLVVLOH7KH\ZHUHLQWHQWLRQDOO\YLRODWHG$V1HLO0LWFKHOOHPSKD
VL]HG³>«@UDSHLVQRWGRQHE\PLVWDNH´,VDQ\RQHEH\RQGWKHLPPHGL
DWHSHUSHWUDWRUUHVSRQVLEOHIRUWKHFULPH"$UPHGJURXSVZKHWKHUWKH\DUH
QRQVWDWH DFWRUV RU VWDWH PLOLWDULHV RIWHQ FKRRVH WR SURKLELW VH[XDO YLR
OHQFHE\WKHLUPHPEHUVDQGGRVRHIIHFWLYHO\7KHIDFWWKDWPDQ\DUPHG
JURXSV GR QRW HQJDJH LQ VH[XDO YLROHQFH VKRXOG KHOS WR VWUHQJWKHQ DF
FRXQWDELOLW\ IRU ZDUWLPH VH[XDO YLROHQFHDQGWR SXW WKH VWLJPD RI VH[XDO
YLROHQFHRQWKHSHUSHWUDWRUVUDWKHUWKDQRQWKHYLFWLPVWKHPVHOYHV
/HLE\VHHVXSUDQRWH
1HLO 0LWFKHOO $JHQWV RI $WURFLW\ /HDGHUV )ROORZHUV DQG WKH 9LRODWLRQ RI +XPDQ
5LJKWVGXULQJ&LYLO:DU3DOJUDYH0DF0LOODQ1HZ<RUNS
),&+/3XEOLFDWLRQ6HULHV1R±SDJH