After many hours of research and writing on the Goldman Sachs lawsuit, I better understand the allegations being made by the Securities and Exchange Commission. This lawsuit is closely related to the topics of disclosure and transparency which have been significant parts of our Investor Relations class this semester. This case helps to better understand the federal regulations about disclosure and which action can be taken to punish businesses that do not participate in proper disclosure, or do not provide significant information to their investors.
When trying to understand the case, I viewed various documents from the Securities and Exchange Commissions, along with the various responses put out by Goldman and Sachs in their defense. An article put out by the New York Times on the day that lawsuit was filed was helpful in understanding difficult concepts related to the case. The story, written by Louise Story and Gretchen Morgenson explained how the SEC complaint against Goldman Sachs is the first important action being taken in response to the 2007 financial crisis.
The New York Times briefly described the federal actions being taken, the market reactions and the response of the company. It states that, Goldman Sachs is being accused of creating and selling mortgage investments that were intended to fail. While those that invested in the securities lost upwards of $1 billion on the transaction, hedge fund Paulson & Co. profited off of investors loses. Paulson was involved in selecting the investments Goldman Sachs would market, yet investors were not aware of Paulson & Co. involvement in the selection process. Investors were told that the ABACUS was chosen by an independent third party, without mentioning Paulson involving, and that the hedge fund operator was betting on the failure of the ABACUS.
This lawsuit is closely related to various topics we have covered in Investor Relations this semester. We discussed different disclosure regulations, and making sure the public and investors are constantly aware of different actions being taken by a company. This case shows the severity of the actions that will be taken if a company chooses to present false or insufficient information to the public. It will be interesting to see what happens with this lawsuit as the SEC attempts to punish various companies for their involvement in the financial crisis.
Monday, April 26, 2010
Monday, April 19, 2010
Social Media and How IR Professionals Can Use It
Throughout this semester we have learned extensive amounts about social media through our own use, speakers and the article we were asked to read for class this week. The article discusses different outlets including Facebook, Twitter, LinkedIn and blogs and showed how different companies you these outlets in order to distribute information about their business. Through experience with blogs and Twitter this semester I decided to further research the need for social media usage in today’s Investor Relations industry.
A recent article written by Lisa Davis discussed the usage of social media and how it is able to build stronger shareholder value. Davis mentioned numerous times how the use of these media outlets has been significantly growing. While these outlets are being used, people worry about things such as blogs and Twitter due to the extensive disclosure regulations. IR departments need to be cautious to not distribute information through social media that has not already been made public. Davis decided to avoid the legal issues of social media and just focus on how relations with stockholders can be strengthen through using these outlets.
Typical thoughts about social media, which are untrue, include that the outlets should only be used by public relations and marketing departments. Another belief held by IR departments that is untrue, is that companies shareholders and investors are not present within the social media world. Since these ideas are untrue, companies are beginning to use these outlets in additional to traditional outlets. This addition has helped them to connect with media, analysts and investors in a new and economically proficient way.
Davis attempts to encourage companies to become involved in social media by mentioning certain statistics. Statistics include 85% of financial services professionals under the age of 50 are utilizing social media. 58% of investors believe new media will become increasingly important in making investment decisions. A final statistic which proves the increasing need for IR professionals to understand social media, is the 35% of Fortune 500 companies use a Twitter account.
Davis comments that these outlets can start conversation with investors, along with strengthen the bonds between companies and their shareholders. Davis attempts to help those not using social media to enter the Twitter, Facebook and blogging world in the correct ways. When first starting out, it is important to listen to what others are saying about your corporation. Once information has been listened to, start monitoring people that frequently mention your business and help them to disperse correct information. Once comfortable with these media outlets, business will start sharing in a proactive way. A considerable amount of our class has included social media, so it was of interest to me to learn how frequently these outlets are used, along with how companies can actively participate in Twitter, Facebook, LinkedIn, and blogs.
A recent article written by Lisa Davis discussed the usage of social media and how it is able to build stronger shareholder value. Davis mentioned numerous times how the use of these media outlets has been significantly growing. While these outlets are being used, people worry about things such as blogs and Twitter due to the extensive disclosure regulations. IR departments need to be cautious to not distribute information through social media that has not already been made public. Davis decided to avoid the legal issues of social media and just focus on how relations with stockholders can be strengthen through using these outlets.
