International Business Machines (IBM) was hammered on Friday after reporting weak Q1 results. Curious about the implications for the market and to learn if this is one of those inevitable dips that offer an opportunity for entry into a blue-chip name, I turned to the conference call transcript to gain insight. What I learned was very surprising, but it had nothing to do with what was said or even what was not said. Rather, I was disappointed to discover that CEO Ginni Rometty wasn't on the call. Now, I don't follow IBM closely, so I wasn't aware, but this was business as usual. Since becoming CEO over a year ago, she is now 0 for 5! To her credit, she does write a nice annual letter.
I guess it's not so unprecedented for a CEO to disregard the common practice of participating in quarterly conference calls. A great example was Bill Weldon at Johnson & Johnson (JNJ), who participated only on Q4 calls, leaving the CFO to handle the other three. I thought it was a travesty that during the challenges that arose in JNJ's Consumer division, he didn't participate on the calls. When new CEO arrived, I was hopeful that things might change. Alex Gorsky, on his first call last July, said:
You know it's a real pleasure for me to join you, this being the first earnings announcement since I have assumed my responsibility as the CEO. This kind of dialogue with the investment community is something I consider important and mutually valuable.
He missed the Q3 call, participated on the Q4 call and missed the Q1 call. I think JNJ shareholders and potential investors deserve better. Gorsky is right, and I know this as well from what I have heard directly from other CEOs: It is mutually valuable. From the investors' perspective, the interaction between the CEO and analysts gives investors a better understanding of how the CEO thinks and even how he or she relates with his or her subordinates.
After these two glaring examples of CEOs who are too busy for their shareholders, I decided to examine the practices of other very large corporations. One of the worst offenders I found was Exxon Mobil (XOM). Not only does the CEO not participate, but neither does the CFO. Instead, the VP of Investor Relations handles the calls alone. Chevron's (CVX) CEO participates only once a year, but the CFO handles the calls otherwise. Microsoft's (MSFT) Steve Ballmer? Too busy for shareholders. AT&T's (T) Randall Stephenson? Some of the time. Wal-Mart's (WMT) Mike Duke makes himself available, but only on a pre-recorded basis.
Looking at some of the other Mega-Caps, we find, fortunately, that many CEOs do take an active role. Apple's (AAPL) Tim Cook has been a consistent participant, as was Steve Jobs. Other companies with CEOs who make the time to participate include Procter & Gamble (PG), Google (GOOG), General Electric (GE), Pfizer (PFE), JP Morgan (JPM), Wells Fargo (WFC) and Coca-Cola (KO). It's impossible to conclude that one is necessarily better off investing in a company with more transparency, such as a CEO who candidly and willingly participates in earnings calls, as there are too many factors that impact a stock, but the sharp sell-off Friday in IBM, which maintained its full-year guidance despite a slow start to the year (it missed the EPS consensus by 2% when it reported $3.00, but the stock dropped over 8%) may have been amplified by the lack of CEO participation.
CEOs have lots of demands on their time, but I can't see a reason for not participating four times a year in quarterly conference calls. While the costs of a CEO who refuses to invest his or her time may not be apparent when things are going well, that's probably not the case when challenges arise, such as with IBM last week. Investors have many stocks from which they can choose to invest. Perhaps one factor among many to consider is the disregard for open communication that many CEOs seem to convey by not participating in quarterly conference calls.
Additional disclosure: The author holds JNJ in one or more model portfolios he manages for subscribers to Invest By Model.