Tag Archives: Commentary
by Liz Hester
Lance Armstrong’s decision to step down as chairman of his cancer-fighting Livestrong foundation in the wake of doping allegations isn’t just a blow to the man himself; it’s a blow to an organization with a beneficial mission and a powerful brand.
From Juliet Macur’s story in the New York Times:
“I have had the great honor of serving as this foundation’s chairman for the last five years and its mission and success are my top priorities,” Armstrong said in a statement. “Today therefore, to spare the foundation any negative effects as a result of controversy surrounding my cycling career, I will conclude my chairmanship.”
Armstrong, the seven-time Tour winner who denies ever doping, founded the organization in 1997 after he survived testicular cancer and it sold millions of yellow Livestrong wristbands and went on to partner with Nike to sell millions of dollars of Livestrong gear. Jeff Garvey, the vice chairman of the organization, will become chairman, while Armstrong will remain on the foundation’s board.
Livestrong funds programs that support cancer survivors through diagnosis to life after the treatment. Each year, they spend around $35 million, with $30 million of that going to programming, according to their website.
The foundation, which will celebrate its 15th year in 2012, has raised more than $470 million with 81 percent of those funds going to programs, according to the Livestrong web site. That’s an incredible amount of money, no doubt enabled in part from Armstrong’s celebrity.
How else could you sell 80 million of those ubiquitous yellow silicone bracelets? That’s right, 80 million people shelled out a $1 each to wear their support on their wrists, according to USA Today. And it was the first of what is now a cultural phenomenon.
Livestrong might not be one of the Forbes top 200 U.S. charities, but it’s a well-known brand that’s seeped into the broader culture beyond cycling and cancer charities. The foundation and its founder are intertwined as brands.
This connection complicates Armstrong’s personal legacy (or lifts it despite the doping scandal) and it makes it hard for the foundation. People like to give money to causes that make them feel good and have the potential to elevate their social status. Why else would so many people wear those yellow bands?
At least that’s what I thought, until I read this CNN story. Here are the important lines (some parts have been omitted, so click the link for the full story.)
The organization, which had strongly defended Armstrong’s role as recently as last week, did not ask him to step aside, Livestrong spokeswoman Katherine McLane said.
Armstrong founded the charity in 1997 after his own successful treatment for testicular cancer that had spread to his brain and lungs. He came back from the disease seemingly stronger than ever, winning the first of his seven Tour de France titles three years after he was diagnosed with cancer.
McLane also noted the day of the report’s release that donations to the charity had boomed since August, when Armstrong announced he was ending his legal fight to stop USADA’s investigation.
McClane said Wednesday that Livestrong’s audience — cancer patients and their families — aren’t troubled by Armstrong’s woes.
“The last thing that’s going to enter your mind is news from the cycling world,” she said.
Donations to the charity are up. I think this shows that celebrity can only go so far to help/hurt a brand. People are smart enough to separate the works of the charity from the actions of the founder. It might dilute the story, but the doping doesn’t change the fact the man’s a cancer survivor and started a foundation to help others.
I’m not a fan of cheaters. And this post should in no way be read as a defense of Armstrong’s actions. But I do think it interesting that for all the money spent on brand and research, that it takes more than a founder’s fall from grace to stop people from giving to charity.
And no matter what you think of Armstrong or cycling, cancer survivors and their families deserve all the help they can get.
by Adam Levy
Jack Welch, the storied former CEO of General Electric, went out on a limb last week and insinuated that the Obama Administration somehow manipulated the U.S. employment data for his political benefit.
He wrote a tweet to that effect and then on Wednesday wrote an op-ed in the Wall Street Journal, defending the “stink” he made and refusing to “pipe down.”
“I Was Right About that Strange Jobs Report,” Welch wrote.
Throw me in the camp of those who would like him to pipe down — or maybe come clean with how he knows. Maybe Neutron Jack knows what he’s talking about, but he’s not telling us.
Just about the same time that Welch was doubting the authenticity of the Department of Labor report, I read a couple of articles that a team of academics were questioning the veracity of U.S. corporate earnings reports. The study found that one of five U.S. companies – yep, 20 percent of U.S. firms – cook the books when they release their earnings.
Finance professors at Duke University and Emory University found that a not insignificant number of companies “manage” earnings and use aggressive accounting maneuvers to tweak the numbers — legally, of course! These companies can tap into reserves, or deploy some other sleight of hand to make sure the numbers hit or exceed targets, enabling, of course, the CEO to get his or her bonus, the stock to stay up, and so forth.
