Amazon Scrum Chases Analysts to the Sidelines
A contentious debate has one
group saying it may tone down its discussions.
OCT 10, 2001 8:06 AM EDT
A Wall Street analyst group may just have succeeded in making talk
In July, investors in Lone Star Steakhouse were bracing for a
bruising proxy fight. Dissident shareholders sought to oust the CEO
from the board, saying among other things that he was overpaid; the
company rejected the accusations and started a campaign against the
Messy? Certainly. Fortunately, a group of Wall Streeters wanted to
sort it all out for investors. Investment banker Gary Lutin had
scheduled a series of forums at the New York Society of Security
Analysts, which had earned some recognition by concluding that
Internet retailer Amazon.com needed to be more forthcoming with
financial information. The Lone Star forums promised to be
elucidating, if contentious.
But just as sparks were ready to fly, the society pulled back. The
society's just-elected president, Jeffrey Evans of Advest, canceled
the Lone Star forums, saying the series on Amazon had become too
Now, the society is discussing restarting the forums. Members say
they'll focus on educating investors while avoiding free-for-alls like
those that marked the Amazon series. But several independent observers
wonder what purposes such a discussion will actually serve. With Wall
Street under siege over conflict-of-interest claims, investors may be
asking what the point is if these discussions elide the hard
The forums, which began in 1999, were largely ignored by the public
until they took aim at Amazon. Amazon had long been a cause celebre
for investors and a source of disagreement on Wall Street, having at
one point achieved a market capitalization north of $30 billion in
spite of an ongoing torrent of red ink.
The Amazon forums, held as the once-highflying stock came under
increasing pressure, concluded that investors' needs weren't being
served by Amazon's disclosure practices. Amazon management initially
participated in the discussions, only to pull back when the
proceedings took on what it saw as a more aggressive tone.
Regardless of Amazon's view, the forum was widely lauded in the
investment community. Notably, the series resulted in tangible
benefits for shareholders: In April, Amazon began reconciling its
favored pro forma earnings method, which excludes many noncash
charges, with earnings using generally accepted accounting principles,
or GAAP. Analysts had long advocated the change.
"Forcing Amazon's management to be more responsive and responsible is
only part of the corporate governance committee's agenda," wrote
Investor Relations magazine, in an article published shortly
before the program was halted. "Another is encouraging the public --
everyone from securities analysts to retail investors -- to rethink
the valuation of dot-coms."
In another instance, the forum publicly chastised Amazon after the
New York Observer reported that the company's board of directors
had tried to delay the release of a critical analyst report. That
report, by Lehman Brothers' Ravi Suria, later appeared; it predicted a
credit squeeze that hasn't come to pass.
"I thought it was a mistake" to end the series, said Jerry Flum,
chairman and chief executive of ratings agency CreditRiskMonitor.com,
who participated in the Amazon forum when the debate turned the
Shunning the Limelight
But while the society's directors said little publicly about why the
forums were stopped, Evans complained in a memo obtained by
TheStreet.com that they "could be misinterpreted by individuals as
platforms for the expression of their own personal views."
In a subsequent interview, Evans explained that "the sense was that --
from the perspective of many who participated in the Amazon forum and
watched it -- was that the educational process had been fulfilled and
at that point ran the risk of becoming a platform for badgering
management of Amazon.com."
The statement was clearly a jab at Lutin, who chaired the Amazon forum
but is not a member of the society, an 8,000-member group founded in
1937 by famed Wall Streeter Benjamin Graham. Rather, Lutin served at
the behest of the corporate governance committee.
Some people have claimed that Lutin sought to benefit from a decline
in Amazon shares, a charge he denies, saying he held no position in
the stock. Indeed, he insists he was motivated by nothing more than a
desire to raise important questions about the company's finances and
its disclosure practices. (In June TheStreet.com published an
interview with Lutin.)
Nonetheless, his aggressiveness clearly clashed with the society's
more bookish tradition.
For instance, some society directors were miffed when The New York
Times in June reported that the forum would take on the disclosure
practices of Lone Star Steakhouse. (Lutin has said that he planned to
examine those practices independent of the society; the Times
later corrected its report to indicate that it had erred in saying the
society would host the Lone Star series.)
Lone Star had long faced scrutiny from some investors concerned over
the board's dealings. Specifically, investors were upset over pay
raises to Jamie Coulter, the company's chairman and chief executive,
at a time when the company's sales and stock price were declining. In
addition, dissidents were miffed when the company paid Coulter $10.5
million in 1998 to purchase Coulter Enterprises, which provides
administrative services to Lone Star. They also questioned the need to
reimburse Coulter Enterprises $900,000 for the use of an airplane and
A lone disgruntled shareholder, Guy Adams, gained support from large
institutional investors and was able to oust Coulter from his board
seat this year. The stock promptly doubled.
The report of the planned forum prompted Evans, who was already
concerned about the aggressive tone of the forums, to abolish the
program, because the topic had not been approved by the society, these
There is no timetable for resuming the program, says Evans, and it is
unclear what form it may take. But any future programs will likely
take a more muted approach than the Amazon series, according to
several people associated with the forum. Evans alluded to his when he
described the goal of the forums, saying they "were originally
conceived to create a learning tool for analysts and our members," he
The risk, say Lutin and others, is that the low-key approach could
stand in the way of progress.
"If they are going to go after subjects of controversy, it has to be
open for all views," says Lutin, who is currently trying to establish
a nonprofit institute to tackle issues of disclosure and shareholder
rights. He says he will likely not participate in future forums
organized by the society.
But if the forums do reappear in a watered-down form, investors may
not be much better off than if they hadn't resumed at all.
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