Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

In the 42 years since he founded Foxconn Technology Group, Terry Gou has become renowned for adapting best practices to appease blue-chip clients such as Apple, HP and Dell.

Labor relations, environmental protection, energy efficiency and even automation have become hallmarks of a Taiwanese company eager to serve the world's technology elite.

But unlike those customers for whom he works so hard to please, Gou has failed to serve an equally important group: shareholders.

Hon Hai Precision Industry, Foxconn's Taipei-traded flagship, makes iPhones, iPads, PCs, servers, routers and millions of different components. What it doesn't make are financial presentations or forecasts. Hon Hai declines to hold quarterly investor conferences or give revenue breakdowns.

The behemoth doesn't even schedule its earnings announcements, choosing instead to drop the numbers on the Taiwan Stock Exchange website at random times without explanation. Its peers disclose a date for results and offer investors ready access to executives to ask questions and better understand the business.

Foxconn Fog
Chairman Terry Gou's black box approach to investor relations hasn't helped shareholder returns over the past five years while Hon Hai's nearest rival opened its books with financial breakdowns and forecasts
Source: Bloomberg

Gou's explanations for this lack of transparency are as illogical as they are frustrating. More than once he's claimed that he has too much information about clients and their products, and that to open up would risk spilling their secrets. 

Fellow Taiwanese companies Pegatron and TSMC also supply to major clients including Apple, yet still manage to hold quarterly investor conferences, provide sales breakdowns and offer forecasts while maintaining the trust of their secrecy-obsessed customers. Indeed, TSMC transcripts show its executives managed to navigate the past two years of investor calls with barely a mention of the words "Apple" or "iPhone," and without directly acknowledging that the U.S. company is a client.

The two stocks have offered a better risk-return trade-off than Hon Hai in the past two years -- a period that's given birth to the iPhone 6, iPhone 6s, iPhone SE, iPad Pro and a lot of concern surrounding the future of its major client. Put simply, transparency hasn't hurt returns of those that have opened up, or their biggest client.

Transparency Premium
Amid concerns over the future of its largest client, Hon Hai's stock hasn't been worth the risk when compared to industry peers over the past two years
Source: Bloomberg
Risk-adjusted return is calculated by dividing total return by volatility, giving a measure of performance per unit of risk. The figures are not annualized.

More than once, Gou has shown disdain for bankers, claiming instead to care more about the little guy. At one annual shareholders' meeting he even pledged to hold a conference just for his hoards of small investors, a promise that's yet to be fulfilled. Individual shareholders, which account for 32 percent of Hon Hai's investor base, would have done better parking their money with Pegatron, TSMC or Samsung in the past five years.

When he meets with shareholders Wednesday for Hon Hai's annual meeting, it won't be surprising if Gou repeats previous defenses of the company's opacity: that telling big investors what's going on would be unfair to small shareholders. That's fallacious.

The reality is that open and transparent dialogue helps level the playing field. Keeping the blinds closed allows the Goldman Sachs, JPMorgans and Fidelitys of the world to draw on their supply-chain connections and channel checks, giving them insights that a 75-year-old pensioner could never hope to glean.

Lonely Investors
Hon Hai's high rate of individual shareholding means investors are disadvantaged even more by a lack of transparency
Source: Bloomberg

Even industry leaders with whom Gou is most closely connected -- Tim Cook, Jack Ma, Masayoshi Son -- embrace transparency for the sake of shareholders, without compromising their own secrets.

If trust and fairness are so important to Terry Gou, then it's time he opened up to shareholders -- big and small -- on a regular, scheduled basis so that everyone can get a fair look at what's going on inside Foxconn.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net