When Tesla CEO Elon Musk repeatedly flew off the handle during a quarterly conference call with financial analysts last May, he exposed major problems with those sessions. Musk said his executives would spend extra time answering questions—provided the questions were good ones. Such a proviso might suggest a willingness to be more transparent with investors, but that’s not what he meant.
Musk quickly cut off Antonio Sacconaghi, an analyst with Sanford C. Bernstein, when he asked about Tesla’s capital requirements: “Boring, bonehead questions are not cool. Next,” Musk snapped.
Trouble is, Musk didn’t like the next query either. Joseph Spak of RBC Capital Markets asked about customer orders for Tesla’s Model 3. “These questions are so dry. They’re killing me,” said Musk.
The calls are killing the rest of us too. They are supposed to provide investors with insights about a company. Instead, they feature jargon-filled speeches and softball questions from sell-side analysts. Anyone who isn’t put to sleep by boilerplate legal warnings about forward-looking statements must decipher mumbo-jumbo such as “capex intensity,” “mortality experience” or, my new favourite, “longer-term strategic capability builds.”
Analysts appear to be more interested in ingratiating themselves with management than uncovering relevant facts. Ordinary investors, meanwhile, remain stuck on listen-only mode, unable to jump in.
In Canada, publicly traded companies aren’t required to hold conference calls. Many of those that do tend to vet questions and avoid giving airtime to critics—even though bearish analysts are very rare. Most sell-side analysts have no incentive to needle executives. Analysts need access to companies to prepare earnings forecasts. They also know a company could be a client of their firm’s investment-banking arm. Chinese wall or not, it’s counterintuitive to bite the hand that feeds you.
As a result, sycophantic remarks such as “Great quarter, guys!” are laughably common. According to Bloomberg News, analysts uttered that phrase on 1,265 calls held between 2007 and 2014. The saying has even inspired a Twitter account with the handle @greatquarter.
Analysts who don’t conform risk being shunned or worse. In February 2013, an Encana executive uttered an expletive at Phil Skolnick, then an analyst with Canaccord Genuity, who asked if the company might be an acquisition target. Skolnick had a “hold” rating on Encana’s stock. The Globe and Mail posted the audio online. The company fought to remove it and lost.
Analysts often avoid hugely important issues altogether. In a call in August, CBS chairman and CEO Les Moonves would only answer questions about finances, and no one asked him about sexual harassment allegations made by numerous women. The following month he resigned.
Many CEOs complain that quarterly earnings releases and analyst calls focus too much attention on short-term performance. Some officials have suggested a biannual schedule, as is the case in Europe. Fair enough. But if clear and equitable disclosure is the goal of securities regulators, then more must also be done to serve the public interest. The question-and-answer sessions should be opened up to more stakeholders, including individual shareholders. Regulators should also require executives to use plain language.
You'd think that more CEOs would realize this themselves. They need to attract new investors. But millennials are less interested in owning stocks than previous generations, partly because many distrust big business. They won't buy a company's shares if they can't understand its leaders.
As things stand, many analyst calls do little more than give cover to thin-skinned CEOs. Although Musk later apologized for his May outbursts, his comments in the call about individual investors were nonetheless enlightening. “We have no interest in satisfying the desires of day traders. Like, we couldn’t care less,” he said. “Please sell our stock and don’t buy it.”