Why I Don’t Talk To Management

Savage Chickens - Industry Leader

Savage Chickens by Doug Savage

I’ve received a number of emails asking me “Have you talked to management about [fill in the blank]?”

The short answer is, I haven’t. At least not in quite some time.

Why not?

Unless you are a major investor, if there’s information that you would want to know that hasn’t already been disclosed, management isn’t going to tell you. They’ll give any number of reasons why they won’t tell you, but more often than not they’ll give no reason whatsoever. They’ll avoid the question. They’ll answer a question you didn’t ask. They’ll tell you nothing, and they’ll do it on principle. For all but a handful of big players, investors are seen as the enemy. You are a potential activist investor (read: annoyance) until proven otherwise. Maybe you are a competitor gathering intelligence. Either way, they aren’t going to tell you anything. Avoidance is the name of the game, and these guys are pros. In Gladwellian terms, these guys achieved 10,000 hours of practice in avoiding shareholders (or worse, potential shareholders – “What, you haven’t blindly invested?!“) after approximately 10,000 hours on the job. They’ve got the info and that’s the way it is going to stay until they are damn well ready to release it, and in that case they certainly won’t be telling you (or me) first.

Here’s an example of an exchange I had:

FV: In a past conference call, you mentioned the company is working with a consulting firm. Can you tell me the name of the firm?

Company: We are not sharing this information.

FV: Ok. Can you tell me whether the firm specializes in this industry, or otherwise what their experience in this industry is?

Company: All I can tell you is that this firm has a proven track record of success with other companies in this industry.

A “proven track record of success” is perhaps the vaguest business term in use today (Go ahead, ask any newly minted MBA about their “proven track record of success” dealing with clients, generating sales, or whatever else they’ve put on their resume). I’ve gained no new insight from this exchange. This shouldn’t come as a surprise. This is par for the course. They didn’t want to disclose anything, and there was nothing I could do about it.

It is moot that I was already a shareholder.

It is also moot that I wasn’t exactly asking for competitive secrets. In fact, this was a straightforward question about as benign a topic as any. I asked mainly out of curiosity, in that I wanted to know whether they were hiring a general management consulting firm to solve a retail-specific problem, or whether they had hired a firm that operated solely in this niche.

The point is, if they won’t give satisfactory answers to straightforward questions about benign topics, do you think they’ll give information that would help detect fraud? Embezzlement? Overvalued assets? Off-balance sheet liabilities? Management self-dealing?

Not a chance. 

This isn’t Perry Mason. If bad stuff is going on, it is because bad people are doing it. Bad people tend not to throw their hands up and admit their wrongdoing just because you’ve asked. Even if you approach them with incontrovertible proof of wrongdoing, they aren’t going to tell you anything that would even come close to helping to verify the information. That’s when the name of the game changes from avoidance to obfuscation. Check out Enron’s response to the initial inquiries about its special purpose vehicles. Look at any number of the responses Chinese RTOs have had to evidence of their fraud. Calling these guys for information isn’t going to help with anything.

Investor contacts aren’t always even trying to be evasive; sometimes it just happens. If you’ve been selected as the point of contact for parties external to the company (i.e. investors), chances are you have a certain affinity for the company. It’s likely your positive view of the company will translate into a positive spin on any answers you do give. From my exchange above, I seriously wonder whether the contact had any clue about the track record of the consulting firm that the company hired, but it just sounds so much better to say “a proven track record of success.” It’s one of those lovely marketing terms that really means nothing (hence its proliferation on MBA resumes). Go ahead, try to prove they don’t have a proven track record of success. This bias has been clear in every response I’ve ever received from companies. How can I be sure what the truth is, if the response is so biased?

So where does all this leave us? 

  1. If there is something bad going on inside the company, they aren’t going to tell you. They’ll avoid, obfuscate and outright lie. And this is in the situation where your contact knows about what’s going on. Chances are they don’t.
  2. If there is nothing bad going on and you do manage to get a response, it will be heavily biased in the company’s favour. How can you trust it?

In either case, it is a waste of your time to talk to the company. You are better off reaching your own conclusions from third-party sources. Let the numbers do the talking, and make sure there aren’t any Financial Shenanigans going on (Anyone can lie about “proven track records of success” but it takes downright brilliance to make the numbers lie consistently over a long period of time). Skepticism is the investor’s best friend.

Talk to Frank about this article 


  • James

    I think this is only partially true.  I don’t believe that management has to reveal anything secretive for it to be of value to an investor.  Despite how clear-cut financial analysis is in theory, it rarely is in practice.  I cannot begin to say how many times I’ve made a poor assumption in my modeling that, after speaking to management, allowed me to understand the company more clearly–and therefore create a better model.  Industries have many nuances.  Speaking to management is a great way to clear up misconceptions and, even, if you’re feeling brave, to ask “stupid” questions that you can’t find a thorough answer to on the internet that would help you understand that company (or another in the same industry) better.     

  • http://twitter.com/Heuristocrat Kris Tuttle

    It’s true that talking to managements these days is painful. The truly bizarre and unfair thing is that if you meet with the company as an “industry” rather than a “financial” analyst you get much more information. Somehow senior managements at many companies came to think that part of their job was to make sure financial analysts didn’t get any information. 

    However we still talk to most of the management teams of the companies we follow. First of all they sometimes have the only answers to some questions like “how will the recently announced sale of xyz businesses impact the income statement and balance sheet?” Even if they only give you directional answers or round numbers it’s helpful. Second it helps to have “their side of the story” even if you plan to do your own independent work and create your own version. Third if you can meet in person 1 on 1 or in a small group it’s possible to get clues about things they are not being truthful about by watching their body language. It’s not 100% but I have found it to be work in the majority of cases where you can ask the right question like “do you feel more or less confident about achieving the $30m of cost savings now versus three months ago?”  They will probably say more or the same but watch what they do with their hands and feet!

    Lastly I think a good analyst also acts as an informal or extra advisor to a company they follow. We do that so talk to management about connections, introductions or ideas that we think will help them. In at least some of the cases we get to add some value this way on a regular basis.

    Good post!