Is it too much of a leap to think that maybe somewhere in his corporate background Welch encountered such a phenomenon, and that’s influencing his certainty about the government fiddling with its report?
I’m not suggesting that Welch and/or GE cooked its books (never!). But it seems like there is a one-in-five shot that a company does that – so maybe Welch has some personal experience.
I realize it’s bad form to take a cheap shot and insinuate some malfeasance regarding a CEO considered a legend by many. But why should I pipe down? Welch won’t.
by Liz Hester
Last week’s drop in the unemployment rate to 7.8 percent from 8.1 percent seemed like good news no matter which side of the political spectrum you’re on. Or was it? Several influential business leaders – think Jack Welch – and financial blogs accused the government of changing the numbers to benefit President Obama.
Many in the business media were quick to jump into the fray, while others worked to dispute the claims. But more importantly, what does this say about the media?
Welch’s tweet – “Unbelievable jobs numbers…these Chicago guys will do anything…can’t debate so change numbers” – generated pretty strong reaction from some leading journalists, according to the Huffington Post. The Wall Street Journal even devoted a video segment to it.
In his most recent op-ed for the New York Times, revered business journalist Joe Nocera broke it down into three points that it was impossible to change the numbers. The first was that it didn’t make any sense for a non-partisan bureau to manipulate the numbers since their jobs remained secure no matter who was in office. The second was this:
Hence, Point No. 2: there is, indeed, something a little strange about the way the country derives its employment statistics. It turns out that the statistics the bureau releases each month are generated by two different reports. One, called the establishment report, is a survey of businesses. That’s where the 114,000 additional jobs comes from.
The second is a survey of 55,000 households, where people are asked about their employment status. Extrapolating from the survey, the bureau concluded that an additional 873,000 people had found work in September. It is that number that brought the unemployment rate from 8.1 percent to 7.8 percent.
When I asked a bureau spokeswoman why there was such divergence between the two numbers, she said she had no idea. “The reports are totally separate,” she said.
His third point was that the presidential race shouldn’t hinge on one set of numbers, especially those that were volatile and constantly readjusted.
But that didn’t keep the media from piling into the debate or Rep. Allan West from agreeing publicly with Welch. Politico reported that West wrote this:
“I agree with former GE CEO Jack Welch, Chicago style politics is at work here,” West wrote on his Facebook page Friday. “Somehow by manipulation of data we are all of a sudden below 8 percent unemployment, a month from the Presidential election. This is Orwellian to say the least and representative of Saul Alinsky tactics from the book ‘Rules for Radicals’ – a must read for all who want to know how the left strategize.”
In the same story, they also pointed out:
Labor Secretary Hilda Solis, whose agency releases the jobs figures every month, responded that charges of a conspiracy theory are “ludicrous.”
“I’m insulted when I hear that because we have a very professional civil service,” she said on CNBC. “I have the highest regard for our professionals that do the calculations at the [Bureau of Labor Statistics]. They are trained economists.”
But why is this even news? This story from ABC News quotes a fund manager who nails why this even warranted the debate:
Guy La Bas, a managing director, fixed income strategy, at Janney Montgomery Scott, a Philadelphia brokerage firm, agreed. “I don’t want to simply blast Welch since he’s a very respected manager,” he told ABC News in an email. “In this instance, he issued an off-the-cuff remark which I highly doubt is true, but that doesn’t negate the value of his business opinions.”
But, he added, “The Bureau of Labor Statistics, which conducts the monthly jobs survey is a non-partisan group of hard-working people that have the public trust. Considering this trust and the controls imposed on their processes, the chances that the BLS actively “manipulated” data are extremely low, even if some of the numbers underlying today’s jobs report appear surprising. In my discussions with statistical organizations, political officials receive information about economic releases only after the numbers have been calculated, so there’s no opportunity for the White House–or anyone else–to alter the results.”
There are a couple of points for the media to actually be commended on in covering this story. Ignoring a controversial tweet/statement from someone of Welch’s mystique would have been doing a disservice to the general public. Stories, like this one from McClatchy’s Kevin G. Hall, that discredit the remarks are important.
But it does seem that the election and the country in general are moving in a dangerous direction when business leaders and elected officials are questioning the truth in statements from non-partisan government bureaus. And that is the worst commentary of all – that politics and personal beliefs are enough to spark a nation-wide debate over something that’s considered fact.
