Armchair Quarterback - Our Turnaround Strategy

It’s easy to be an armchair quarterback and criticize. We want to be more constructive.

Overall, with the exception of the past three years, Dell has known nothing other than spectacular growth. They had a very large number of mediocre managers (who made millions on the stock) hanging on for the ride thinking they were great. Have you ever tried doing business with Dell? It’s not fun. They are NOT your partner. It is very much an adversarial relationship.

Everyone wants to do business with Dell owing to Dell’s size. However, once they try to do business with Dell, they realize that they will be treated poorly by Dell. As a vendor, one is forced to sign a vendor agreement which specifies that that the payment terms are Net 50. However, Dell processes all receivables once a month, so if you miss the submission date, (because you delivered one day past the cut-off date), then add another 30 days to your payment expectations. In addition, even though the vendor agreement says 50 days, one should expect that your payment won’t arrive until 75 days after you submit your invoice – meaning that payment typically occurs in 90 days. Dell stretches out its payment terms to its own advantage – which is smart. However, payment terms are typically much longer than vendors agree to, which simply angers their vendors. As a result, few companies WANT to do business with Dell as they dislike being viewed with derision by Dell staff. (An offshoot of the lousy corporate culture).

Three years ago, the PC market went against Dell, and their general weaknesses were exposed. Now Michael thinks he can fix everything bringing in high priced help that collectively have little relevant experience. Unfortunately, Dell is not even close to understanding just how messed up they truly are.

To begin with, Dell must re-build its culture. While this is the most difficult thing to do, it is, without a doubt, the single most important thing that Dell must do to re-build itself. People must have the opportunity to make mistakes, as the mistakes will very often lead to great insight that will mean success down the road. The cut-throat culture of “stepping on your grandmother to get ahead” must stop. The accepted wisdom of being ruthless to your colleagues must stop. Moreover, Dell must begin to treat its vendors as partners – and that means even the smallest vendors.

Next, the market has dramatically changed. Other than Apple, very few of the traditional PC companies are still innovating. Most now have shifted their dependencies to the ODM's (Original design mfgr's) to come up with all the hot new products. Therefore, the major differentiation between them in the future will be my logo on the box vs. your logo. They'll all run the same software so unless you are willing to be different - like Apple - you can't create any product differentiation or separation.

Services will help the turnaround to some extent, but it will not be enough for long term market dominance.

Imagine this scene: a Dell person walks into your office. He/She smiles, extends their hand, and says: “Hi, I’m from Dell, I’m here to help you!”

Replace the word “Dell” with “Government”, and you will get the joke. Unfortunately, the customer will not.

In any event, Dell is playing significant catch-up here. Carly Fiorina was credited with destroying HP’s engineering culture to get to where they are today. There is no engineering culture to destroy at Dell, so that may be Dell’s advantage. However, Dell must create a services culture. You know, one where a company does whatever they need to do in order to make a customer happy. Ok – so that is 180 degrees opposite to where Dell culture is today. This will be a long long road to travel. Hence, the significant execution risk in the company and in the stock.

Unfortunately, the only apparent vision at Dell is to build services in order to compete with IBM and HP – in those spaces.

Next, Dell really needs a winning consumer strategy. Mobile phones have the volume, but it has been all about the software for several years - where Microsoft “owns” the market. Everyone agrees that RIM’s Blackberry software is pretty bad – but it does email really well, so people overlook the software. Therefore, even if Dell buys Motorola’s handset division, they still don’t have the software to make the products “cool” and “must-have” handsets.

Moreover, a big acquisition in this space will mean another 2 years (minimum) of turnaround as there is no software. Roger McNamee at Elevation Partners was quoted last summer (when Elevation made a significant investment in Palm), that people don’t have enough time. As a result, people need to do more tasks more productively and efficiently, and they will do those tasks on their mobile phones during the 45-60 minutes between travelling from the airport to the hotel, or during the commute home. Verizon Wireless announced that it was going to open its network, with the phrase: “Any apps, any device”. Google’s Android software platform recognizes that it’s all about the software that needs to be innovative and something that handset owners must have. In other words, software is the key, and Dell is nowhere to be found.

