Wall Street “Wizards” Just Presided Over the Biggest Money Drain in History – And They Are Getting Off Scot Free

Executive Memorandum


To: The New CEO

From: The Previous CEO

Date: November, 2012

Re: Wall Street “Wizards” Just Presided Over the Biggest Money Drain in History – And They Are Getting Off Scot Free

I imagine you are as furious as I am at the way Wall Street’s minions managed their global bloodletting.  They brought the financial system to its knees.  Today, they are presuming to go on calling the shots just as though God meant them to.

Now that those folks on Wall Street have succeeded in making the whole world crazy, perhaps we ought to think twice about letting them tell us what to do.  They certainly messed up the lives of millions of people in their last go round.  So far they have blamed everybody but themselves and their own power hunger.

Wall Street influence on the stock price is known to be substantial.  Thus, they determine the amount of financial resources, available to a firm.  However their impact goes further than that because of the power to determine a company’s financial needs.  They also have influence on the short-term strategy to be pursued.

Who is kidding whom?

I want to talk about our relationships to brokers and investment bankers and especially to the analysts who continue to pontificate about our future – in spite of having demonstrated, quite recently, that they are nearly always wrong about everything.

The stock markets have yo-yoed themselves back up from the depths and has recovered.  The response of most corporate managers however has been to touch their forelocks once more to the Wall Street analysts and get right back into the dangerous game of trying to match or beat their quarterly expectations.  We’re still listening to that old siren song.

Shame on us!

The analysts, for their part, are right back at the old stand, pontificating as always, and warning of others’ failings while never bothering to admit their own.

So now we have a frenzy of new firings from company after company in a desperate attempt to cut costs and, by implication, raise profits.  These latest downsizings may, indeed, be necessary, but the applause they get on Wall Street is hardly warranted.  Dumping a substantial portion of the work force will not turn companies around and it will certainly not improve what must already be pretty poor morale.  It sure as hell will not lead to the next round of growth – but it will affect the lives of a lot of innocent bystanders.

Isn’t it time we got it though our heads that Wall street analysts can’t tell us how to run our companies?  They give the same advice to everybody and everybody in every industry tries to follow it.  It can’t be equally right for everybody, but it could easily be equally wrong.  Hell, they can’t even manage their own firms, much less tell us how to manage natural gas line firms in Tehran, chip makers in Silicon Valley or biotech firms wherever they are.

The issue is quite simply: who is to control our companies?

I think it is past time for us – and for that matter, every other company management – to take our future into our own hands and stop taking signals from the devil over our shoulder.  Either we know what we are doing or we don’t.  Checking with the hecklers every day, like some poll-driven politician, is hardly demonstrating leadership.

Let’s just do the things we have to do to keep our companies alive and healthy and let the critics do what they have to do.  It can’t work out any worse for us than the old way of trying constantly to please the Street, or courting those financial talking heads who operate on a 24-hour news cycle.  They have to make news whether there’s news or not.  They have to make waves regardless of whom they hurt.

I’ve suggested before that we need to go our own way and not let a bunch of outside analysts jerk us around.

Now I’m going a step beyond.  I think we ought to call the analysts to account.

The almost universal acceptance of long term versus short-term earnings stifles innovation and growth.

If there was ever a time to go into the marketplace of ideas, now is the time.  Let’s take the analysts to the court of public opinion.

I think we should serve notice on the analysts that, just as they have a right to expect transparency from us, we have a right to expect responsibility from them.

I think we should remind them periodically how lousy their track record is and make it clear to them that we will be both the authors and the executors of our business strategy and that nobody knows better than we what is best for us.

That doesn’t mean that we can’t be questioned, nor does it mean that we won’t be open to suggestions.  It does mean that operating the company is our responsibility and theirs is reporting about what we are doing -–not trying to do it for us.  Not creating news where there is none.  Not hyping our stock on a whim.  Not talking up some scientific breakthrough they know nothing about and we are still pursuing.  Not – especially – predicting global markets, which is plainly impossible because of all the uncertainties and discontinuities there are and all the unforeseen events that can take place.

At the same time, let’s acknowledge that we – like other company managements, have been to eager to please them and too quick to use their doubts as directives.