It’s important the media continues to try and discredit these statements, but also sad commentary that this even got the coverage it did.
by Liz Hester
It’s Advertising Week 2012! Ok, so no one’s actually jumping out of a chair to run to New York, but Tanzina Vega and Stuart Elliot do have an interesting story in the New York Times about the five-day event.
As the world relies more on digital, companies are trying to figure out the best way to reach more segmented audiences, sometimes with shrinking budgets. This year’s conferences are increasingly focused on social, mobile and digital media – a far cry from the “Mad Men” days of beautiful print ads.
It was also a chance for social media companies like Facebook and Twitter to help advertisers better understand the value of advertising on social networking sites. From the story:
Facebook took the opportunity of a session at the Mixx conference to answer questions about the efficacy of buying advertising on its site — questions that were widespread even before the company’s disappointing initial public offering.
Brad Smallwood, director of pricing and measurement at Facebook, discussed the findings of a study the company hoped would change advertisers’ minds about depending on measurements like clicks to determine the success of campaigns on facebook.com. The goal is to have them perceive the social network more as a medium akin to television for branded advertising.
“If you ran a campaign in the last five years, you focused on clicks,” Mr. Smallwood said, but “demand fulfillment is only one piece of the marketing puzzle.”
“We have to provide a solution for the brand marketers of the world,” he added.
The study was conducted with a new Facebook partner, Datalogix, a company that measures in-store purchases. Fifty campaigns on Facebook were measured, for brands from giant marketers like Nestlé, Procter & Gamble and Unilever. When purchase data from stores was combined with data about ad impressions on Facebook, the study found that 70 percent of the campaigns enjoyed three times greater return on their budgets, and 99 percent of the sales came from consumers who did not interact with the Facebook ads.
I’m not sure that last part proves the point (unless it’s an error), but needless to say, advertisers are definitely looking for more engagement and better ways to measure their success.
I’m bringing this up since the topic of advertisers was discussed by one of the more interesting panels at last week’s Society of American Business Editors and Writers conference last week. The person with some of the most radical ideas: Bloomberg Businessweek editor Josh Tyrangiel.
Web advertisers are struggling and seem to be constantly chasing two-year-old trends, Tyrangiel said. For example, right now the hot buy is video and video pre-roll, but adding a 30-second advertisement to the beginning of every video is bad for advertisers and creates a terrible user experience, he said.
Tyrangiel said he’d like to see advertisers spend more money and not just slap the same banner ad up on every site. Companies who spend more to create a custom ad experience on different sites will “nail it on engagement.” With the rise in specialized content and people willing to pay for the information they want to receive, advertisers will have to consider a different approach to their online and mobile campaigns, Tyrangiel said.
And if customization is the key for online advertisers, then companies need to figure out how to better use social media tools to engage customers. From the Times story:
At another Mixx presentation, Joel Lunenfeld, vice president for global brand strategy at Twitter, shared data about the relationships people have with brands on twitter.com.
Nine out of 10 people on Twitter follow at least one brand, Mr. Lunenfeld said. Although most said they did so for promotions, coupons and free products, he said that 87 percent said they followed brands for fun and entertainment and 80 percent said they did so for access to exclusive content.
Among the examples presented by Mr. Lunenfeld were how brands like Panasonic and Procter & Gamble use Twitter. Perhaps most interesting was Mr. Lunenfeld’s connection between Twitter posts and television commercials.
“Twitter is the EKG of action for television,” he said, adding that 50 percent of people who use Twitter do so while watching TV.”
I find this factoid about TV and Twitter staggering. Smart companies don’t just slap a Twitter icon on the bottom of advertisements; they’re finding a way to engage the audience. And another key question for companies is how to integrate all these platforms to create a cohesive experience.
Forbes.com contributor Rhonda Hurwitz wrote in a recent post that companies typically fail with social media in one of three ways. They either outsource too much, put the department responsible for social media off to the side or don’t engage employees in the process.
As companies spend more on social advertising – it’s expected to more than double during the next five years to 18.8 percent of total marketing spend, Hurwitz said citing CMOsurvey.org.
That’s a lot of people throwing money as something not fully a part of the business. And for those who write about advertising and marketing, it’s important to pay attention.
by Liz Hester
With the looming fiscal cliff, not a lot of news organizations have been paying attention to the payroll tax cuts, set to expire at the end of the year. The New York Times’ Annie Lowrey wrote Monday that no matter who wins the election in November, it’s unlikely this particular tax cut will survive.