Next, Vizio came out of nowhere in 2002 with low cost big screen TVs. Dell resells SONY, Phillips, and Sharp units. According to reports, Vizio generated revenues of $2 billion in 2007 (representing only a 2% market share), but competes very well with Samsung and SONY – two much larger players in the market. Is Dell too late to acquire Vizio, or perhaps, Syntax-Billion or Wesinghouse Digital Electronics? Perhaps not. However, what Dell really needs is someone with a vision of the market, such as William Wang at Vizio.

This leads to the last point, where is the “skunk works” to develop and bring to market the next “Hot” product? In fact, where is the culture of the skunk works? Dell has frequently been quoted as suggested that it allows others to be on the bleeding edge. Unfortunately, it is Dell that is now bleeding – with no end in sight.

“Skunks works” and innovation has to be in the blood of every employee, and it has to be in the culture that CEO’s drive. Every single employee must come to work each day thinking: How do I do this better today? How do I do this better tomorrow? Innovation has to be bubble up from the thousands of people, who need to crystallize these new ideas. How do you get people to buy into this? You make this the behavior that you want, and you reward it. You make these people heroes. You exaggerate their successes. You put them on stage. You hand them checks, because money talks.

Bottom Line: This is not a “wait and see” story. This is a turnaround, with heavy emphasis on the “turn.” This will take years, not a few quarters as some other Wall St. types suggest. It took Steve Jobs over 2 years to get Apple turned around. The difference was that Jobs has a vision, and was driven to innovate. Dell has none of these attributes. Dell shares are down more than 30% since Michael returned to CEO position. He has a lot more work to do restructure the company.

We have lots of other ideas about fixing Dell, but Michael has already paid millions for a bunch of guys that will not get him much further than he already is. Where is the vision? Where is the ability to see what something can be when nothing currently exists? Where are the new markets?

Unfortunately, the analyst’s meeting gave the impression that the company’s strategy has been defined, and its’ all systems “Go” to profitability and new wealth. We disagree with that view.

Rumors about buying Radio Shack. Are you kidding me?

Oh Joy. According to newspaper reports, Dell is considering the purchase of Radio Shack. You know - the retail chain with 4,447 stores and 739 kiosks. The retail chain with 35,800 employees that sells all kinds of connectors, wires, nuts, screws, transistors, capacitors, diodes, and LOTS of batteries. Radio Shack also sells those radio-controlled racing cars.

An acquisition of a retail chain would provide Dell with a physical place to sell its computers, like Apple already does, but HP and Lenovo do not.

Radio Shack’s CEO, Julian Day, has the “Street cred” of a turnaround specialist – something that Dell needs. Day has cut costs and capital expenditures such that its gross margin improved by 300 basis points last year - due to improved inventory management and a favorable mix shift of products.

The result? Revenues in 2007 was revenues of $4.32 billion, representing a……decrease of 11% YOY, and an 8.2% decrease in comparable store sales – YOY.

Ooops. Isn’t that the wrong direction for a turnaround?

Radio Shack cited weakness in wireless and personal electronic segments as largely contributing to the declines – with particular weakness in post-paid wireless sales. However, sales held up in GPS devices, pre-paid wireless handsets, notebooks and related accessories, media storage, video gaming, and pre-paid airtime.

In 2007, Radio Shack repurchased $209 million of stock – which is a little bit higher than the $19mm share repurchase that Don Carty committed Dell to do this year. Radio Shack also paid out $33mm in dividends – which will likely end if Dell takes over.

Radio Shack doesn’t hold quarterly conference calls with investors – so we’re certain that Don Carty will take an immediate liking to Julian Day.

