This is a story about a British supermarket chain and the pressures it's putting on a certain analyst. It is a great illustration of the less-publicized role corporations -- in England, the U.S., and elsewhere -- have played in fueling analyst conflicts of interest.
Last month, Robert W. Baird Securities analyst Paul Smiddy wrote a research report criticizing the management of Big Food Group, and downgraded the stock from "neutral" to "sell." Now, the company says Smiddy is no longer welcome at its briefings and presentations.
"They said because I didn't show them the draft of the note, because I didn't send it to them before I published, it was unprofessional behavior," Smiddy told Bloomberg. Big Food insists it's only upset there are inaccuracies in the report and that it didn't get a chance to respond to it, and that it fully supports the right of an analyst to issue any rating he or she sees fit.
But let's get right down to it: If Smiddy had issued a "buy" rating, he would have been welcomed with open arms no matter how inaccurate his report might have been.
We have constantly railed on analysts for issuing favorable ratings to companies they thought didn't deserve them. Indeed, all the major Wall Street brokerage firms just agreed to pay some $1.4 billion to settle charges of biased and misleading research. But we also need to hold accountable companies that put pressure on or shun analysts who issue unfavorable ratings.
Big Food Group may or may not have legitimate points about Smiddy's research. Either way, it should apologize to him for its behavior, and invite him over for tea.