That means a tax hike starting Jan. 1 for about 160 million U.S. workers. Both Republicans and Democrats are more interested in focusing on the broader Bush-era tax cuts that are also set to expire and some independent economists said the economy could handle the increase despite continued weakness, Lowrey writes.
From her story:
Independent analysts say that the expiration of the tax cut could shave as much as a percentage point off economic output in 2013, and cost the economy as many as one million jobs. That is because the typical American family had $1,000 in additional income from the lower tax.
But there is still little desire to make an extension part of the negotiations that are under way to avert the huge tax increases and across-the-board spending cuts, known as the fiscal cliff, that will start in January without a deal. For example, without any action, the Bush-era tax cuts will expire and the military and other domestic spending programs will be reduced.
Despite this, it’s easy to see why the media are focusing on the fiscal cliff. Lori Montgomery wrote in the Washington Post that if Congress allows the nation to go over the fiscal cliff then 90 percent of Americans would have higher taxes.
A study published Monday by the nonpartisan Tax Policy Center finds that taxes would go up by a collective $536 billion next year, or about $3,500 per household, reducing after-tax income by about 6.2 percent.
But the impact would vary significantly by income level, the study found, ranging from a $412 jump for the lowest earners (a reduction of 3.7 percent in after-tax income) to $120,000 for the top 1 percent (a bite of 10.5 percent). Middle-income households — those earning between $40,000 and $65,000 a year — would see their taxes go up by an average of $2,000, the study found, leaving families with 4.4 percent less money to spend.
For most taxpayers, the bulk of the increase would be triggered by the scheduled expiration of tax cuts enacted in 2001 and 2003 during the George W. Bush administration. The expiration of President Obama’s payroll tax holiday, which shaves 2 percentage points off payments to Social Security, comes in a close second.
But the lowest earners would be hardest hit by the expiration of tax breaks enacted as part of Obama’s 2009 economic stimulus package, the study found. Those losses would include an expansion of the earned income tax credit and the child tax credit for working families, as well as a $2,500 credit for college tuition, which would shrink to $1,800 and be available for only two years instead of the current four.
The Associated Press reported the government could see a $500 billion in new revenue if all the cuts expired. That’s good news for government, especially as the federal deficit continues to climb.
But is it really the best policy to cut consumer’s income at a time of rising costs of living, increased inflation and wavering consumer confidence? It feels as if the economy is on the brink of either getting better or taking another downturn. If millions of Americans see a noticeable drop in income, it adds yet another strain.
No one likes higher taxes and obviously the country needs to be more fiscally responsible, but seems as if a combination of cuts and higher taxes would better serve the current state.
by Chris Roush
A Bloomberg View editorial laments how the federal government has been slow to respond to Freedom of Information Act requests for cabinet-related travel.
The editorial states, “In June, Bloomberg reporters filed Freedom of Information Act requests with 57 federal agencies. The reporters sought data in a narrow (and not particularly complicated) area: taxpayer- supported travel by Cabinet secretaries and top officials. The results were dismaying. Just eight of the agencies met the 20- day window for disclosure required by law. Of 20 Cabinet-level agencies, only the Small Business Administration responded within the legal limit.
“The records of five other Cabinet-level departments — Commerce, Labor, Treasury, the Office of Budget and Management, and the U.S. Trade Representative — were turned over to reporters past the deadline. Fourteen either haven’t fully complied or haven’t responded at all, including the Department of Justice, whose mandate includes enforcing compliance of disclosure laws. (To see a multimedia analysis, click here.)
“Critics of government opacity, including us, should remember that even in the realm of information, freedom isn’t free. Bringing records management up to 21st century snuff is costly. The government processed 631,424 FOIA filings last year, with the number of backlogged requests growing 20 percent, from 2010 to 2011, to 83,490. Getting the process to run more smoothly requires labor and technology, both of which, in turn, require money.”
Read more here.
by Liz Hester
It’s no secret that certain reporters have better access to companies, executives and information. Many have such incredible access they’re household names – creating their own brands for breaking news.
This is great for their publications — think Andrew Ross Sorkin’s branded content in Dealbook for the New York Times. By consistently being the first to the story and leveraging his sources for key details, Sorkin has been able to make a name for himself and in turn elevate the paper’s coverage.
This might seem obvious, but it’s important to note the cyclical nature of the game. Sorkin breaks a story, strengthens his brand, and in turn, more people want to talk to him. His hard work pays off, which is how it should be.
