For too long big tech companies have lined earnings press releases and calls with double speak, while big bank analysts pose softball questions. Gail Fialkov’s class action share holder suit against Microsoft should serve as a wake up call.
“I mean, we’ve had some really strong momentum in China. Our deep customer satisfaction surveys on the product show that there is very high satisfaction ratings with Surface.”
“We’ve been growing very quickly in Tegra.”
“This year we have the Richland, Kabini, and Temash launches, all very, very successful in executing in the first half of the year. We have also talked about our Kaveri APU in the second half of the year. We are on track for that.”
“The reaction has been exceptional from carriers as they understand the need for the smartphone industry to continue to deliver innovation to their global smartphone customers.”
Every businessman likes to put a positive spin on things. After all, they have an inherent bias towards the company that puts food on their table and a roof over their head.
But sometimes that bias can go a little too far.
Microsoft is in hot water after a shareholder launched a class action lawsuit, with the help of a particularly vicious law firm, that alleges Microsoft executives misled investors on the success of the Surface by not just positively spinning the plight of the Surface but in a few instances outright lying to investors and analysts.
The lawsuit states that the plaintiffs, being anyone who bought Microsoft stock between April 18, when it announced via an earnings press release that the Surface was bringing it double-digit revenue, to July 18, when the house of cards collapsed and Microsoft was forced to take a $900 million write down owing to the device’s failures, unjustly lost money when Microsoft’s stock took a dive owing to the failings of Surface.
Microsoft’s spin turned to outright lies, and it was caught red handed. While no tech company in recent memory has been caught in such a web of lines, the spin they all put out during their respective earnings calls treads a fine line.
Nvidia has been guilty of this by downplaying the failings of Tegra, AMD by using crafty language to hide chip delays and Blackberry with its sugar coating of the many chapters of its own decline.
Partially to blame are the big bank analysts that sit on the calls and pose softball questions to corporate executives. Most big bank analysts are under marching orders from their bosses not to cause any sort of market disruption, thus they stop short of asking hard questions to executives for fear of sending the stock plummeting.
To avoid nasty shareholder suits like the one that’s currently in progress against Microsoft the solution is simple: be a bit more honest. There’s no shame in admitting that a key product might be delayed, or something is not doing as well as expected on the market. When officers of a company sign off on its SEC filing, they are swearing that the information is true to the best of their knowledge. Should this lawsuit result in a judgement that’s not in Microsoft’s favor, it will set a precedent that will be dangerous for companies tiptoeing the fine line between corporate spin and outright lies. In order for this not to happen to the likes of AMD, Nvidia and Blackberry they should take it as a wakeup call and be more truthful with their investors.