I'm a believer in the theory of smart markets. This is the idea that it is a waste of time for corporate CEOs to undertake earnest investor-education campaigns to convince them and the financial pundits that their stock is undervalued. The moral of the story is that the pundits and investors always know exactly what they need to know already, and by going out and doing your desperate sales pitch, you are only confirming that they are right.
OK, I've paraphrased that slightly, and there is a qualifier. While the people who know your company always have a correct view of its stock's value (yes, that is the correct way to use apostrophes, by the way), it may be that there are people out there who do not know about your company. So you might not be wasting your time connective with them. But you have to realize what you are going to accomplish. Unless you go out deliberately targeting dumb, gullible people with your PR campaign, when those prospective investors look at your stock, they are going to come to exactly the same conclusion that the existing investor community already has. So, PR is not going to change the value of your stock. It may increase the number of people who set the value with their buying and selling, but it will not change the value.
So, if you're the CEO, are you going to do this information campaign? Yes, yes you are. First, because your primary job is not to increase the value of your stock, but to please your board, and unless they subscribe to the smart markets theory, they are going to be impressed with your campaign. Second, your information campaign - likely taking the form of extravagant, simplistic ads and whatever media coverage you can generate - is going to selectively reach a certain TYPE of person. That type of person is maybe a new investor, or a foolish investor, or someone with way more money than they know what to do with. Exactly the sort of person, in other words, who can be induced with a simple PR campaign to buy enough of your stock to bid it up. So by that mechanism, your PR campaign is going to increase your stock value. At least for a while, and if that happens to be when your bonus is being calculated, well, we're all happy then, aren't we?
None of that means the smart markets theory is wrong - because those new investors' opinion of the value of your stock is not stagnant. They are LEARNING. But the corollary is that you, the CEO, are not learning. You THINK you've increased the value of your stock with your marketing campaign. The other people who are learning are the members of your board. So when you go in with your new marketing campaign in a year or two, when you think your stock is undervalued again, they are less likely to buy the message that the stock is undervalued, and less likely to approve an information campaign as a way to improve it. They are more likely to begin listening to the market instead of trying to preach to it. They will hear the market's valuation for what it is: as a lack of confidence in the company that cannot be improved by telling the market that it is wrong. If the stock price is under-performing the company's potential, in other words, they are more likely to fire the CEO and hire someone who will look at how to actually improve the value of the company.
I thought of the smart markets theory again when I recently saw the new paper on judicial independence by the Canadian Judicial Council. It is titled "Why is Judicial Independence Important to You?" The paper puts me forcibly in mind of a CEO investor-relations campaign designed to increase stock value.
This title is what is known as a leading question. I mean, it's really hard to respond to that with anything other than: "Beats me! Why?" But you have to stop and say - wait, did I have that question in my head before it was inserted there by this document? Because, you didn't. And neither did I. What we were thinking before we clicked on the link to this paper - because we would not have clicked it if we weren't - was "I'm not seeing as much of this judicial independence thing as I thought I would. Where the heck is it?" So while we might be very open to learning more about how judicial independence is defined, and what its history is, and how it is enforced or guaranteed, we don't want to know why it is important. We are only looking at this paper BECAUSE WE ALREADY KNOW THAT IT IS. Like the markets, we are smart.
The paper provides all that, fortunately. But somehow, since our intelligence has already been insulted on the title page, we are not as receptive as we might be. But, we soldier on.
Another interesting thing about this paper, after its title, is that it is interlarded quite generously with colour. I notice this in reports because I have to pay for the ink to print them (pause: if you too print at your own cost, see if www.inkowl.com carries reusable cartridges and ink for your printer. This is not a paid ad). Let's keep in mind, this is the judiciary writing this document. They have rules of court that make sure they never see or produce anything but black ink on white paper. They write that way naturally. If they use colour, there is something strange going on here.
