How to Fire an Analyst?!
Firing or exiting a Sell-Side Analyst covering your company represents a controversial topic, but one where management teams can benefit from perspective.
Sell-ratings or negative research are very personal to public company executives.
Sell ratings carry a significant amount of negative reputational, career, and compensation risk for the impacted executive team.
The significance of these risks explains why Sell ratings and negative research gets taken so personally.
A management team is well within its right to react on a personal level. However, the management team must realize that the outcome will be less than optimal and likely quite harmful over the long-term.
Therefore, a few rules are in order.
Rule 1: Do not attack the investment thesis.
Management teams have several levers at their disposal to constructively respond to a Sell rating or negative view points in research.
Constructive responses always unlock shareholder value, whereas personal responses always destroy shareholder value.
Rule 2: The Analyst Must Mess Up
In order to make a change, the analyst must mess up one of three things
1. The Investment Banking relationship / services
2. Provide Poor Corporate Access
3. Generate Ambush Investor Meetings
Rule 3: Analysts Are the Salesforce of Your Stock
Ratings are cyclical. Analysts want to be your friend. Often the Sell rated analyst may switch to a Buy rating eight months later. Typically, due to the efforts and response of the management team.
Finally, Investor Relations must act as an enforcer in these scenarios. Think Marty McSorely to Wayne Gretzky.
A public company cannot afford having a CEO or CFO get into a scrum with an angry investor.
Remember, a Sell rating or short report is a game of chicken. Whoever throws a temper tantrum first loses.
Upcoming Content
Philosophy and Rules Behind Firing an Analyst
My Sell-Side Franchise as the Archetype
How I Fired an Analyst
Analyst Relationships and Selling Your Stock
State of War
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