Bill Lackey has been fielding calls – lots of them – from fund managers wondering if Computer Sciences Corporation (CRC) is planning to sell its profitable Australian division.
Michael Becker keeps hearing from shareholders that one of biotech developer Cytogen’s medical patents is having trouble in its trials.
And Janet Point is routinely updated by investors on the status of InterDigital Communication’s seven year-old patent infringement lawsuit against Swedish competitor Ericsson.
‘No comment,’ says Lackey.
‘No comment,’ says Becker.
‘No comment,’ adds Point.
At least, that’s what they tell their shareholders and other questioners.
The two-word rejoinder is the widely used corporate strategy to deal with even the most egregious rumors. To elaborate any further would, by its very nature, give credence to the most ridiculous of speculation, they say. And a more substantive phone conversation could, to a certain extent, run afoul of the Securities Exchange Commission rules on fair disclosure.
But, privately, investor relations professionals will slap their thighs, or roll their eyes, and they will complain at length. They say the rumor mill is fed by the desperation of a bear market and inflamed by a highly competitive news cycle that has no end.
‘There are times when you just say no comment over and over, and you feel like there’s a recording in your mind,’ says Point, director of IR for Pennsylvania-based InterDigital Communications. She likens her current position to her high school acting experience, when she had to play her part and repeat lines as convincingly as possible.
Truths & half-truths
Rumors are the baby mice of the corporate world – no-one knows where they come from, or how to control their spread. These days, rumors – described by Dickens as ‘news not anchored in fact’ – often make their debuts in internet chat rooms, where anonymity allows consequence-free embroidery and elaboration on what might, in fact, be a grain of truth.
Take those deathless rumors about CSC’s Australian subsidiary. CSC’s IRO, Lackey, says the Los Angeles-based IT company recently announced it would sell its tiny and unprofitable New Zealand operations if it could find an appropriate buyer. From there, he acknowledges, it’s a small leap from Christchurch to Canberra. ‘Were people mixed up? I don’t know. But a couple of days later we kept getting all these calls about a deal in the works,’ says Lackey. ‘We’ve just had a disastrous – that’s my word – quarter; it was our first loss. I guess in hard times people think you’re trying to raise cash.’
Fact: CSC is unloading its New Zealand operations but has no plan to sell its Australian unit. Since mid-July, says Lackey, the rumor has had no discernible impact on understandably skittish investors.
So how does he keep it that way, especially when selling the larger division could be conceived as a sign of financial desperation?
‘I’ve made a few judgment calls,’ he says. ‘I will do that if something is way off the meter. There are places where you can add clarification without crossing the line. Especially if it’s completely crazy.’
But in IR, as in love, crazy is a judgment call.
Today’s wild fabrication may just be tomorrow’s corporate press release. Someone, somewhere, is sending out resumes; a bunch of suits really are wondering whether it would make strategic sense to acquire a compatible business. Through what alchemy are these situations transformed into a rumor worth passing along? And at what point should these premature bites of gossip have the power to move the market?
The primary conduit of unauthorized information is the internet, where countless chat rooms purport to offer inside information to anyone with a modem. Everyone knows the chat rooms are without credibility and rarely have the power to move the market on their own. But it would be dangerous to treat these breeding grounds of gossip as isolated swamps. After all, mud has a way of splashing over whatever’s nearby. And where there’s mud, there’s likely to be media. Once ‘legitimate’ media get a hold of a story, it may as well be true. At least for a little while.
In this fast-forward era of cable news, all-access newswires and a stirring competition to make the markets the new reality-based programming, even the silliest half-truths and gross speculation can find their way into the minds and mouths of shareholders.
‘CNBC and all those market news programs are promoting the entertainment value of market news, and most of the time it’s pretty dull,’ admits John Carey, portfolio manager and senior vice president of Pioneer Investment Management, the venerable Boston firm with about two dozen different funds. ‘Most of them act responsibly and can, in fact, be moderately helpful by offering interviews with CEOs or discussing government-compiled statistics.’
‘But I don’t act on any information that isn’t verified by the company as authorized information. Everything else is rumor, whether it’s coming from a brokerage, the business press, traders, wherever,’ Carey goes on. ‘I don’t regard anything as real information that I would base an investment decision on unless it’s gained from a press release or an authoritative source.’