I use this example to point out the power of relationships. With each conversation, Sorkin is building trust. The more public relations people trust you to quote their executives, present their sides of the story and listen, the better the access. As more executives see you getting the story right and using the information they give, the more likely they are to take the time to talk.
Many companies choose which publications or reporters will receive information based on past experience working together. Which writer is sympathetic to this particular issue or which publication has the best track record of covering the story are all considerations in deciding who will get the heads up.
Sometimes, it’s even built into the media plan to leak the story to certain reporters or publications. When agencies or other executives put together the press plan, this is often the case for deals, they’ll build in the leak to a certain publication as part of the process. Usually the client has the final say in who gets the information first, so long-term relationships and coverage will come into play here.
It seems that everyone would be balanced, but different publications definitely have different viewpoints. Coverage is shaped by the way those editors and reporters have written about topics previously.
On the face of it, choosing if and how to leak a story is the public relations professional’s job. They should have the industry knowledge and relationships to exercise this last bit of control. But, sometimes it goes a little too far.
Recently, Stephen Roach, a Yale professor, made comments on Bloomberg TV about the power of a Wall Street Journal reporter. From the Business Insider story:
But he also took the opportunity to take a dig at both Hilsenrath and the Fed, which Bloomberg reporter Betty Liu called mere speculation:
“They [The Fed] have gone about their usual pre-FOMC leak frenzy where they talk to this reporter and that reporter. Jon Hilsenrath is actually the chairman of the Fed. When he writes something in the Wall Street Journal, Bernanke has no choice but to deliver on what he wrote.”
Obviously this is an exaggeration, but it does point out the power of consistent leaks and the perceptions that creates. On the plus side, this means the Journal has a lot of institutional knowledge, allowing them to put the news into the proper context. On the minus side, it means that other reporters and publications voices dim a little each time.
One of the best parts about the U.S. media is the competition and ability to have different perspectives. When access to information is doled out, that reduces slightly. Companies are obviously looking to break news, especially bad news, in the most favorably light possible. It’s important to keep in mind when a story breaks.
The cycle of favoritism can also make it harder for younger reporters to cover a beat. Earning that trust and building relationships often starts by writing the small scoops such as a new manager or hire from another firm, a former colleague used to call them “beat sweeteners.” They’re not groundbreaking, but can go a long way to show contacts at companies a reporter is willing to work with them and listen to their comments.
Playing favorites is unavoidable and often the product of many years hard work by reporters. It’s building those source relationships over time typically wins you the information. Problems can arise when there’s a perception that one publication has outsized power or influence when covering a story.
But it seems that given today’s competition and the speed that outlets can match each other’s reporting, the built in leak is only a temporary advantage. It’s much more important for a reporter, a reward for all the lunches and cold-calls and care spent writing a good story. We all benefit from that.
by Chris Roush
Alan Guebert, a columnist for The News-Sentinel in Fort Wayne, Ind., writes about why The Wall Street Journal no longer writes in-depth articles about the farming business or agriculture.
Guebert writes, “The Journal now carries the news from Lincoln to London but rarely covers anything as provincial as agriculture. Long gone are the long, well-written front page epistles on emerging trends in farm production and food policies.
“Oh, disasters and scandal – drought, for example, or the now-frequent collapse of futures trading firms – still make the paper, but farmers and ranchers mostly do not.
“That’s not unimportant.
“When a newspaper the stature and reach of the Journal covered, say, a shortage of hay in Kansas or Deere & Co.’s new tractor line the nation’s business leaders got a refresher course on every American’s heritage – farming.
“Today, the Journal is less business-like and more news-like but it isn’t better. In fact, it’s more a two-note trumpet than a four-star newspaper. Those two notes are plaintive and daily.”
Read more here.
by Liz Hester
William D. Cohan’s exceptional profile of Robert Rubin in Bloomberg Businessweek should be on everyone’s must-read list, especially younger journalists and students. Not to gush too much, but it’s balanced, fair, critical and interesting. And anyone who’s ever had to convince someone to say something less than glowing about an executive as well connected as Rubin – much less on the record — can appreciate the work behind the story.
Writing a profile, especially one as comprehensive as Cohan’s, requires a lot of interviews, skill at asking the right questions at the right time and research. It’s easy to find the person willing to praise a friend, colleague or client. In a world where it’s hard to know who is a potential client or could be in the office next door, saying the wrong thing could be costly.