So what would be the deal to make Radio Shack the primary retail arm for Dell products? Radio Shack market cap is currently at $2.15 billion. A 20% premium makes the total deal valued at approximately $2.6 billion. This seems rich to us given Radio Shack’s current problems. Julian Day’s restructuring process has done the easy things such as close poor locations, control inventory and employee hours. The next step for Radio Shack will be changing its product inventory so that it will begin to carry products that appeal to customers with money to spend on electronics. That means fewer batteries, electronics parts, cordless phones and clock radios. That also means more big screen TVs, notebooks, game consoles and games.

We’ve been to many Radio Shack locations across the USA, and many are in locations that are NOT in big retail shopping malls. Many are in “out-of-way” strip malls that time has passed by. Therefore, we’re not convinced that selling Big Screen TVs and Notebook computers would be a good idea in those locations.

Let’s do some quick “back-of-the-envelope” math. Excluding the kiosks, Dell would be purchasing Radio Shack for approximately $585K per store. Dell’s FY2008 (for the fiscal year ending February 1, 2008 – so it’s almost calendar 2007) EBITDA margin is approximately 7.25%. In other words, if Dell’s average sale per unit is $2,000, then it would have to sell at least 1 PCs per day in every store.

Of course, the profit pay-back is a much higher hurdle. The EBITDA margin of 7.25% means that each $2,000 sale represents only $145 in profit. Take the $585K average per store, divide by 360 selling days. Then divide the resulting number ($1625) by $145 – to get 11.2 PCs per store – per day.

Of course, looking at their recent 10-K, we can seel that Dell sold $6.5 billion of servers, $5.3B in services and $2.4 billion in storage in FY2008. We also know that Dell sold $31.1 billion of product to Business, and $6.2 billion to US Consumer in FY2008. Dell also sells a lot of units to large businesses government, and US consumers via its on-line channel.

So what would Dell reasonably expect to sell in these retail locations?

You also have to assume that selling units in Radio Shack locations would be “new” sales which are not cannibalizing existing sales to small and medium businesses, as well as to all those US consumers purchasing units online.

Net Net Net, let’s just make the simple assumption that Dell is looking to double its US consumer sales business via the physical Radio Shack locations. There will be some current US consumer and business sales that are lost to the stores, but we will make some zero cannibalization assumption to get an idea of what is needed to make this work. That represents an incremental $6 billion revenue opportunity.

So, let’s do the math again. How many units does each location need to sell in order to generate $6 billion in sales. Each of the 4,447 locations would be expected to generate sales of $1.35 million. Over 360 selling days, that means 3,750 sales per store. At an EBITDA margin of 7.25%, using average selling price of $2,000 per unit, Dell would expect to sell 26 units per day – per store.

That is a far more difficult number to reach when many of the Radio Shack locations are “tired” and “out-of-the-way.”

Moreover, Dell would be entering another new business that it knows nothing about, though Julian Day may be encouraged to take on the task. With Dell’s backing, he may even show positive revenue growth rather than the double digit negative growth he achieved in FY2007 for Radio Shack.

However, at the end of the day, there is a basic question: why not make it worthwhile for Radio Shack to provide shelf space for Dell products? Why add the 35,800 employees, and running the retail operation? How will Don Carty control these expenses when Radio Shack stores are, in general, “tired” and will need a significant capital expenditure to “refresh” the stores to compete with Best Buy?

Why not work with them for a year, and see how it goes? Why does Dell need to additional headache? It’s not like it already has a lot of moving parts that need to be properly executed upon.

Oh Yeah. There are a LOT of moving parts in this supposed turn-around.

Then again, perhaps Dell should buy Radio Shack. Then they could sell terrestrial radios next to their computers while the Apple stores could stock big screen TVs and satellite radios next to their iPhones and Macs.

Cost Cutting Continues - but Production Capacity in India Doubles

These two stories were published today.

The Call center closing was reported by the Ottawa Citizen.

The production center story was reported by Business Standard (in India).

Go to the sites to read the whole story.