Talking heads
Carey’s conservative stand is intriguing because he is himself a talking head, appearing on Wall Street Week with Louis Rukeyser, as well as CNBC and CNNfn programs. He says that rumors have always bedeviled public companies, and a bear market rarely behaves with more decorum than a bull market.
But others are not so sure.
InterDigital’s IRO, Janet Point, says she is unnerved by a recent survey showing that the average investor holds his shares for only 30 days, a frightfully short time. ‘The markets are a game and people are gambling, and they’re using rumors and the media to move the stock,’ she says. ‘And I think the media is responding to pressure from the people who crave a steady 24-hour stream of news. You’ve got a large number of journalists reporting on rumor now, and I don’t know how legitimate that is.’
And in straitening times, Point continues, investors are looking for an information edge that will provably help them buy before a stock takes off, or bail before it tanks.
‘You really can’t disprove a rumor,’ she sighs, noting that a skillful IRO can deflate them with a little bit of common sense. ‘Sometimes you can say, Well, it is options expiration week, or You know we do have a conference call scheduled.’ A former IRO for a financial institution, Point considers Friday to be ‘Rumor Day’ because announcements of bank mergers and acquisitions always seem to be made on Mondays.
One thing that puzzles Point is the persistence of ‘news’ in InterDigital’s yet-to-be resolved patent-infringement litigation with Swedish cell phone giant Ericsson. The battle began in 1993 when InterDigital sued Ericsson for a series of patent infringements and the Swedish company has countersued.
‘There are rumors about if it might be settled, when it might be settled, and the dollar amounts,’ she comments. ‘There are a variety of statements I can make even though, of course, we don’t comment about litigation. I can say there are no dates set – that sort of thing.’
Point says she counters rumors by making the InterDigital web site as comprehensive and proactive as possible. She acknowledges that a company’s official site is about as compelling as a celebrity’s authorized biography. ‘But at least it’s all true,’ she adds cheerily.
Chat room weary
Most IROs say they wonder when the chat room artists will tire of their hobby. It’s not like Warren Buffet is posting those online bulletins, they say, nor are the bulletin boards populated by company officers who would have knowledge of a pending merger, a generous tender offer or a juicy resignation.
‘That’s why the no-comment policy is never more important than in a situation like the internet,’ says Becker, vice president of corporate communications and investor relations for New Jersey-based Cytogen. Failure to no comment a rumor can potentially give it a life-affirming whisper that lets it soar to new ears instead of crashing back into the rumor heap.
‘The internet seems vast because you read it and there are like 50 or 60 postings on any company,’ says Becker, who gives a dubious honor to Yahoo! as the chat board that generates the largest number of Cytogen rumors. ‘It’s probably not a huge audience but just a couple of people, and they may likely have a stake in your stock swinging up or down.’
Becker is not particularly put out by his occasional rumor-related calls, and that’s because he has an interesting perspective on the gossip machine. ‘It was far more invasive when I was a portfolio manager,’ he says. ‘Clients would call up all the time and want to talk about this rumor or that one. As a portfolio manager you have to address investor concerns, you can’t just say No comment. I’d get all these left-field phone calls about 20 or 30 companies, from institutional and retail investors who wouldn’t risk their own credibility by calling the company directly. So they’d call me.’
Chat rooms: Quagmire or mountaintop?
The buzz of internet chat rooms, once deafening, is now just an innocuous hum for most companies. At the height of the bull market, sites like Raging Bull and Silicon Investor played host to hundreds of thousands of messages every month. But traffic at Raging Bull fell from 626,000 unique visitors a month at the beginning of 2000 to 135,000 a year later, while Silicon Investor’s visitors sank from 332,000 to 80,000, according to Jupiter Media Metrix. The Wall Street Journal, which used to regularly alternate its ‘Heard on the Street’ column with ‘Heard on the Net’, seems to have stopped giving credence to the web musings of chat room gurus like Mr Pink or jambo666.
While many IROs have seen their stocks rise and fall based on chat room rumors, most see them as a mere irritant, the cause of minor flurries of retail trading. However, recent research conducted for the Investor Relations Magazine US Awards shows that internet bulletin boards play host to a wider audience than you might imagine. Approximately 40 percent of portfolio managers, analysts and retail investors surveyed in 2001 confessed to monitoring chat rooms. Only 6 percent of investment professionals actually post messages with 16 percent of retail investors contributing to the discussion.