Here is a little hint for the writers of documents; judges and otherwise: after you laboriously write your magnum opus and send it off to the document designers in your organization, take note if it comes back liberally beribboned with colourful banners, page frames, shaded boxes, and fancy reverse-colour page numbers. If it does, you can be sure that the document designer evaluated the content and decided that the design had to compensate for, rather than support, the content. If this happens to you, immediately take the document down the hall to the person in the organization who likes you the least, and ask them to give you their opinion of the content. Trust me on this; these design people know what they're doing.
And if you are reading a paper with a lot of colour in it, read with deep, justified skepticism. It always reflects fundamental contempt for its readers.
Contempt is, one must also understand, a natural attribute of systems for their users. And it exists on a sliding scale: the less power that users have relative to the system, the more contempt there is, because power buffers the system from feedback. This is why commercial companies are so receptive to feedback that they actually go out and pay for it (as market research) while authoritarian systems - even those that pretend they are interested in feedback - not only don't ask any stupid questions that might upset the balance of power that they enjoy, but also ignore the answers if they happen to hear anything.
For example, instead of asking "Do you think judges are sufficiently independent?" they will ask a question like "Why is judicial independence important to you?"
It's also why law reform is so similar to education reform (ie, equally unlikely to generate improvement): both have a captive clientele, so why would they want to change anything? Things are great the way they are, so change is always just going to be window-dressing - until the "captive" part is changed. But wait, I'm getting ahead of myself.
So, judicial independence. The core idea is that judges cannot be pushed around by governments, even back in the days when governments were kings. This was a great idea, I'm sure, until - in Canada at least - the print dried on the Charter. It's my belief that that was when institutional power soared, and relative individual power shrank to the point where individuals have become comparatively invisible to the law.
And that is when the problem with judicial independence began. Not problems with independence from government - judges have always been on top of protecting themselves from governments. No, the problems with judicial independence now are about whether judges can keep themselves independent from other powerful agencies in the economic, social, and, above all, legal superstructure.
Most of us who will be reading this paper are reading it because we already know that they don't. And we want to know what they're going to do about it.
I'll add to this blog post if the paper gives me any insight into that.
OK, I've paraphrased that slightly, and there is a qualifier. While the people who know your company always have a correct view of its stock's value (yes, that is the correct way to use apostrophes, by the way), it may be that there are people out there who do not know about your company. So you might not be wasting your time connective with them. But you have to realize what you are going to accomplish. Unless you go out deliberately targeting dumb, gullible people with your PR campaign, when those prospective investors look at your stock, they are going to come to exactly the same conclusion that the existing investor community already has. So, PR is not going to change the value of your stock. It may increase the number of people who set the value with their buying and selling, but it will not change the value.
So, if you're the CEO, are you going to do this information campaign? Yes, yes you are. First, because your primary job is not to increase the value of your stock, but to please your board, and unless they subscribe to the smart markets theory, they are going to be impressed with your campaign. Second, your information campaign - likely taking the form of extravagant, simplistic ads and whatever media coverage you can generate - is going to selectively reach a certain TYPE of person. That type of person is maybe a new investor, or a foolish investor, or someone with way more money than they know what to do with. Exactly the sort of person, in other words, who can be induced with a simple PR campaign to buy enough of your stock to bid it up. So by that mechanism, your PR campaign is going to increase your stock value. At least for a while, and if that happens to be when your bonus is being calculated, well, we're all happy then, aren't we?
None of that means the smart markets theory is wrong - because those new investors' opinion of the value of your stock is not stagnant. They are LEARNING. But the corollary is that you, the CEO, are not learning. You THINK you've increased the value of your stock with your marketing campaign. The other people who are learning are the members of your board. So when you go in with your new marketing campaign in a year or two, when you think your stock is undervalued again, they are less likely to buy the message that the stock is undervalued, and less likely to approve an information campaign as a way to improve it. They are more likely to begin listening to the market instead of trying to preach to it. They will hear the market's valuation for what it is: as a lack of confidence in the company that cannot be improved by telling the market that it is wrong. If the stock price is under-performing the company's potential, in other words, they are more likely to fire the CEO and hire someone who will look at how to actually improve the value of the company.