Typical thoughts about social media, which are untrue, include that the outlets should only be used by public relations and marketing departments. Another belief held by IR departments that is untrue, is that companies shareholders and investors are not present within the social media world. Since these ideas are untrue, companies are beginning to use these outlets in additional to traditional outlets. This addition has helped them to connect with media, analysts and investors in a new and economically proficient way.
Davis attempts to encourage companies to become involved in social media by mentioning certain statistics. Statistics include 85% of financial services professionals under the age of 50 are utilizing social media. 58% of investors believe new media will become increasingly important in making investment decisions. A final statistic which proves the increasing need for IR professionals to understand social media, is the 35% of Fortune 500 companies use a Twitter account.
Davis comments that these outlets can start conversation with investors, along with strengthen the bonds between companies and their shareholders. Davis attempts to help those not using social media to enter the Twitter, Facebook and blogging world in the correct ways. When first starting out, it is important to listen to what others are saying about your corporation. Once information has been listened to, start monitoring people that frequently mention your business and help them to disperse correct information. Once comfortable with these media outlets, business will start sharing in a proactive way. A considerable amount of our class has included social media, so it was of interest to me to learn how frequently these outlets are used, along with how companies can actively participate in Twitter, Facebook, LinkedIn, and blogs.
Sunday, April 11, 2010
The Different Actions To Make a Company Lose Value
For this week’s class we read different articles about the ethics and professionalism that are necessary to the success of a firm’s investor relations department. One of the articles talked about the ten things necessary to create value for shareholders. The suggestions for value included not managing earnings, making decision and acquisitions that maximize value, not carrying assets that only maximize value, return cash when there is no value, rewards CEOs, operating-unit executives and middle managers for their efforts, requiring executives and bear risks and lastly, provide investors with relevant information.
While thinking about the different tactics that typically enhance shareholder’s value of a business, I realized that it is also important for IR departments to understand what type of actions would cause shareholders to lose value of a company. I then found a list of ten things not to do which closely corresponds to this weeks discussion on ethics and professionalism. The article is written by Stanley Bing and explains ten different procedures that business should attempt to avoid.
The activities Bing refers to include not bringing on executive board members that have too little knowledge or have too much knowledge and think their opinions are the only ones that would work for the company. Having either type of personality on the executive board would be detrimental as they could either be entirely unhelpful, or too involved in their own ideas. Bing also suggests that in order for stockholders to value the company, it is necessary to avoid unnecessary expenses. While it is important to not spend aimlessly, value will be lost if the cuts involve cutting important necessities to the company.
Value will also be lost if executives are taking too many business trips, where stockholder’s money is being spent for executives to have exciting vacations. When workers are working a lot, and hard, people will consider the company more value. If hours are lacking, people will lose value for the company due to the performance of executives. Bing suggests that relying to the existing workforce will decrease the value of a company. To improve value, it is necessary to hire youngsters less concerned with pensions and are very willing to work. The last two recommendations of things to avoid are to pay senior executives to much, along with not paying the CEO enough. It is stated that overpaying senior executives will create a loss of value, while underpaying the CEO would also create problems for the company.
The article was interesting due to the fact that it mentioned a couple different methods than the Harvard Business Review article we needed to read for class. All of these components are important in order for investors to find value and a purpose in purchasing stock within any company.
While thinking about the different tactics that typically enhance shareholder’s value of a business, I realized that it is also important for IR departments to understand what type of actions would cause shareholders to lose value of a company. I then found a list of ten things not to do which closely corresponds to this weeks discussion on ethics and professionalism. The article is written by Stanley Bing and explains ten different procedures that business should attempt to avoid.
The activities Bing refers to include not bringing on executive board members that have too little knowledge or have too much knowledge and think their opinions are the only ones that would work for the company. Having either type of personality on the executive board would be detrimental as they could either be entirely unhelpful, or too involved in their own ideas. Bing also suggests that in order for stockholders to value the company, it is necessary to avoid unnecessary expenses. While it is important to not spend aimlessly, value will be lost if the cuts involve cutting important necessities to the company.
Value will also be lost if executives are taking too many business trips, where stockholder’s money is being spent for executives to have exciting vacations. When workers are working a lot, and hard, people will consider the company more value. If hours are lacking, people will lose value for the company due to the performance of executives. Bing suggests that relying to the existing workforce will decrease the value of a company. To improve value, it is necessary to hire youngsters less concerned with pensions and are very willing to work. The last two recommendations of things to avoid are to pay senior executives to much, along with not paying the CEO enough. It is stated that overpaying senior executives will create a loss of value, while underpaying the CEO would also create problems for the company.
