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Seems like forever that industry pundits have been waiting to publish the obit for the sell-side analyst.
"They're glorified event planners," they laugh.
"All the smart ones now work for hedge funds," they say dismissively.
"Sell side analysts? No one listens to sell-side analysts anymore," they taunt.
According to The New York Times' Gretchen Morgenson, "they" might be wrong... seems like the sell-side still has a willing audience. Unfortunately, it would appear as though this willing audience is looking for nonpublic information... and the sell side is answering the call.
"... documents obtained by The New York Times indicate that the hedge fund practice of trawling for analysts’ shifting views is systematic and growing on Wall Street. Questionnaires completed by analysts that can telegraph their thinking are being used by hedge funds run by ; Marshall Wace, a large British hedge fund company; and Two Sigma Investments, a United States hedge fund concern. The funds say they ask only for public information, but in at least four cases, documents from Global Investors, now a unit of BlackRock, state the goal is to receive nonpublic information. Two documents state that the surveys allow for front-running analyst recommendations."
Take a look at the article and tell me what you think... I, for one, am surprised at how unsurprised I am by this.
Maybe I'm in a mood but this particular article on the already over-saturated topic of Sabarnes-Oxly ten years after the fact really prunes my petunias...
I'm sure Mark Rogers is a smart guy and I'd like to think his intentions are pure. But if SOX isn't working ten years later, then let's not make it worse by setting term limits, limiting the number of company boards upon which a director can sit or making up some sort of continuing education requirement.
Let me ask you this:
Does arbitrarily forcing a qualified director who has effectively served in his/her post to step away from the company help or hinder a company's ability to execute its long-range growth agenda and best protect the interests of investors?
I find it hard to believe it would do anything but hinder the company and hurt investors. Unlike the justices on the Supreme Court, company directors do stand for re-election regularly. Therefore, they are already limited to the term for which they were elected as there is no guarantee that investors will support his/her re-election or that the governing body itself will ask this director even to stand for re-election. If the director is performing well and bringing the unique skill set that is sought by the governing body (not to mention has accumulated the specific company insight and market knowledge to serve in this capacity), then why in the world would we categorically decide how long a company and its investors can benefit from this individual's involvement? Governance is not a one-size-fits-all solution... at some point, we have got to learn that such broad-stroke, "easy" button solutions do not work. In fact, they can actually hurt more investors than they help.
Does deciding for an individual how many boards he or she can sit on help or hinder a company's ability to execute its long-range growth agenda and best protect the interests of investors?
Again, I don't see how it helps a company or its investors to shrink the pool of qualified director candidates (particularly if we're also going to limit how many terms a director can serve). This is a decision that needs to be made on a case-by-case basis by investors and the governing board (and, to a lesser extent, the individual director). If he/she isn't performing because he/she is over extended, then the board and/or the investors can take the necessary actions. In fact, there's already a name for this process - it's called the Annual Meeting of Stockholders. Perhaps what we need is legislation that forces... errrr... encourages... investors to read the company's proxy statement, ask questions, and then - *gulp* - actually cast their vote.
As for continuing education... I love Mr. Rogers' use of "almost" in this sentence: "In almost every major profession there are continuing education requirements set forth by the applicable licensing body." Love the subtly of that sentence... makes it seem so overwhelmingly obvious without actually stating a definitive fact. In many ways, it's "almost" a good point.
Listen, I'd love to change the world too but at least I know I don't know what to do. Well, I know what not to do... so that's a start...
What would you do?
Last week, I was asked by a reporter what, if any, role Mark Zuckerberg would play in Facebook's first-ever earnings conference call. That question sparked a really interesting (for me) conversation on prepping for an earnings call, which ultimately turned into a really great article on Facebook's earnings "war room."
The conversation got me thinking about prepping for conference calls in general... maybe it's me but it seems like folks are spending less time upfront getting ready for earnings calls than they used to. I don't see companies conducting due diligence on the content/tone/questions asked during peer conference calls as they once did. I don't see as many management teams practicing calls a day or so in advance like they used to. I don't hear companies debating what should be in the prepared remarks and what should held for the Q&A session.
I just don't get it. I had a CEO tell me that the prep I put him through for a call was many times harder than the call itself and, therefore, he had enormous confidence getting on the call. According to him, regardless of the actual results, he never worried about what he'd get asked during the call because I had already asked him all the really tough and obnoxious questions. That's the confidence and conviction you want your CEO to convey to investors. Remember, it's not what you say but how you say it.
Earlier this year, I wrote about the most common earnings conference call mistakes. I think I made a mistake when I wrote that post. The biggest, most common mistake with regards to earnings conference calls is not prepping thoroughly before the actual event.
According to The Wall Street Journal, there have been 106 supplemental proxy filings this year regarding executive-pay plans (an increase of 83% from a year ago). Blair Jones, managing principal at Semler Brossy said in the Journal story, the supplemental filing "... is a second attempt to say ‘perhaps we weren’t as clear as we could have been in explaining our compensation strategy.’” ("Supplemental Proxy Filings Surge" - June 26, 2012).
While that's a scary number, what's even more scary is that in only four of those situations did the proxy advisory firms overturn their initial recommendation.
What do these scary numbers tell us? That supplemental proxy filings aren't worth the virtual paper upon which they are printed? I wouldn't go that far - in many cases, the supplemental proxy filing is absolutely necessary to address assertions made (or conclusions drawn) in by the proxy advisory firms.