I thought of the smart markets theory again when I recently saw the new paper on judicial independence by the Canadian Judicial Council. It is titled "Why is Judicial Independence Important to You?" The paper puts me forcibly in mind of a CEO investor-relations campaign designed to increase stock value.
This title is what is known as a leading question. I mean, it's really hard to respond to that with anything other than: "Beats me! Why?" But you have to stop and say - wait, did I have that question in my head before it was inserted there by this document? Because, you didn't. And neither did I. What we were thinking before we clicked on the link to this paper - because we would not have clicked it if we weren't - was "I'm not seeing as much of this judicial independence thing as I thought I would. Where the heck is it?" So while we might be very open to learning more about how judicial independence is defined, and what its history is, and how it is enforced or guaranteed, we don't want to know why it is important. We are only looking at this paper BECAUSE WE ALREADY KNOW THAT IT IS. Like the markets, we are smart.
The paper provides all that, fortunately. But somehow, since our intelligence has already been insulted on the title page, we are not as receptive as we might be. But, we soldier on.
Another interesting thing about this paper, after its title, is that it is interlarded quite generously with colour. I notice this in reports because I have to pay for the ink to print them (pause: if you too print at your own cost, see if www.inkowl.com carries reusable cartridges and ink for your printer. This is not a paid ad). Let's keep in mind, this is the judiciary writing this document. They have rules of court that make sure they never see or produce anything but black ink on white paper. They write that way naturally. If they use colour, there is something strange going on here.
Here is a little hint for the writers of documents; judges and otherwise: after you laboriously write your magnum opus and send it off to the document designers in your organization, take note if it comes back liberally beribboned with colourful banners, page frames, shaded boxes, and fancy reverse-colour page numbers. If it does, you can be sure that the document designer evaluated the content and decided that the design had to compensate for, rather than support, the content. If this happens to you, immediately take the document down the hall to the person in the organization who likes you the least, and ask them to give you their opinion of the content. Trust me on this; these design people know what they're doing.
And if you are reading a paper with a lot of colour in it, read with deep, justified skepticism. It always reflects fundamental contempt for its readers.
Contempt is, one must also understand, a natural attribute of systems for their users. And it exists on a sliding scale: the less power that users have relative to the system, the more contempt there is, because power buffers the system from feedback. This is why commercial companies are so receptive to feedback that they actually go out and pay for it (as market research) while authoritarian systems - even those that pretend they are interested in feedback - not only don't ask any stupid questions that might upset the balance of power that they enjoy, but also ignore the answers if they happen to hear anything.
For example, instead of asking "Do you think judges are sufficiently independent?" they will ask a question like "Why is judicial independence important to you?"
It's also why law reform is so similar to education reform (ie, equally unlikely to generate improvement): both have a captive clientele, so why would they want to change anything? Things are great the way they are, so change is always just going to be window-dressing - until the "captive" part is changed. But wait, I'm getting ahead of myself.
So, judicial independence. The core idea is that judges cannot be pushed around by governments, even back in the days when governments were kings. This was a great idea, I'm sure, until - in Canada at least - the print dried on the Charter. It's my belief that that was when institutional power soared, and relative individual power shrank to the point where individuals have become comparatively invisible to the law.
And that is when the problem with judicial independence began. Not problems with independence from government - judges have always been on top of protecting themselves from governments. No, the problems with judicial independence now are about whether judges can keep themselves independent from other powerful agencies in the economic, social, and, above all, legal superstructure.
Most of us who will be reading this paper are reading it because we already know that they don't. And we want to know what they're going to do about it.
I'll add to this blog post if the paper gives me any insight into that.
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