But after reading the story, I impressed not only with who was quoted, but how substantive their on-the-record comments were. Cohan told Rubin’s side of the story and also called to question some of the less-flattering aspects of his record. From the story:
This legendary stillness, combined with decades of economic and market expertise, keeps Rubin in constant demand. Since 2007 he’s been the co-chairman of the Council on Foreign Relations, where he maintains a disheveled office and employs his longtime assistant. He’s considered the intellectual father of the Hamilton Project at the Brookings Institution, which examines the relationship between government spending and unemployment. He’s a regular participant at the annual Bilderberg Meetings (so secretive they make Davos look like an American Idol taping) and a member of the Harvard Corporation, the discreet board that runs his alma mater. He also meets regularly with congressmen and foreign leaders and has access to the Obama administration through Timothy Geithner and other protégés. In 2010 he joined Centerview Partners, an advisory investment banking boutique, as a counselor to founders Blair Effron and Robert Pruzan.
It’s enough to keep a 74-year-old plenty busy. But not enough to shake questions about just how wise and thoughtful Robert Rubin really is, especially on the fourth anniversary of a financial crisis in which he played a pivotal, under-examined role. Rubinomics—his signature economic philosophy, in which the government balances the budget with a mix of tax increases and spending cuts, driving borrowing rates down—was the blueprint for an economy that scraped the sky. When it collapsed, due in part to bank-friendly policies that Rubin advocated, he made more than $100 million while others lost everything. “You have to view people in a fair light,” says Phil Angelides, co-chair of the Financial Crisis Inquiry Commission, who credits Rubin for much of the Clinton-era prosperity. “But on the other side of the ledger are key acts, such as the deregulation of derivatives, or stopping the Commodities Futures Trading Commission from regulating derivatives, that in the end weakened our financial system and exposed us to the risk of financial disaster.”
As Cohan himself points out, it’s hard to find an unflattering profile of Rubin. The story, although not glowing, does point out some of Rubin’s good qualities, such as being a good mentor, according to Sheryl Sandberg. But:
It’s not his personality that riles critics of Rubin’s four-and-a-half-year tenure at Treasury. It’s his failure to tame the 1999 repeal of Glass-Steagall and the wild expansion of over-the-counter derivatives, which were traded between banks, out of the public eye. “The changes that Robert Rubin drove through in the 1990s certainly helped plant the seed for [the] collapse,” says Angelides. (That’s Phil, the co-chair of the Financial Crisis Inquiry Commission.)
And it’s exactly quotes like these from Angelides that make the profile so strong and a good primer for students. Often it’s hard to write something critical when covering a beat, especially if that person is, say the CEO of the company you cover. But all executives should be held accountable for their actions and Cohan’s story does just that.
by Chris Roush
Business journalist Roddy Boyd writes about how some companies that are criticized by the media and investors file lawsuits to shut their critics up.
Boyd writes, “Unsurprisingly, Fairfax does not agree with the notion that its lawsuit was primarily designed to stifle critics. Approached for comment, Michael Bowe, the Kasowitz Benson partner directing the litigation, emailed the following statement:
Fairfax sued not for “criticism,” but because people were spreading false claims that Fairfax was an insolvent, Enron-like fraud in order, in defendants’ own words, to “kill” the company. The Court found that there was “absolutely no question” that this intentional conduct caused Fairfax to “suffer … massive pecuniary/economic loss.” The Court’s ultimate conclusion that the law provided no legal redress for such massive losses is unfortunate and incorrect and will, we are confident, be reversed on appeal.
“Nonetheless, let’s look at the math: The hedge funds sued in the Fairfax case each spent $3 million to $4 million per year on legal fees. They were able to absorb it because they were large. But a small hedge fund likely does not have an extra $4 million in cash flow to pay lawyers – and fund investors are loath to invest in smaller funds with ongoing litigation. That creates a powerful disincentive for small-fund managers to speak publicly, even if they believe their research has uncovered significant fraud.
“Financial journalists, too, have incentives to keep quiet. The financial media’s ability to play a meaningful watchdog role has declined as rapidly as its economic health. The result has been shrinking staffs, bigger workloads and decreased appetites for potential conflict. Journalistically the result is a non-threatening palaver that faithfully recaps a conflict between a company and a critic, but does nothing to advance any understanding of the fight.
“Ultimately, the only people who are safe speaking up in this scenario are the rich. Even though hedge fund managers like Greenlight Capital’s David Einhorn or Kynikos’s Jim Chanos have spent many millions of dollars in legal fees fighting off pointless litigation, their headaches are just that: headaches. They are profoundly wealthy and going to stay that way.”
Read more here.