The most interesting lines of the Canadian story:

http://www.canada.com/ottawacitizen/news/story.html?id=d399d387-df1f-4400-8274-1c45879f8ed2&p=2

• Dell laid off 500 employees yesterday and will shut the call centre operation and eliminate another 600 positions this summer.
• The company previously announced plans to shut another Edmonton call centre employing 900.
• Dell said it took the action "as part of company-wide efforts to increase efficiency of its business, improve performance and provide better value for customers."
• There was not a politician in sight yesterday. The media were kept well away from the site, which will soon be empty.
• Last year, there were an estimated 300 call centres in Ottawa employing about 20,000 people. But like the automotive and other manufacturing centres of central Canada, many are in deep trouble as the dollars rises.
• The closing of the Dell call centre follows other recent, less-publicized closings by contract operators that are quickly shifting jobs to Asia.
• Company founder Michael Dell was conspicuously quiet yesterday.
• He is busy these days in Texas, trying to put his company back on track. Just 17 months ago, he told an adoring Ottawa audience "the remarkable growth of this customer contact centre is made possible by the depth of talent we found in the Ottawa workforce."
• It was left to Michael Jaillet, the Ottawa site leader and founder, to say in a statement "The decision to close Dell Ottawa was a very difficult one. We appreciate the contributions of our Ottawa team."
• Dell suffered some self-inflicted wounds: customer service declined and product quality problems rose.
  

Here is the positive side of the Dell story………for India.

http://www.business-standard.com/common/news_article.php?autono=320974&leftnm=8&subLeft=0&chkFlg=

Dell to double output on higher demand

Buoyed by strong demand from the corporate and small-and-medium business (SMB) sectors in India, Dell Inc, the world’s No. 2 computer maker, said on Tuesday that it would be doubling the production capacity of its lone plant in India from 4 lakh to about 1 million units per annum.

In a move to achieve this, the company announced the manufacture of a wide range of laptop lines at the Sriperumbudur plant near Chennai.

At the inauguration of the manufacturing facility at Sriperumbudur, Paul-Henri Ferrand, president - APAC South with Dell Asia Pacific, said the manufacturing capacity upswing would be driven by the making of their Latitude, Vostro, Inspiration and XPS lines of laptops in of the facility.

“This is consistent with our strategy for emerging markets and the over 100 per cent YoY growth we have witnessed in India for laptops in the first four months of the calendar year 2008,” Ferrand said.

Ferrand and other company officials declined to disclose employee numbers at the plant, which was announced in December last year, on an investment plan of $30 million over the next five years.

The increase in capacities out of India coincides with what the company regards as strong-growth upsides in the corporate PC (both laptops and desktops) and the x86 enterprise server market. In the latter, the company claims to have a market share of 20 per cent currently, from 10 per cent two years ago.
“In the first quarter of 2008, we were the leaders in the corporate PC segment. Besides, the SMB and consumer businesses in India have grown by over 100 per cent in the last one year. We want to expand coverage for our SMB business by 10 per cent over the next one year. We have also garnered a 10 per cent share of government projects over the past year of our focus on this vertical,” Rajan Anandan, vice-president and general manager, Dell India, said.

Ferrand said that SMBs hold promise as a strong market vertical for India. “We expect 1 million SMBs to get their first PCs this year. It is a nice segment to deploy our technologies going ahead,” he said.
Senior Dell officials also called for zero duty on all imported components, which presently constitute over 80 per cent of their procurement pie for the Sriperumbudur plant, without elaborating on whether they would pass on the savings accrued to the customer in the event of such duty exemption.

The company also unveiled the Dell 500 laptop customised for Indian conditions and focused on the SMB, education and government markets.

The Dell 500 laptop computer will come in different configurations starting at Rs 24,500.
The company, clearly abandoning its famous direct-to-customer approach to take on archrival Hewlett-Packard, has a slew of retail forays lined up in India this year following the signing of a corresponding agreement with the Tata Group’s Croma stores chain in March.

More announcements in this direction are likely soon, Anandan said, adding that the laptops manufactured in India would be sold directly as well as through retail partners. Dell India is looking at building a substantial solutions business for corporates and SMB customers.