The article was interesting due to the fact that it mentioned a couple different methods than the Harvard Business Review article we needed to read for class. All of these components are important in order for investors to find value and a purpose in purchasing stock within any company.
Monday, April 5, 2010
Road Show Disadvantages and An Alternative
For this weekend’s Investor Relations homework, we discussed the use of conference calls and road shows in the lives of typical investor relations officers. The chapters in our text discussed the different benefits and procedures to be followed during a typical conference calls. After learning about road shows in our textbooks and from our speaker’s presentation in class I decided to further research them.
An article by John Palizza discussed the repetition and boredom that are often associated with road shows. He discussed the amount of endurance and energy necessary to sustain the breakfast meeting, 3 morning meetings, lunch meeting, 3 afternoon meeting and then a dinner meeting and flight to the next city for another day of the same tedious schedule. While the days are long, the also will incorporate the same presentation given to each investor throughout the day. The repetition of these presentations would generally send people into repeat with little thought about the information they are presenting to investors.
Other disadvantages discussed include the task of answering the same questions over and over. Each investor will have the same thoughts and confusion after a presentation, which will require the presenters to deal with these questions in a manner that shows interest and concern with the investors problems. While your presentation are often boring to repeat, much of road shows is touring with the executive officer of the company, who is of far more interest to these investors than the IR officer. The bordem and exhaustion that seems to be associated with these road shows provoked me to search to see if other alternatives have emerged due to IR officers dislike of a road show schedule.
While Palizza discussed that road shows will always be necessary, Suzanne Galante has an article about companies decision to participate in virtual road shows. While these are less personal, they are known for saving money and enabling company information to reach more people. Typically people with less money to investor would be shut out, yet with this method of viewing company information from a personal home or office through PC, this information is becoming available to people who had never accessed the information before.
An example discussed in the article is N2K or a company that delivers programming to consumers online. With the business being on the internet, the company decided that it would be logical for their road show to take place on computers as well. The online road shows enable people viewing to send in questions, along with view past information in the archives.
While these virtual roadshows will never be used by the larger companies desiring more of a personal relationship with investors, for smaller companies with fewer funds, virtual road shows save them money and provide them with opportunity to distribute company information to wider audiences. Road shows seem quite tedious and boring for those involved, yet the close relationships formed with investors because of them is defiantly worth the time and energy required.
An article by John Palizza discussed the repetition and boredom that are often associated with road shows. He discussed the amount of endurance and energy necessary to sustain the breakfast meeting, 3 morning meetings, lunch meeting, 3 afternoon meeting and then a dinner meeting and flight to the next city for another day of the same tedious schedule. While the days are long, the also will incorporate the same presentation given to each investor throughout the day. The repetition of these presentations would generally send people into repeat with little thought about the information they are presenting to investors.
Other disadvantages discussed include the task of answering the same questions over and over. Each investor will have the same thoughts and confusion after a presentation, which will require the presenters to deal with these questions in a manner that shows interest and concern with the investors problems. While your presentation are often boring to repeat, much of road shows is touring with the executive officer of the company, who is of far more interest to these investors than the IR officer. The bordem and exhaustion that seems to be associated with these road shows provoked me to search to see if other alternatives have emerged due to IR officers dislike of a road show schedule.
While Palizza discussed that road shows will always be necessary, Suzanne Galante has an article about companies decision to participate in virtual road shows. While these are less personal, they are known for saving money and enabling company information to reach more people. Typically people with less money to investor would be shut out, yet with this method of viewing company information from a personal home or office through PC, this information is becoming available to people who had never accessed the information before.
An example discussed in the article is N2K or a company that delivers programming to consumers online. With the business being on the internet, the company decided that it would be logical for their road show to take place on computers as well. The online road shows enable people viewing to send in questions, along with view past information in the archives.
While these virtual roadshows will never be used by the larger companies desiring more of a personal relationship with investors, for smaller companies with fewer funds, virtual road shows save them money and provide them with opportunity to distribute company information to wider audiences. Road shows seem quite tedious and boring for those involved, yet the close relationships formed with investors because of them is defiantly worth the time and energy required.
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