If our stock prices are to suffer, let it be because of what we do (or fail to do) rather than what they tell us to do or not to do.  When we do what they want us to do, that is the surefire recipe for irrational exuberance and losing 50% of our market capitalization.

This kind of stance has its risks, but we’ve already tried the other way and it certainly did nothing to help our stock price.  It seems to me that, apart from going private, there is only one way to keep Wall Street from bleeding value from our company and from our stockholders.

That is to take firm control of our destiny and to keep the public informed at all times about where we are going and how we intend to get there.  How we intend to create value – not just disposable numbers or a tape running across their screens.  My doctor friends have told me that there have been a lot of strained necks recently from people trying to follow those tapes.

It doesn’t seem either sensible or practical to keep lowering earnings estimates two or three times a quarter so we can finally beat our lowest estimate.  That’s what we’ve suckered ourselves into to keep Wall Street happy.  If we keep it up we’re going to put ourselves into legal hot water.  We can’t keep pulling the wool over our stockholder’s eyes without incurring serious liability.  An earnings estimate is not just an earnings estimate – it is a promissory note to our stockholders, management’s best guess of performance.  If we keep revising it downward, stockholders have a right to ask if we are competent to do our jobs and if we are properly representing their interests.

The alternative, to set a bold course and publish it to the world, to stick to it and make it work, seems far wiser and far more economical.  And far more honest.  Make consumers part of our plans, make them stakeholders as well as stockholders.

This is, I’m afraid, a good deal harder than I may have made it sound so far.  The degree of transparency necessary to serve as a counterbalance to what analysts might be tempted to invent or embroider to fit their own theories – is not easy for a company to achieve or to live with.

When we say we are going to do something, we will have to do it – no ifs, ands, or buts.  When we make a move – any kind of a move, we will have to justify it in terms anybody can understand.  That can be done easily where the choices involved are rational and quantifiable.  Not so easily where choices are emotional, subjective, based on qualities that may seem intangible.  Nevertheless, we will have to try to justify both kinds of choices – because both kinds of choices are involved in running a business.  Both kinds of choices, are in the end, what separate growth companies from non-growth companies.

This degree of transparency will require a great deal of honesty on our part at all levels of the company and a great deal of skill in communications.  That means we will have to do a lot of soul-searching and we will have to go out of our way to explain ourselves in all our deals and all our decision-making.  We will have to explain, not just the things we do, but the things we decide not to do as well.

In paying the price of transparency managers would gain a clear view of what goes on in the rest of the company – including the executive suite – a better than fair trade.

Of course, that means transparency in the workings of the board, too.  Board members would also have to change their ways.  Things we used to keep close to the vest would become common knowledge and our more than occasional tendency to act arbitrarily would have to go.  That doesn’t mean that proprietary information must become public, but it does mean that we’d better be careful to distinguish what is truly proprietary from what is merely inconvenient to disclose.

The key to running a transparent company is having a clear direction and a well-defined and well-understood strategy for getting where you want to go.  That direction, that strategy, and that understanding must be integral to every division of the company, every department, and every individual.  If our people know clearly what is expected of them I think we can count on them to deliver.  I think they’ll even be proud to have what they do be visible to the public.

I admit to having rewritten this memo several times.  In earlier versions I began by biting my tongue – trying not to give vent to my anger at Wall Street for siphoning so many dollars out of people’s pockets and for causing so much hardship to so many stockholders and so many companies.  On reflection, the anger seem justified and a necessary precursor to contemplating what we can do to fight back.

I’d like to think that they have learned a lesson, but I fear they haven’t.  They’ll keep doing what they’ve always done, and I am not sure that there is any way to force them to act more responsibly.

What we can do is try to counter their influence.

The time to start that is now.

If we do not we will lose control of our business, lose control of the rhetorical climate that surrounds it, lose control of our share prices, and let down our shareholders.  These shareholders invested in our company, not in a bunch of Wall Street types who have neither created nor managed a Fortune 500 company; not in some media flacks who seem to care more about eyeballs than they do about reporting, as opposed to making the news.

There is a better way and we ought to take it.

Let me know what you think.  I’m available, as always to talk about this at your convenience.

Good luck and God bless.

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