Contrasting Pantone Colors and Financial Disclosures
In this blog post I am going to do something that might seem a bit odd, but I think you might find this contrasting of pantone colors and financial reports helpful in understanding digital financial disclosures. Please read to the end; trust me, this will make sense.
Pantone is somewhat of a universal standardized "color language" that ensures a specific color looks exactly the same, no matter who is producing that color or where in the world they are. The Pantone Matching System (PMS), is a proprietary color naming system used in a variety of industries, such as graphic design, fashion design, product design, printing, and manufacturing.
By giving each color a name and a number and standardizing the colors, manufacturers can all refer to the Pantone system color name or number to make sure colors match without direct contact with one another. The idea behind the PMS is to allow designers to "color match" specific colors when a design enters production stage, regardless of where in the world you are and regardless of the equipment used to produce the color.
You can think of Pantone as a "dictionary of colors". Whether the medium is a digital format; materials such as cotton, polyester, nylon, plastic, paper, or any other material; the color will look exactly the same. For example, if you want something printed and if you tell the printer you want "sky blue", they might provide a shade of blue that looks different from what you had originally imagined. But if you tell the printer that what you want printed should use Pantone 2905 C; then they look up that specific color in their official Pantone color book and see the exact ink formula needed to match your desired vision of the color you desire perfectly.
Pantone categorizes colors based on the industry using the colors. For example, printers of books and magazines use one color system and the fashion industry uses a different color system. There are two main systems of standardized colors: the graphics system and fashion, home, and interiors. The graphics system has 3,255 specific colors and fashion, home, and interiors has 3,025 specific colors. But there are also specialty colors such as 655 metallics, 154 pastels, and 56 neons. Each color has a name and a number. Here is a Pantone color finder and here is Pantone color chart.
Pantone is not a "global industry standard", it is a "pay-to-play" system. Pantone is a business and their universal standardized "color language" is a product that they sell. Pantone is held out to be the "most standardized coloursystem widely used in graphic design, printing, and various industries" which is productized as their Pantone Fandecks, as an example.
For a brand like Starbucks, part of their branding is the "green" color of their logo. Similarly, Coca Cola wants the "red" of their marketing material to be consistent on their web site, on their packaging, on the color of their delivery trucks, on their vending machines; basically Coca Cola "red" needs to be the same everywhere.
But there are downsides to Pantone.
While graphic designers and house painters rely on Pantone; fine artists (painters, sculptors, etc.) rarely use Pantone for several creative and practical reasons. Artists are about creation; about variety and about trying new things and tend to shy away from standardized anything really.
Artists spend years studying color theory, things like how to mix red and yellow to get the perfect sunset orange. If a fine artist used a premixed Pantone color, the painting might look "flat" or mechanical. Artists prefer the "vibrancy" that comes from layering different pigments rather than using one standardized "spot" color.
Also, artist paints like oil or acrylic are made of heavy pigments and binders designed to sit on top of a surface. Because the chemistry is different, you can't just buy a tube of Pantone "sunset orange" at an art supply store. While some companies do make official Pantone markers or special-order paints, they aren't standard tools for a traditional painter. Pantone focuses more on inks that are designed to soak into a surface whereas the heavy pigments used by artists sit on top of a surface.
Again, one of the mediums supported by Pantone is digital. Pantone has a product, Pantone Connect. Pantone is an industrial tool, it is not really something used by independent artists. For an independent artist, spending hundreds of dollars just to identify a specific shade of blue is often a waste of money when they can just mix that blue themselves for free. Besides, independent artists seek the variety that creating new colors, they don't want industrial processes.
And so how does all this relate to financial disclosures?
The first question to ask is, "Are financial disclosures a language or a creativity process?" A clue lies in the names of financial reporting schemes such as "US Generally Accepted Accounting Principles" (US GAAP) and "International Financial Reporting Standards" (IFRS).
Financial reporting schemes are industrial tools. Sure, there is a bit of "art" and technique involved in telling the story that a financial statement is supposed to tell. But in using that "art"; accountants that are telling the story they are trying to tell must "color within the lines" of the financial reporting framework that they are using. When they start throwing too much creativity in the creation of a financial report, telling the story of an economic entity in the financial statement, there is risk of running afoul of regulators and others using that financial statement.
Below are two color wheels, each showing two sides of a spectrum. On the left you have "freeform", potentially millions and millions of possible colors. On the right you have exactly 12 colors to choose from, similar to a "standardized form". We don't want financial disclosures to be either what is on the left or what is on the right. The left side is too flexible and significantly reduces comparability. The right side provides limited flexibility, you only have 12 colors to work with; trying to tell a complex story with only 12 colors make is very challenging to communicate nuances, subtleties, and other idiosyncratic details necessary to truly understand an enterprise.
But what if financial disclosure was somewhere in the middle the two color wheels below? Not "freeform" but also not some limited "standardized form". What if the disclosure "color wheel" had about 3,255 disclosures and you could create your own specialty disclosures necessary for describing unique details of a reporting economic entity? Well, financial disclosures using US GAAP and IFRS and many other such robust financial reporting frameworks already work that way.
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