According to Yahoo Finance, on a recent quarterly investor call, Cliff’s Natural Resources CEO, Laurenco Goncalves, refused to answer the question of a Wells Fargo stock analyst. In fact, he seemed to even taunt the analyst on the conference call. The CEO was doing what I’m sure just about every public company chief would love to do, except he was caught in the act of doing it.
I am sure it is extremely frustrating for corporate CEOs to spend time speaking with analysts, trying to convince them of the value of a company they wholeheartedly believe in–or at least one that pays their bills–only to have the analyst turn around and crank out a research report burying the company as an “underperform” pick, or worse a “sell.”
Doesn’t this seem like cleaning your room to impress your mom only to have her tell you that you have to eat extra broccoli at dinner? While you were looking for the pat on the back, all you ended up with was more vegetables.
I’m impressed with Mr. Goncalves boldness on the call, although as a new CEO it was his first and we will see how he is advised on the next one. Either way, I think for better or worse he may have inadvertently changed the bias of a number of analysts listening in on this call.
This Relationship Is a Tightrope: The History
The relationship between stock analyst and CEO/CFO is a precarious one at best. A little over a decade ago, after the internet bubble burst, there was a big crackdown on how cozy analysts and public company officers could become because too many stock analysts blindly supported companies that had paid large investment banking fees to the banks that employed the analysts. In other words: it looked like (and probably was) buying positive recommendations.
Why else do you think that companies with no income, no cash and no future prospects received glowing buy ratings from research analysts? Perhaps it was because the analyst’s firm happened to be the same one that took said crappy company public?
How can investors trust research reports when they are essentially being purchased with investment banking fees?
Fortunately FINRA came to the rescue and put a number of regulations in effect to restore investor confidence in research reports, and after these changes, you have much more unbiased reviews of companies; however, it doesn’t mean that the CEOs have to like what they read, and in the case of Mr. Goncalves, he decided to take action and shut down the analyst all together.
Where Does This Leave Investors?
I don’t know about you, but I plan to follow the research reports on Cliff’s for the next few months. I wonder if analysts are going to feel pressure to kiss ass to get love from Mr. Goncalves or if they are going to be motivated to pick the company apart even more to keep Mr. Goncalves on his feet.
Do you think Mr. Goncalves was out of line or entitled to vent his frustrations with the Wells Fargo analyst? Do you think the analyst lost his invite to the Cliff’s holiday party for good?