Dell Inc, with a capital placed at $61-billion, employs over 12,000 people and delivers services and support in over 600 locations in the country. Revenues at the company’s Indian operations rose 60 per cent YoY to touch $700 million in 2007.

Name the Company

The following story was sent to us today, and tells the story of an employee working for a large company. We have deleted the company name, and changed a few things to generalize it. The context remains the same.

Which company do you think that this story is about?

More interestingly, how many companies do you think that this story could be about?

Unfortunately, the answer is "too many".


I started working for XX 14 years ago. When my wife and I were still in college, we put together a top ten list of places that we wanted to live. XX was not on the list. Not because there is anything wrong with XX, just that it didn't offer what we were interested in at the time. We prioritized our geographic preferences (proximity to mountains, oceans, etc.) higher than any other factors, and were apparently on our way to the Carolinas. We didn't care about a particular job or industry. The plan was to work for a company in the location we desired.

Then I got a call from XX.

I was familiar with the company, and it looked pretty great on paper. So I asked around. Invariably, each person I talked to had the same response: "XX? Great company!" More than a company... a family. When you work for XX, they take care of their employees like a parent cares for their children. XX treats its employees so well that it has never had a union of any kind - there is no need. The pay is great. The people are intelligent, innovative, and fun to work with. It's a global company with a strong brand, and a bright future.

I took the job.

In my first years at XX, the positive remarks continued. You walk down the street and bump into somebody you don't know, and the first question they ask is, "What do you do? Where do you work?" And I say, "XX." To which the response is always, "XX! Wow! Good company!" And it really was great. Aside from the sense of achievement and satisfaction drawn from the "work" part of the equation, life in general was really great, and we were having a lot of fun in and out of work. And the company was diverse, and balanced. With multiple sectors, XX could still succeed and move forward despite issues in one group or another. If XX was having a bad year, the YY group numbers would bail them out. And vice versa. We were a family, and we kept the company moving forward.

Things have changed.

Today when a group has an issue, we don't attempt to fix it. We don't address the problem. We spin it off or sell it, and hand the problem to somebody else.

My wife and I have children. If one of my children comes home with a bad report card, having failed every possible course, with terrible performance across the board, what do I do?

If I'm XX, I say, "Wow. This is terrible. You're bringing down the family average. You're out. You have to leave the family, strike out on your own, and fix your problems by yourself." This is not how family responds. Family pulls the child closer. Family works with the child to get to the root of the problem, and family works with the child to improve the grades.

XX went to war, and was shot in the leg. It's a bad wound. XX is on the hospital bed, and the doctor is looking it over. The bad news is that its going to be painful, expensive, and will take years of hard work to recover. But the good news is that the doctor can save the leg. But (the CEO) wants him to cut it off anyway. Nobody does that! Everybody wants to save the leg! You cut off the leg and the body may survive in the short term, but you'll never run again. XX will be a shadow of its former self. And of course the leg without a body cannot survive.

Perhaps I am naïve. Perhaps the family has been gone for a long time, and I've been in denial. I should have seen it. Today I'm forced to look with eyes wide open. And what I see is a business. A very cold business. I see a focus on executive exit packages and stockholders. The employees are not part of the equation. Pride in products is not part of the equation. The future of XX is not part of the equation. And maybe that's the nature of most businesses. But that's not XX, and that's not what I signed up for.

I don't have the numbers. Perhaps the decisions are justified on paper. XX may survive. It may die. I can't say. All I know is that the family is gone.

And that makes me sad.

Dell - Channel Fill and Methane Gas?

Michael Dell was interviewed by Maria Bartiromo on CNBC yesterday afternoon regarding Dell’s “Green” effort. At the 30 second mark of an 8 1/2 minute interview, Michael Dell suggested was that Dell was committed to be “carbon-neutral” this year. As evidence, Michael suggested that the Round Rock facility was entirely powered by wind and methane gas.

….OK…so we couldn’t let this one go by.