Nope... the takeaway for me is simple: it's too risky to wait until the proxy is mailed to start the discussion on executive-pay plans with the compliance officers at your institutional investors. This conversation needs to take place long before the proxy is mailed so that you have enough time to properly delineate the rationale behind the pay plan, as well as to give your investors the chance to provide feedback and, if appropriate, input to your compensation committee. If nothing else, by creating a direct line of communications early can dramatically reduce the need for investors to send management a message through its proxy ballot.
Just my two cents, of course. Anyone have other pocket change on this issue?
Summertime means a lot of things to different people: Family vacations... summer camps for the kids... cookouts... fireworks... baseball games... summer blockbuster movies... a(nother) trip to rehab for some artist whose summer concert tour might not be selling as well as hoped... time to catch up on books you've been meaning to read...
Let me add one book to your list (or start your list for you magazine-only readers): The Shareholder Value Myth by Lynn A. Stout, a law professional at Cornell. Don't believe me? Read this write-up by The New York Times... she's bringings the heat, am I right? And the fact that she is willing to point the finger at her academic brethren clearly shows there's no half stepping allowed with Professor Stout.
For those of you who tire easily after reading 140-characters, let me cull some soundbites from the NYT article for you:
"The blame lies with economists and business professors who have pushed the idea, with generous enabling from the corporate governance do-gooder movement, Ms. Stout contends. Stocks, as a result, have become the playthings of hedge funds, warping corporate motivation and eroding stock market returns.."
" ... the idea that shareholders "own" their companies isn't actually so set in the law, Ms. Stout argues... what the law actually says is that shareholders are more like contractors, similar to debtholders, employees and suppliers. Directors are not obligated to give them any and all profits, but may allocate the money in the best way they see fit. They may want to pay employees more or invest in research. Courts allow boards leeway to use their own judgments."
"The professor's argument is that as companies have increasingly focused on their stock prices... they have inadvertently empowered hedge funds that push for short-term solutions...the average holding period of a stock was eight years in 1960; today, it's four months."
"The biggest ill has been to align top executives' pay with performance, usually measured by the stock price. This has proved to be 'a disaster,' Ms. Stout says. Managers have become obsessed with share price. By focusing on short-term moves in stock prices, managers are eroding the long-term value of their franchises... Ms. Stout also blames the corporate governance movement, which pushed for such alignment. It has 'proven harmful to the very institutions that it is seeking to benefit,' she says. 'Investors are actually causing corporations to do things that are eroding investor returns.'"
"[Companies should ]... think about their customers and their employees and even to start acting more socially responsible. Shareholders... would be 'relatively weak - and that's a good thing.'"
Obviously, there are two sides - if not more - to every story... how would you counter this argument?
No, no... this isn't another ROBBIE awards ceremony... we're talking shareholder votes this time.
If you only read one obituary from this most recent proxy season in the States, make it this study of US mutual funds by Tapestry Networks (in concert with IRRC Institute).
Among the many highlights was this gem: mutual funds are increasingly relying upon proxy advisory firms to serve as data aggregators. "Across the board, participants in our research said they value proxy firms’ ability to collect, organize, and present vast amounts of data, and they believe smaller asset managers are more reliant on those services."
All the more reason companies need to treat proxy matters as a year-round campaign and make sure their investors understand their governance structures, protocols and practices. Similarly, doing so will allow companies to clearly understand their investors' governance concerns and sensitivities long before they send out the proxy ballot.
Be interested to know what jumps out at you when reading this report.
"It's not what you say but how you say it."
If that's not an old adage, then it should be because it's truer than Spandau Ballet.
Don't believe me? Hmmmm... perhaps it's the way I said it? Perhaps it will ring more true to you if you listen to NPR science correspondent Shankar Vedantam discuss the subject.
Not necessarily groundbreaking but interesting, right? How have you seen this phenomenon play out at your company or companies you follow?
Remember a while back when we were talking about how employee-investors are the key to unlocking shareholder value? (I didn't think you did... that's why I'm bring you this sequel.)
PR Week was kind enough to ask us to create a three-part series on this subject for their blog... the first post makes the argument in support of expanding your IR program to include your internal owners; the second post focuses on steps you can take to reach your employee-investors; and the third post provides some examples of companies that are already courting this investor population (yes, there are companies that actually do this).
Would love to hear your thoughts on this... specifically, what downside do you see to including employees in your IR program?
In honor of Facebook's IPO, I have a simple question for those companies now in the IPO queue or anticipate that you will be in the next 12 to 24 months: are you sure you are ready for the public?
This article gives you six fundamental steps you can take to be sure that you are.
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The good folks at Deloitte recently put out a wonderful whitepaper on "being public" - did you see it? While not directly addressing the communications aspects of the issue, there's a lot of great takeaways for IROs (or those that play them on TV). Among other gems, I really liked: "... proper planning prevents poor performance." Might have to get that as a tattoo.
It does seem odd to me that so more companies - and/or the law firms, iBankers, auditors that counsel them through this process - still leave IR preparation until the very end of the process (or to chance altogether). As we've discussed here before, IR programs/functions are not built in a day... there is a compliance mechanism to put into place... there is a marketing component that needs to be developed and aligned with the business strategy... there are policies to adopt and embed... there are people to train... there are protocols to put into place... there are tools to develop... believe me, it's much easier to do (and do well) when you've got the 12 to 24 month window that Deloitte references than the two weeks following the road show.
Thoughts as to why IR is left to the last minute?