Thursday, October 06, 2005

Beer Influenced Disclosure

SEC is investigating and some investors have
filed lawsuits. The new beer entity Molson
Coors Brewing seemed a little too hasty as
it stumbled up to the merger alter. Beer demand is off. The NHL hockey lock out had a negative effect on beer sales in Canada. This is apparently a surprise to the investing public. In the corporate haste to consumate the merger it seems senior managements did not point out the potential effects of the disastrous labor dispute. The SEC is investigating. Molson Coors says they are co-operating.
In this case perhaps management and investors were co-dependent in their pursuit of suds driven profits. Sporting events drive beer sales. This is not new news. Management was whistling through the graveyard of a lost NHL season. Investors had visions of financial sugar plums dancing through their due diligence radars.
Dig two graves I say. I am not impressed with either side on this issue. Recycle the empties and lets try again.

Citigroup Clarity Chronicles

Citigroup attempts to dig its way out of a reputational mess with a fairly slick 2004 annual report. Citigroup has incurred the wrath of regulators in Japan and is writing checks for billion dollar settlements for Enron Worldcom and other major failures. The focus of the annual report is their so called legacy of integrity and expertise. They trace their roots back to 1812 and weave the story of small, plucky, savvy and helpful to customers. Chuck Prince's letter refers to the problems in the following fashion...."These failures do not reflect the kind of company we are or want to be." Chuck you are bad. The Japanese regulator yanked your ticket. Given Citi's history in Japan thats some failure. The lawsuits that you are settling up are not caused by rogue traders. Those big deals were encouraged by your corporate culture, vetted through your entire risk management system and most likely had senior executive and board approval. The 2004 annual report is designed to act as both an anaesthetic and a distraction from past failures. What is really needed is some transparency on how you will manage your

Insider Drug Information

Investment Espionage has become one of America's latest growth industries. The Seattle Times is reporting that elite Wall Street Firms are paying millions to doctors who participate in research studies. This way they can beat the street and even the pharma company in determining whether a drug is passing or failing the testing process.
Thomas Newkirk a lawyer and former associate director of enforcement at the SEC had an interesting comment. "Its a good way to go to jail" Yet industry insiders say it happens all the time. Some doctors who make themselves available for these informal consultations earn in excess of an extra ten grand a year. Very easy money for medical superstars who already qualify as millionaires. Greed pure and simple.
Doctors who talk are clearly in breach of their confidentiality agreements with pharma companies. Doctors who talk are clear

Say what you mean? Mean what you say?

Corporate bafflespeak continues to reach new heights or lows depending on your point of view. The financial skeptic wants to hear about strange phrases and twists of the tongue used by corporate executives when they explain themselves. Also interested in what our regulators are saying and how they say it. Could they both be suffering from the same disfunctional communication challenge syndrome complex?

Corporate Social Responsibility

CSR or Corporate Social Responsibility will become an irresistable business trend in the early 21st Century. ( read right now) Investors are tired of being deceived. Investors are tired of products which hurt people and create huge lawsuits. Investors are tired of poor management practices that wreck havoc on fragile ecological balances. Investors are tired of a lot of short sighted thinking. Mindless pursuit of profits without regard to third party impact is a long term road to wealth destruction not creation.
Investor valuation and analysis will increasingly include evaluation of ethical standards and CSR principles. One source of information on the birth and growth of this critical trend is the magazine Business Ethics. Published by New Mountain Media the web site is . Keep an eye on it.

Investment Espionage or Savvy Analysis?

Large investors are increasingly using third party research and expert matching services to improve their chances of success. Here is how it works. An institution has a question which cannot be answered or will not be answered by management. The third party researcher will covertly attempt to gather important intelligence that lets the portfolio manager connect a few more dots. So far nothing wrong just a large investor using clout that a small investor cannot even dream of. The eithical and moral dilemna occurs when the research service does surveys or investigations that are not identified as investment research. Internal staff may be caught unawares by seemingly simple questions that seem trivial. But when enough intel is gathered a clear picture emerges. The CIA and other intelligence services have been doing this for decades. Should well funded institutions be allowed to do the same? Should regulations or codes of conduct be put into place? What if the publicly traded company just does not want this type of information to leave the corporate mothership? What recourse do they have? How do you assess damages. The Aug 1, 2005 edition of Business Week touches on the topic in their article "Have Experts Will Hire Out" .
National Investor Relations Institute (NIRI) President Lewis M. Thompson is quoted as being concerned about the legal and eithical issues. The end run circumventing Reg FD and other securities legislation tilts the playing field in favour of the unscrupulous. Greed such as it is will one day (usually sooner that later) will twist this technique into an illegal advantage. Why not set standards now? Regulate the large institutional investor's behaviour. They have the budget to hire the covert researchers. As they say follow the money?

On Bullshit

Princeton University Press has recently published an excellent book authored by Harry Frankfurt a renowned moral philosopher and Professor of Philosophy Emeritus at Princeton University. The book entitled "On Bullshit" is highly recommended by this financial skeptic. A salient quote from pages 22-23:
".......The realms of advertising and of now public relations, and the nowadays closely related realm of politics, are replete with instances of bullshit so unmitigated that they can serve among the most indisputable and classic paradigms of the concept......with the help of advanced and demanding techniques of market research, of public opinion polling, of psycholgical testing, and so forth-dedicate themselves tirelessly to getting every word and image they produce exactly right......However studiously and conscientiously the bullshitter proceed, it remains true that he is also trying to get away with something."

Chamber of Commerce High Jacked

The US Chamber of Commerce normally represents the business community. Lately their legal group has been undertaking court manouvers to roll back much needed SEC regulations regarding independent boards of directors. Who is the Chamber beholden to? Used to be the Chamber would speak clearly and logically about important business issues. The Chamber has been highjacked! Their major concern is protecting vested management interests. They seem to forget that a lot of small businessmen are also independent investors who worry about their hard earned savings and investments.

Late Breaking Nonsense

Kudos to for outing Metris. Metris issued a press release at 11:00 pm indicating that they were subject to a Wells Notice from the SEC. The market is closed and the SEC staff has gone home. Most investors are probably not watching so it seemed like a good time to slip this little tidbit out. It certainly missed the editorial deadlines of many a business publication. Why did management decide to issue the press release so late in the day? What can the average investor conclude from management's behaviour? Trust? Can we rely on the SEC to publicize say once a day who is subject to a Wells notice or any other notice. Transparency in the market place does create confidence. We will put it to management and see what they have to say? Stand By for more!

Hang em High

Several controversial sentencings are scheduled within the next few weeks. Corporate criminals unlike street criminals do not factor jail time into their psyche. Put them away for as long as possible as a deterent for those who still hide under a rock. If Grand Theft Auto puts you in jail for seven years or there abouts, Grand Theft Corporate should exceed it it. After all look at the real economic pain felt by innocent bystanders. Lily White suits will wilt in the land of Oz.

Last Roar @ SEC

The outgoing chairman roared one last time in favor of investors. The now retired champion of investor rights pushed back on important regulations governing transparancy and appointment of independent boards. Somehow certain courts were convinced to try and influence these important regulatory improvements. While I applaud the outgoing gestures it remains to be seen what the incoming chairman will do. If he attempts to reverse or waterdown any of these measures we will know for sure that the fox is in the chicken coop. Stay tuned and keep the doors locked there may be varmits in the area.