…Wind and methane gas?

(Hey folks, you can't make this stuff up).

http://www.cnbc.com/id/15840232?video=719280823&play=1

Let’s see. How many jokes can one think of within the next five minutes regarding Dell’s HQ being powered by wind and methane gas? ...and you don't even have to be specific about the "God Pod" in Round Rock 1 (God Pod is the caustic reference by employees to the executive offices).

Too easy.

Michael also mentioned some other points about the current quarter. The (unit) growth this quarter would result in good gains in market share and earnings.

However, he also indicated that Dell computers are now being sold in over 12,000 retail stores worldwide. In other words, Dell is filling the retail channel with units. The obvious question: How much of the earnings this quarter will be represented by CHANNEL FILL, not Channel sell-through?

How much disclosure will Dell management provide on sell-through vs. channel fill?

In other words, if Dell reports good earnings this quarter, we will need to discern the impact of the channel fill on those earnings as the units may well sit on retail store shelves for some time, and may be discounted heavily to move them out the door.

Visit your local Wal-Mart or Best Buy. Ask the sales clerks whether the units are selling.

Dell in Barron's

Barron’s published a negative story on Dell this weekend. (“It’s too Early to Hit Restart on Dell Shares”, Pg 28, April 21, 2008). The article did a reverse Oprah – instead of the negative stuff up front, with a positive reconciliation at the end to make everyone feel better - the Barron’s article started off positive (US personal computer market share increased in Q1 to 30.9% from 27.7%, while HP slipped slightly to 24.3%), and then listed the negative points. The most cogent points of the article: Dell is still losing money in the consumer business, as 94% of the PC-industry growth now comes from abroad where HP dominates. The article did some positive-negative contrast – but the tone was negative. One unnamed hedge fund manager is quoted as suggesting that Dell’s earnings multiple should be closer to 8x, rather than the 13.5x-14.x of HP and IBM, respectively, implying that Dell shares are more appropriately valued at less than $14, about 25% lower then current levels.

According to the story, David Bailey at Goldman Sachs reduced his rating on the shares to Neutral subsequent to the analyst’s meeting on April 2-3, owing to the large number of moving parts required to work properly together in order to make the turnaround successful. Those moving parts are: 1) changing its low-cost direct-sales model to one requiring multiple-product platforms, so it can sell items like notebook computers in multiple channels such as retail stores, 2) attempting to upgrade consumer service, 3) the retail store initiative, and 3) push into lower margin emerging markets and building a tech consulting business to rival IBM and HP.

None of this is new and Barron’s should have published this story two weeks ago after all the stories appeared after the analyst’s meeting.

Nevertheless, two points were made, but were not elaborated upon. First, the article quoted Ron Garrigues suggesting that it could take another year before his unprofitable consumer products division returns to profitability. Secondly, the article makes a passing mention that there has not been any evidence of execution over the last two years (that comment was made by Sanford Bernstein analyst Tony Sacconaghi).

In addition, the big wild card – which few people seem to understand – hence, its position at the end of the article, almost like a throwaway – is the fate of Dell Financial Services (DFS). It is likely that Dell will sell DFS following Don Carty’s “strategic review”, meaning that a large write-off is pending on the ultimate sale price of the entity as well a write-off on a portion of the securitized assets on its books.

Let’s be clear. The real issue at Dell going forward is execution risk. There will be no near-term turnaround in Dell Inc. The shares are “dead money”, but will follow the general market as the largest number of institutional stock holders are index funds. Hence, any upward price drift may be misinterpreted as execution progress.

The new executive management team has been in their current roles since early 2007. In other words, they have had time to review their respective operations, develop a plan for the future, and begin the restructuring process. Headcount reductions continue, and employee morale continues to find new lows. Hence, we believe that any substantive evidence of progress on the turnaround is still several quarters away. However, Dell’s executive management team is talking about the “opportunities” in front of them. That means that several quarters away times two.

