Recently, the CEO-designate of JP Morgan Chase, James Dixon, was asked his opinion about a merger while he was on a conference call with investors. Here is what he said according to the New York Times:
“Forgetting the business logic and the price, there will be options down the road there, I would answer your question about capable and that we weren’t really quite capable yet because our army was doing all the other stuff we had to do, particularly the systems conversions…The army will be capable to do other stuff sometime next year, which is reasonable. Doesn’t mean we will.”
If you are confused by that answer, you aren’t alone.
According to the Times, “A gaffe, a garbled sentence or a muddied articulation of a corporate strategy can not only mar the public profile of a chief executive but also prompt a run on the stock.”
The Times reported that J.P Morgan’s stock took a dive shortly after Mr. Dimon’s less-than-inspiring conference call.
The Times also put a spotlight on the CEO of Legg Mason, Raymond Mason. Here’s what Mason said in answer to a question about a recent acquisition during another conference call with investors.
“I’ll try to answer you, but you can’t put a lot of faith in what I’m going to say. I know in one meeting I said if we look at this a year from now it will be clear, or should be clear, you know, what is and what we can do and what’s attainable and how quickly, and I still think that’s true. God knows, I would hope that’s true.”
According to the Times, investors were so under whelmed with Mason’s answers that the stock price dropped 8% within one day.
What’s really going on here?
It’s simple. CEO’s, their advisors, their lawyers, their investor relations counselors and all of their other little helpers are wasting hours and hours writing and re-writing the prepared texts that the CEOs read at the beginning of the conference calls. Everyone wants to get the text just so, because it will be sent out as a press release, put on the web site and distributed all over the place.
There’s only one little problem with putting so much attention on the prepared text: if the CEO of a publicly traded company can’t answer real questions from investors in an intelligent manner, then people lose confidence—quickly! Stupid answers trump boring prepared text every time.
The solution is easy–videotaped or at least audio taped rehearsal question time with the CEO BEFORE the conference calls. Unfortunately, CEOs tend to surround themselves with yes-men and yes-women who are afraid to tell the emperor he or she is wearing no clothes or is in drastic need of having clearer answers to questions. Sadly, CEO advisors are no more apt to tell the boss he must rehearse than a Bush aide wants to tell the President there are no Weapons of Mass Destruction or a Clinton aide wants to say “no, you can’t have another Big Mac.”
If public relations and investor relations processionals ever get serious about exerting influence on their profession than they must become as forceful and as persuasive as lawyers are with theirs. CEOs must be convinced that they are committing an egregious breach of their fiduciary duties if they ever, ever answer questions in a public forum in front of investors or the press if they have first done a full-dress recorded rehearsal.
Until then, expect to see more billion dollar losses on corporate valuations because of dumb CEO answers to smart questions.
