Editor's Note: James Cramer delivered the following speech this morning at the National Investor Relations Institute's conference, the world's largest gathering of IR professionals, being held this week in Orlando, Fla. Cramer will return to his trading turret soon.
We are sick and tired of being lied to. You are sick and tired of not being able to tell us the whole truth. What are we going to do about it?
Every one of you has it in your power to break the chain of disinformation that companies deliver to Wall Street in the name of higher stock prices.
As a successful hedge fund manager for 12 years, and before that a successful broker at
, I can tell you I have been lied to more than just about anyone in this room. Heck, people who worked for your previous speaker lied directly to my face. Cost me $4 million personally, those lies of
. I don't even want to tell you how much it cost my company.
But the publicly traded corporation today stands on the brink of a new, more open era, a
, if you will, vs. a Brezhnevian Soviet Union of the recent past. The cause for the corporate perestroika, amazingly, is the Internet, and you can either accept the tidal wave of openness on the Internet, or you will be swept away by it.
How serious is the threat? Try this one on for size. Less than 24 hours after Eckhard Pfeiffer, the former chief at
, tried out his blame-the-industry-for-Compaq's-shortfall rap on Wall Street, I was in possession of internal documents, via email, that showed Pfeiffer's explanations to be a joke, a ruse, a cover-up for some systematic problems that everyone knew about at the top levels of the company.
But that's not what was amazing. Before I could even show anyone my personal treasure trove of emails, I had received the same documents from two other unconnected sources, one from the press and another from a portfolio manager.
Suffice it to say that the office pool at
over when Pfieffer would be out was heated and spirited, but that no one picked such an early date for his brooming as the Compaq board did.
Yes, we are in your corporation now, we who use the Web. You think Compaq is isolated? You think it is just tech? Last week I wrote an
, a 24-hour digital newspaper I co-founded, about the tightness of the wallboard industry in the U.S., an article that said there were shortages all over the country. The source of the article was a story in the
, which talked about the lack of supply of wallboard. All of the analysts on Wall Street endorsed the tightness story, which they got lock, stock and Sheetrock from top-level managements.
Again, within 24 hours, foremen from wallboard plants, managers from
, construction company execs and homebuilders from every region in the country all told me it was nonsense, that there were new plants about to spew out more Sheetrock than the country would know what to do with and that shortage was a wild exaggeration. The Net just simply doesn't allow lying or boasting. The Net is in your company, like some sort of bizarro alien force, and if you don't respect it, it will come popping out at the worst possible moment, taking your job with it.
Does that mean we on Wall Street want the investor relations person to be the ombudsman, the whistleblower? Absolutely not -- that's a marginal person, someone neither the corporation nor the buy nor sell side respects. In fact, we want the exact opposite.
What we want the IR to be is someone who is more integrated, more responsive and more understanding of his or her own company than ever before.
How seriously am I approaching that? I know at
, I have been pushing to hire what I call an activist IR, someone who could double for a chief operating officer at a moment's notice. I want an IR who knows the business, the relevant matrices and the relevant numbers that the Street is looking for and whether they will be within the range of analysts' expectations. I want someone who would know better than to get on the phone to large investors or the sell-side analysts and tell us that
is doing just fine, thank you, when it is really about to blow up, or that
is having a blowout quarter when it is on the verge of preannouncing. We want IRs to be able to convey the truth as they know it, and if they don't know it, they have no credibility to begin with and we will punish your stock for your lack of credibility.
And, yes, I want the IR to be a stock manager. If the CEO is managing the enterprise, I want the IR to be managing the stock price. The IR is at the fulcrum between whether that stock price makes sense to your company or not. Only someone in a position similar to that of a chief operating officer would know such a thing, which again argues for an increased stake by you in the venture. The new IR must be the PR point man, the chief buy-side contact, the analyst manager and the keeper of expectations, as well as a driver of what works best on the corners of Wall, Broad and Main streets.
How can you manage a stock price in an era where there is little seeming rationality to the price of a company and the enterprise itself?
One thing I am certain of is that you can't manage it the way you used to, and that again is because of the Internet. For the longest time, your representatives on Wall Street have been the sell-side analysts in research. But a funny thing happened on the way to the biggest underwriting boom in history: Many analysts became nothing but salesmen for their corporate finance departments. And who can blame them? The highest-paid analyst on Wall Street in our business today -- highest-paid by a factor of 10 -- is someone who is more comfortable wearing an M&A and corporate finance hat simultaneously with the Stetson of the super stockbroker. On that swelled head, there's hardly room for an analyst hat. Yet every other analyst I know aspires to be more like this three-hatted deal-meister, since, of course, this is a capitalist business and we are on Wall Street, you know. Some myths are reality.
This analyst-as-objective-reporter charade, however, has been discovered by both institutions and individuals alike. People in my shoes know who is shilling and who isn't. Increasingly, we have turned to other sources for information about how a company is doing. For the longest time, there were no other sources. If you know that a stock was overinflated by hype, no analyst gave a darn. They simply dropped coverage or avoided the name. Heck, they still don't put sells on anything, and weak holds are saved for the few terminally ill corporations out there.
Sure, there used to be such a thing as a tough Heard on the Street column, where overblown stocks got the wind knocked out of them. But 15 years ago, the
decided to make following companies, not stocks, the meat of the business, so there were no reasons for reporters to try to discover overvalued stocks because there was no place in the newspaper for those stories. No one in the press cared about an overly inflated stock unless there was massive fraud, and then only after it had been detected by the firm's own auditors or boards.
