Page 256 - Executive Warfare

EXECUTIVE W ARF ARE

And while the post-Spitzer rules have clamped down on some conflicts,
one obstacle to the analyst’s objectivity is never going to disappear: They
make predictions about the future per-
formance of your stock, and it’s in their
ANALYSTS ARE A interest to do everything they can to
BIT LIKE TOUTS AT turn those predictions into self-fulfill-
THE RACE TRACK. ing prophecies.
IF THEY PICK SIX They are a bit like touts at the race
OUT OF NINE track. If they pick six out of nine win-
WINNERS, THEY ners, they gain reputation. So, if they
GAIN REPUTATION. want to be named “analyst of the year”
INEVITABLY, THEY and wear the tuxedo to the banquet,
WILL BE TEMPTED they have to be right.
TO FIX THE RACE. Inevitably, they will be tempted to fix
the race. To accomplish this, they have a
few tools. They have the power of their
own platforms and their ability to write forceful reports that will move a
stock up or down. They can also draw the attention of the press to your
brilliant moves or shortcomings.And they can use their earnings estimates
to set the bar absurdly high for you—or condescendingly low—and influ-
ence your stock’s performance in that way.
Since many investment strategies allocate certain dollars to certain
industries, in the short term, they are playing a zero-sum game. If they
prefer one of your competitors, it is just as effective to talk you down as
to whip your competitor up. So you may very well find yourself covered
by a certain percentage of analysts who are die-hard critics.
The fact is, if you work for a public company, you cannot ignore the
analysts who cover you. They have tremendous power. So how do you
handle them?
First, acknowledge that power. Make sure that your organization has
excellent investor relations people who are respected by the analysts who
follow your industry.

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