What Was He Thinking?

Occasionally during my career in investor relations I have run across a situation that so surprised me my only reaction was amazement and the thought “What was he thinking?” I thought it might be instructive to share a few of these war stories in the hope that people will learn from what I saw.

In the late 1990s, I was working in New York for a money management firm when we hosted a on-on-one meeting for the CEO of a large grocery store chain. In the room were 5 - 6 portfolio managers, the analyst following the company, the CEO and one other company representative. During the course of the meeting the CEO went to great lengths to describe how he and his management team were constantly out looking at their stores and the competition. After a detailed description of what they went through during the course of visiting stores, the CEO casually said, “After a long day we all go to Hooters to sit down and compare notes.”

I remember looking across the table at the analyst who followed the company, who was a woman, and watching her face turn to stone. I mean, “What was this guy thinking?” Did he really think that a professional New York woman would think highly of him for going to a place like Hooters? It was a superfluous detail that completely sank this man’s credibility.

A second incident also occurred while I was working at the money management firm. In this case, the CEO of a major fast food chain was doing a one-on-one conference and was describing their new initiatives to better prepare meals that would be to fresher and more appealing. During the course of all of this he came out with the statement “You know, we were so involved with our promotions and product placements that we forgot we were a food company.”

Now this is a very honest and forthright thought and I’m sure the CEO was being sincere when he said it, but “What was this guy thinking?” In internal company meetings you might discuss having lost sight of your core competency, but not to a room full of portfolio managers who hold millions of shares of your stock. I remember thinking at the time, “Why do we own this stock?”

So what conclusions can you draw from these two examples, other than CEOs occasionally suffer from foot in mouth disease? Start with the premise that there are no throwaway lines. Virtually everything you say may be held against you. This is also true when an analyst is visiting you. From the time they start to make the appointment for the visit, to the appearance of your offices to what kind of cars are in the parking lot, it is all being assessed. So what you are saying had better match up to the reality the analyst is seeing. If you are preaching cost controls, you had better not have lavish artwork in your offices or lots of Mercedes and BMWs in the parking lot. If your company mantra is customer service, then the process of making an appointment should be handled with efficiency and courtesy and you darn well better return all phone calls promptly.

Secondly, you always need to be aware of your audience. Most New Yorkers wouldn’t bat an eye if it somehow came out that your sexual orientation was not completely hetero, but would be aghast at the thought that anyone would patronize a place like Hooters. Of course, the foregoing is not necessarily true in other parts of the country, so discretion is advised.

Finally, you can be too honest or candid. I know because I’ve found myself in this position from time to time. A person talking to investors needs to keep clear in their mind the difference between and inside audience and an outside audience. Sometimes this can be difficult if you have a long-standing relationship with an analyst and you want to explain something in the context of a company’s culture. It is compounded by the fact that an IRO’s job is to provide context and color to the financial results. In the end it requires good business judgment. And luck…

As always, your comments are welcome. Please let me know of other war stories where CEOs have shot themselves in the foot. We will keep everything anonymous to protect the guilty.