Chief financial officers and stock market analysts often have fraught relationships. That should come as little surprise. Analysts are at their best when they are questioning decisions, seeing through the spin and providing critical feedback to a company. It is understandable that some executives would take that a little personally.
Most executives do not let those feelings show. News stories about executives swearing on earnings calls or berating analysts are news only because of their rarity. Executives instead console themselves with small acts of revenge — allowing friendly analysts more questions on a conference call and leaving others on mute.
Most executives that is except Chris Lee, the chief financial officer of Hong Kong firm PaxGlobal. As the company was preparing to deliver its latest results in August, he noticed Macquarie analyst Timothy Lam in the audience. Lam was a rare critic of the company.
Lee marched over to where the analyst was sitting, loudly told him he was not welcome and refused to continue until he had left the room.
In days gone by that might have been the end of it. But several people at the meeting recorded the entire incident on their phones and it soon leaked to social media. The story was covered in newspapers around the world, the company’s shares briefly fell — although how much was down to the incident is debatable — and less than a week later, the well-regarded CFO had resigned.
What to make of all this? Clearly, it is embarrassing, but did Lee do anything wrong?
The Hong Kong Exchange’s rules are fairly vague on the duties of board members in an earnings announcement. There is a prohibition on placing some people in a more privileged position than others, but that is designed to block insider trading — it says nothing about restricting access to what amounts to a public event.
While some investors might well have relied on Timothy Lam for their analysis, the information Lee and other executives discussed was public by nature. Lam is still able to cover the company.
In that sense, Lee did not break any rules. But he did break a convention: one that assumes a variety of analysts will be given access to management, allowing them to make fair and impartial decisions.
This is, of course, little more than a lofty ideal. Access to management extends well beyond earnings calls and public meetings. Lee might have drawn attention for his outburst — but he was hardly the first executive to play favourites.
It’s time the old ways came to an end. The right approach for management is to be as open as possible, not just to analysts but to all shareholders — even potential shareholders. They should do that by embracing technology.
There’s something antediluvian about stockholders all meeting in a room, listening to a CFO reel off numbers from a PowerPoint presentation. Shareholder meetings should be online, multi-platform, and accessible to as many investors — and, indeed, potential investors — as possible.
Warren Buffet has learned this lesson. Berkshire Hathaway, the conglomerate-cum-fund he helps manage, still holds its own annual earnings announcement. His reputation as the Sage of Omaha means thousands flock there each here. But this year, Berkshire added a livestream of the whole thing, available across platforms.
This is a good start. But there are plenty more tricks the social media revolution could teach executives. Questions could be crowd-sourced, for instance, suggested and then voted upon by shareholders. Willing executives could engage directly with their investors on social media. Responsible ones would pay a great deal of attention to what their shareholders are most concerned about.
It’s time for a revolution in the way companies interact with their investors. This will be to the benefit of shareholders, activists — but it will also benefit executives themselves.
After all, when everything is public, you remember to keep your voice down.
Reformist is a new column from FinanceAsia dealing with issues of transparency and market reform.
