Capital markets across the world need many more Hindenburgs, not fewer

Despite decades of financial regulation globally, we need more Hindenburgs, not fewer. WSJ
Despite decades of financial regulation globally, we need more Hindenburgs, not fewer. WSJ

Summary

  • Short sellers may not always be right, but are often vilified unfairly. They hold businesses to account and raise the cost of opacity and deceit. On the whole, they make markets more efficient—a valuable role.

In 2017, Nathan Anderson established Hindenburg Research with a purpose as pointed as its name: to uncover corporate disasters of human making and hold them accountable. 

Over the years, Hindenburg became a lightning rod for controversy, dissecting companies and exposing everything from accounting fraud to undisclosed conflicts of interest.

Last week, much to the glee of many in the corporate world, Anderson announced that he was stepping away from the firm he built, citing the unrelenting pressure of the work. 

His departure feels symbolic—a reminder of how fragile the fight for corporate accountability can be when left to a few determined to wage these battles.

Despite decades of financial regulation globally, we need more Hindenburgs, not fewer. 

Also Read: The exit of Hindenburg Research exposes a failure of the market

Businesses are the lifeblood of modern economies, but without checks and balances, they can also be their undoing. 

Regulators, while necessary, operate within the constraints of bureaucracy and politics. They are reactive, not proactive. 

Investors, particularly large institutions, often find it easier to look the other way than confront the companies they bankroll. 

Governance, transparency and ethical behaviour are often hash-tagged with the brute force of influence and profits.

Yes, Hindenburg profited many times from its reports. 

The veracity of its claims has also been doubted. But still, short selling is legal. It operates within the same framework that lets us purchase and hold securities. 

Yet, the practice is often vilified as though it’s nefarious. 

While short sellers like Hindenburg are not infallible, they contribute far more to market efficiency than they’re given credit for. By challenging valuations and exposing fraud, they prevent bubbles that can destabilize economies when they burst.

Why is it that we celebrate those who sing the praises of our favourite companies but demonize those who challenge them? 

Short sellers have long been maligned, labelled ‘vultures’ that thrive on the carcasses of companies they bring down. 

If a short seller uncovers accounting fraud, do we fault them for revealing the truth or the company for hiding it? 

When they raise uncomfortable questions about inflated valuations or governance failures, are we outraged because they destabilize markets or because they disturb our illusions? 

Much of the investing world and many global corporate owners may cheer Hindenburg’s closure, but ironically, many of them have used similar short-selling tactics when it served their interests.

This caricature ignores the vital role short sellers play in exposing the rot before it metastasizes. 

Anderson’s Hindenburg meticulously built its cases, publishing reports that could withstand public scrutiny. Sometimes better than what market regulators are expected to do. 

Also Read: Full disclosure for Sebi chief: Key to preventing next Hindenburg-like scandal

The resultant sell-offs were the market’s natural response to the truths that were missing in the first place. 

None of this would be necessary in a world where humans could truly govern themselves earnestly without doing anything they’d want kept hidden.

The importance of what short sellers do goes beyond financial markets. Their investigations are designed to make profits, but with principles. By shining a light on corporate misdeeds, they remind us that governance is a non-negotiable pillar of capitalism. 

For every scandal they exposed, there were likely dozens of boardrooms that felt the ripple effect, forcing businesses to recognize that the cost of opacity and deceit had gone up. 

In a world where trust is both a currency and a victim, Hindenburg raised the price of misdeeds.

Also Read: The Adani-Hindenburg episode has given investors lessons on market risk

Corporate opacity leaves deep scars, disproportionately hurting those who can least afford losses. 

Hindenburg’s work may have ruffled feathers, but it served as a necessary counterweight in a system that often tilts against the little guy. 

At its core, the debate about Hindenburg’s methods isn’t merely about short selling or market reactions, but corporate morality.

Can capitalism coexist with integrity? 

Can companies balance the drive for profit with doing the right thing? 

The message is clear: companies that cannot meet basic standards of governance should not be rewarded with blind trust. 

This stance isn’t anti-capitalist. It’s pro-accountability.

Hindenburg’s work, however controversial, offered a counterbalance in a system often skewed against them. 

It raised a simple question: If a company has nothing to hide, why fear scrutiny? 

Isn’t it a fundamental expectation of governance to defend data-backed truths, even if it requires additional time and effort?

Anderson’s decision to open-source his techniques would perhaps be his most enduring contribution, an invitation for others to step into the fray and continue such work. 

Yet, one cannot ignore the personal toll such activism takes. 

Holding power to account is rarely glamorous. It is exhausting, relentless and often thankless. 

While we celebrate movies that hero-worship individuals who take on the high and mighty, when it comes to our own investments, we often cry foul when anyone asks questions.

Without watchdogs willing to call out malfeasance, society risks sliding into a reality where profits are prioritized over principles. Accountability should not rest on the shoulders of a few brave individuals. It’s a shared responsibility—of regulators, investors and corporate boards. The question is whether we will leave this task to a few activists in the hope that they’ll do what entire systems often fail to. Markets don’t need perfection, but they do need accountability.

The author is a corporate advisor and independent director on corporate boards. His X handle is @ssmumbai

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