So what’s the bottom line? Last week, IBM showed that its software strategy – which has been 8 years in the making – has begun to pay off – in spades. Dell’s software “strategy” at the enterprise level, is just beginning. It's primary competitors have articulated a similar software strategy. Why would anyone think that this executive management team will be able to execute on their restructuring and growth strategy in half the time, let alone one-quarter of the time that it took IBM? Is this team confident in its ability to execute on its restructuring strategy? A little humbleness and humility would have been refreshing. Instead, we saw that this team is arrogant. As a result, we believe that the biggest hurdle at Dell Inc. is that Michael’s new leadership team is completely out of touch with the market, and they are isolating him from truly seeing and understanding what is going on.

Dell Analyst's Meeting - Pi-ti-ful.

We have to admit that we certainly didn’t expect the reaction that we received to our view on the Dell meeting two weeks ago. The real deluge began AFTER we took the piece down for some editing.

The piece appears to have hit a real nerve with people who know Dell extremely well – former employees. Almost everyone who sent comments indicated that our views were incredibly accurate.

If you saw the piece, and have a comment, let us know your view. We are doing some more evaluation on the company, and we may re-post the piece (with the edits ) in the next week or so.

We are neither long nor short the shares of Dell.

Anonymity

Some people don’t like the fact that the Internet provides anonymity to commentators and critics. Some people are motivated by the attention. Others just want the truth to be part of the discourse.

Unfortunately, remaining anonymous is often the only real option. Who wants a “Fatwa” directed against them?

Who needs private investigators rifling through your garbage?

We've issued Sell recommendations on various companies (more than five, but less than ten - when Sell recommendations really meant something because they were so rare), and the backlash from management is not pleasant.

We have published a sell recommendation on a large comapny that was in the middle of a court case, as it was being accused of claiming that some features of its software were developed in-house, rather than through the partner they "no longer wanted to work with." When a very large shareholder of the company learned what we knew, the case was quickly settled. (We were told that the large shareholder demanded a settlement, otherwise selling the position in the open market would begin that afternoon).

There is real money and large personal fortunes of management involved. They will do what they need to do in order to protect their wealth and their company .

http://foolingsomepeople.com/main/

It happens all the time.

If you are on the receiving end of any negative comment, then you must do everything you can to control (or change) that negative view. Sometimes that control means you must do things that border on intimidation. If you say something negative about a public company, very often you will be banned, shunned, and excluded from any conversations with management going forward. It all depends on the context of the comments. For example, we’ve read the “research” of bulge bracket firms who spend millions of dollars each year paying “analysts” to provide Buy, Hold, etc, etc, recommendations on public companies. On a rare occasion, you will actually see a “Sell” – but get a copy of that one for the history books, because they don’t happen often.

This happens ALL THE TIME – despite commentary to the contrary. Alternatively, your own management team may be one shutting down negative comments. Remember the Deutche Bank banking analyst (Michael Mayo) who published negative comments about Chuck Prince (the CEO) at Citibank? He was even on CNBC for an interview. We haven’t heard him on any public forum since. It hurts your investment banking team and overall firm revenues when they get shut out of potential advisory business.

As a result, you very rarely see anything negative. When you do, it is wrapped up in the language of “markets” and “headwinds” and doublespeak gobble-di-gook. You don’t see very much criticism of management.

If you are on the receiving end of negative comments, and those comments are anonymous, then, what do you do? Comments like these are like a wildfire, something that can get out of control, and do so very quickly. You must do everything you can to control these comments.

So how do you control that? Do whatever you can to determine the identity of the anonymous commentary. There is no moral imperative to be transparent and reveal your identity in blogging. The moral imperative is truth and honesty.

Clearly, there is a desire to avoid anything that can be classified as libelous or slanderous. That’s wrong - even though people do that all the time in quiet conversations that can’t be definitively attributed in a court of law. Cynicism and speculation are fair as they are honest, even though they are opinions. People are certainly smart enough to figure out whether the commentary is honest, and not something more sinister.

If those goals are best achieved by anonymity, then so be it.