Investors of the world, unite! The Motley Fool declares "mayday" on the U.S. stock markets, the most powerful capitalist force on the planet. Individual investors are increasingly important to the vitality of the stock market, yet, in terms of policy and regulation, our voices are a mere whisper compared to the organized lobbying efforts of the business, exchange, and institutional investor constituencies. Events over the last year have highlighted some significant flaws in the way that the U.S. markets are run. This is a direct threat to our economic well-being, for honest markets are certainly part of the reason that the U.S. is the destination of choice for so much capital from overseas.

Well, guess what? The markets need us, individual investors, to help keep it vital. It is our responsibility to demand that they be run in a way that is equitable, transparent, and benevolent, not just for us, but for all constituencies. We are willing to take risks that companies will succeed or fail as businesses; we should not be willing to risk that we are being deceived, or that the information we are provided is not an accurate representation of a company's economic condition.

From May 1 to May 8, The Motley Fool will present its ideas for best practices in the marketplace. We hope that these ideas will stir debate among individual investors. We have set up a discussion board for just that purpose. We will release a new Declaration each day at noon.

Declaration #3:

We, as individual investors, want information that provides an accurate picture of companies' financial condition.

Problem: With the broadening base of shareowners in public companies, the balance against executives by powerful shareholders has abated in the last 20 years. In an age when shareholder gains are no longer tied to dividends as much as they are to share price, this leads to a moral hazard for management to "do what is necessary" to ensure their stocks stay high. We believe that companies ultimately do a disservice to investors when their managers use accounting mechanisms such as off-balance sheet financing and mega-sized stock option grants in order to achieve these aims.

We consider it to be the height of deceit for a company or its management to foist risk onto their shareholders without their informed consent. While it remains difficult for outside investors to get a good idea of management conduct, it remains incumbent upon us to do our best to do so. Alan Greenspan recently commented that CEOs "have been drawn to accounting devices whose sole purpose is arguably to obscure potential adverse results." In most of the cases of fraudulent management practices over the last 20 years, the perpetrators have generally gotten off with little more than a slap on the wrist. In some cases, crooked managers have suffered no legal consequences whatsoever. We liken this to an old Arab saying: "Trust God, but tie your camel."

There is a big difference between accounting practices being prescribed and being permitted. We reject the notion that a company technically in compliance with Generally Accepted Accounting Principles (GAAP) but providing minimal information to its investors is meeting its obligation to them. We would ask company management to ask this question of itself: If the roles were reversed, and you were the outsiders, what information would you want to know in order to make an informed investing decision? While we recognize the fact that outside investors do not have a right to observe every financial and operational decision that a management makes, there is a point at which the public's decision-making is impeded in the absence of information.

Off-balance sheet activities is one of these areas. Investors need not know the nature of every leasehold obligation that a company maintains, but where a company maintains significant risk profile to off-balance sheet activities, these should be described in a clear, plain-English manner. These obligations include the use of derivative products, even if the exact level of risk is not known. A best-effort guess as to the company's potential exposure must be made.

Another is the accounting of stock options. We believe companies should compensate their employees and managers for a job well done, but that outsiders must be able to determine the economic cost of such compensation. Many companies have fallen deeply in love with the ability stock options allow to compensate managers and insiders at a high level without needing to recognize this as an expense.

We find the arguments against proper accounting for stock options to be remarkably transparent. "Accounting for stock options will hurt companies and deny the rank-and-file the opportunity to participate." Of course, the actual economic cost of an accounting change is zero. NOTHING would change except for the accounting statements. What this argument says is that companies are more than happy to use options liberally since they are invisible. Make them visible, and employees and shareowners will suffer. It is a thinly veiled threat, aimed directly at the millions of non-executive employees of publicly traded companies. And it is sickening.

Justice Brandeis once famously noted, "Sunlight is the best disinfectant, and electric light is the best policeman." We believe that the best medicine for the overall health of the U.S. markets and the companies within it is clear and open communications. Unfortunately, no management is going to step up and say, "By the way, we're crooked," so it becomes incumbent upon the investor to use his own interpretation of events. The slightest discomfort with management activities ought to be enough to prevent an investor from buying that company's stock.

In fact, we support the theory that high levels of performance should be richly rewarded. At the same time, we do not believe that management should be compensated while obscuring either the expense of said compensation or of the risks undertaken by the company in order to improve shareholder value.

Famed investor Philip Fisher evaluates a company for ownership based on, among others, the principle of management integrity. He shuns companies that shout about their successes but clam up about their failures. This behavior flies in the face of a general axiom of business: There are only two kinds of companies in this world -- ones that currently have problems, and ones that will sometime in the future. There is no such thing as straight-line growth; there isn't even really such a thing as predictable growth.

That said, a management that is overly concerned with the price of the stock and less concerned with growing the profits, cash flows, and long-term value of the company is not likely to be forthright when business turns down. When business leaders refuse to speak their minds, shareholders are surprised when the inevitable downturn does come. In investing, surprises are not generally a good thing. Managements that seem focused upon the stock price are not to be trusted in telling the truth to their shareholders in sickness and in health -- it would cause too much damage to the one metric they use to judge themselves.

Many investors are also focused upon the short-term price movements of the stock. They may, of course, do what they want, but managements must understand that if they court momentum investors and darling status on Wall Street when times are great, these constituencies will abandon them at the first hint of bad news. We hold it as axiomatic that companies generally get the investors they deserve, for better or for worse. We, as individual investors, as committed owners of business, believe that the American markets' greatness comes not from the simple ability of passing pieces of paper back and forth. Rather, the greatness comes from the fact that we, the general public, can own many of the world's greatest companies without restriction.

The companies that treat us as partners -- part owners of the business --  are ones we wish to support. These companies have management that recognize that their role is to run the company, take fiduciary responsibility for our money, and give us honest assessments of the state of the business so that we as outsiders can continue to make informed decisions. Those who try to game this simple trust deserve to be shunned. Our job is to focus on managements' ability to increase shareholder value over the long term by focusing on things like efficient use of capital and increase in intrinsic value. We will not play the game with those who know the price of everything and the value of nothing.

What to do now
We should and must demand clear and accurate reporting from companies. Some company financial statements seem to be written in a purposeful way to make them inscrutable. See something you do not understand or do not like? Call up investor relations and have them explain it to you. If the answer is insufficient, take your investment dollars elsewhere, and be sure to tell the company why you are selling. Managements may not respond to one such message, but they would be foolish to ignore such notes in the thousands. Companies that are not sufficiently forthcoming should see themselves being abandoned by shareholders.

This is a call to action. We intend to make the opinions of individual investors heard about issues that directly affect their ability to participate in the public markets. Please take a moment to comment on this and subsequent Manifesto points that will be released over the next few market days, even if just to say, "Hear, hear!" or "I agree and would further say..." or  "I disagree because...." We will deliver these comments to the SEC, members of Congress, and the exchanges prior to the SEC Investor Summit scheduled for May 10, in which our own Bill Mann will be a panelist.