My, how the world has changed. I get all my information about stocks from the Internet either through email from the companies themselves or from places like
. When I set
up, the mission was to explain the movement of the stocks, not the companies. If a stock were to go up 3 or 4 points, let that be the news, and not the company's announcement. Now
has 50 journalists doing nothing except finding out things that move stocks and quantifying those moves, obsessing over those moves -- just the kinds of moves you get involved in regularly.
The idea behind this: Don't let the analysts dictate why a stock went up or down. Find out yourselves from people who aren't on the take. Get an independent view. We aren't the only ones.
has revolutionized the world where the CEO goes directly to the voters -- the buyers and sellers of stock -- and skips the analysts altogether. These new forces are blowing the doors off the old cozy sell-side-to-IR-to-sell-side-to-client chain.
This middleman cut out, still one more middleman pole-axed by the Net, is vital for you to understand. You can tell your story without the analysts now, as not many investors trust them anyway. You can tell the story by taking ads out on the Web and by soliciting the opinionmakers on the Web. Those who read stories on the Web are now the marginal buyers of your stock, not the institutions themselves. These are the people who decide where your stock opens and closes, especially the newer companies. The whole lesson of this new era, this one that started when online trading got to be so cheap that people started dumping their full-service brokers and doing it themselves, is that there is no middleman between you and the buyers and sellers. It is just you and them. How you manage the stock is how you interact with these new buyers and sellers. If you ignore them, they will go elsewhere. If you cater to them, they will buy your stock. You must appeal directly to them.
That means a whole new world of dissemination. For starters, how many of you put your conference calls on the Net? I want to see some hands. Those of you who don't, you will be targeted by the
before this year is over -- I am convinced of it. If you do not open those conference calls up to all, at least on a listen-only mode, you will run smack into
campaign against selective disclosure. Levitt doesn't want any institution, buy or sell, to have a leg up on the individual. If your lawyers aren't telling you this, they haven't been doing their jobs. Conference calls should be open to all. Now! As of the second quarter, in four weeks.
Second, do you put your releases out first on the Net? Or do you still send those faxes out to a select few? That's also wrong. You have to use the Net if you want to disseminate the news in a full and fair way. Third, you think the story isn't being told well? Advertise on the Net.
Don't advertise in some monthly magazine with a deadline for copy that's months before the audience reads it. That's why I stopped writing for the monthlies: They are totally irrelevant when it comes to investing and will not even exist three years from now if I have something to do with it, and believe me I do. Don't waste your precious IR ad dollars on those losers, especially when they don't link you to a trading room. You can click on the bottom of a page of
magazine, which I helped found, and wonder of wonders, it doesn't take you anywhere! But you can press a button on the Web, and you have one-click shopping just like
. Or you can place a banner that allows your whole story to be told in a Web page. Accept that Web is the way of the future as the investors and traders will no longer be happy reading articles three months from now about your stock that were written yesterday -- as I had to do for every monthly I have written for.
Fourth, demand that the sell-side institutions that host periodic seasonal conferences for your CEOs open those meetings to the Net and to Net reporters. The dead-tree guys don't bother covering these events, because, as I said earlier, they don't care about stocks. But people on the Net live and breathe stocks. Let these events be covered by the Net and you won't run afoul of the selective disclosure rulings that will soon be the law of the land.
And, no matter what you do, don't go on the Internet message boards. You can look; you can find out what the rumors are. I think that is vital, as the message boards move stocks, sometimes more powerfully than
medium right now. But right now the message boards are a place of hype and hate, and if you go there, you will be drawn in and you will regret it. Just be sure that no one is pretending to be you or to work for your company. Police the boards, but do not respond to them. And don't let your CEO look at them. It is a brutal waste of her time.
I have spoken before to many of you about what a good IR is vs. what a bad IR is. I have given you examples of the IR departments that are ahead of the game. But as it is not often that I get in front of this large a group of opinionmakers, I want to stress a few points. The IR's job is to know who is doing the buying and who is doing the selling, especially impact buying and selling. It is important for the IR to know who we are, the buyers and sellers, know us by name, woo us even, as a politician woos a constituency. Don't hesitate to ask us, ask large accounts, what your company should be doing more of, to get the story out. And make sure you have our home numbers and our emails so you can get a hold of us in an emergency or on weekends so we are not blindsided by sudden conference calls that we must scramble to get on.
I don't envy you now. You have the electronic constituency and the institutional constituency and the corporate constituency and they all need your attention. But never forget the real constituency, which is to get the truth out, even in a painful way, so your company is viewed as being on the level no matter what. That's the true price-earnings multiple expansion that an IR can create. I think this is such an important task, and I think it can be performed so terribly and to the detriment of your own enterprise that I spent a good deal of time last year
working with Kurt Andersen, writer of the current bestseller,
Turn of the Century
, to depict the role of the irresponsible IR, the one who can really kill the enterprise. I felt so strongly about this, about letting you see a book where the IR is the chief villain, Henry Saddler, the IR of the fictional Mose Broadcasting, that I had
ship a hundred
Turn of the Century
novels down here. They are outside in the hall, and it is strictly first come, first served. Read it and ask yourselves, have you ever pulled a Hank Saddler? If you have, it is not too late to change your ways before you go to IR hell!
These are bizarre times. Only you can help us understand why a stock is doing what it is doing, in a world where stocks have replaced baseball, football and basketball as the pastime of choice. You are both in the booth and on the field. You are calling the game. Don't let us down and help yourselves and your company. Expand your multiple with honesty and forthrightness. It's the only game in town.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Goldman. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at