In recent weeks, Intercontinental Bank has received intense attention from Dayo Coker on his blog, The Insider. He has campaigned for full disclosure of the bank's exposure to toxic assets, notably margin loans to stockbrokers and petroleum products marketers. Coker, who aspires to model his campaign on that of David Einhorn of Greenlight Capital against Allied Capital and Lehman Brothers has raised grave doubts about the bank's leadership and its future on his blog. In this post, we examine if indeed his analytical process compares with those of Einhorn. Second, we demonstrate how Dayo Coker's tactics raise serious questions about the possibility for constructive exchange with management and the mobilization of shareholder support for his position, if that indeed is his goal. Third, we assess the definition of success of Dayo Coker's campaign to see if it includes the interests of investors, customers, and employees. We conclude by arguing that beyond the nuisance, distraction and irritation of de-marketing, Dayo Coker and The Insider blog represent a trend of costless publishing and distribution for guerrilla narratives that offer counter-theses to those traditionally pushed out by companies. In our view, at its core, the furore about The Insider blog is not about its focus on malicious misrepresentation of its financial status or poor risk management at Intercontinental Bank but about how well the bank has mastered the new tools of communication on the web to publish and distribute its own position. Today, the issue is the de-marketing of banks. Tomorrow, it could be a product recall, a proxy fight, a sexual harassment allegation or a factory fire. Unless companies can match the techniques used by these publishers, it requires no imagination to realize that like Intercontinental Bank, they will be reacting in an ill-prepared, disorganized and bumbling manner to sniper potshots.
For what it has been worth, the de-marketing campaigns against Nigerian banks have exposed the soft underbelly in the communications and engagement initiatives of Nigerian banks, and public companies in general. This serves them with a unique opportunity to address these lapses. Tempting as it is to focus on those who have launched co-ordinated campaigns against companies, to focus exclusively on that would be a distraction and counterproductive. The first task is to learn how to counter these types of assaults when they occur in future, because they will reoccur. The second task is to establish the dormant and active channels for instant engagement when the need arises. In Part 1 of this post, we showed with extensive, even copious, evidence that Dayo Coker of The Insider blog, does not fall into any of the traditional categories of investor agitators. His blog demonstrates that he neither has the skill nor resources to engage corporations at that level. In this post, we shall show that, instead, he represents a new phenomenon that will grow as a result of the costlessness of publication and distribution of guerrilla narratives. We will also show that his goal is neither to engage management regarding credible strategic alternatives nor solicit shareholder support for options. Rather, the stated goal of his campaign is to use the web, specifically the social web, to disseminate an agenda, broadly defined, which hopefully will draw enough attention, snowballing into a major distraction for management and rising to the top of the agenda. But the agenda is not the only point. Of equal significance is that the publisher can actually get published and distribute his content just as easily. Things will never be the same for corporate communications.
Until now, institutions believed that all that was required for customer and investor loyalty were a resonant brand and respectable financial results. While these remain valid, the costlessness of internet publishing and distribution has created un-mediated access channels to key stakeholders for guerrilla narratives. Suddenly, the interrogation is no longer coming from analysts asking strategy and business performance questions. Instead, the new interlocutors are individuals who can raise issues that are not directly related to business strategy or performance to the top of the agenda. While these issues are not new, in the past, it was almost impossible for them to bubble to the top of the agenda. Intermediation ensured this. Today, with the zero cost of starting a blog or creating a group on a popular social network, all that has changed forever.
It is quite illuminating that Dayo Coker has never mentioned an attempt to meet with the management or head of communications of Intercontinental Bank in any of his posts. He has never listed out a set of specific questions that he would like the bank to answer. Simply asserting that the bank gave out margin loans or provided financing for petroleum marketing companies is neither here nor there. Likewise, querying the bank’s decision to open new branches does not present facts to show that Intercontinental Bank’s peers with fewer branches are more profitable per branch than it, or that branch expansion is a major reason for sub-optimal returns at the bank, if indeed the bank has under-performed. In no way has the blogger articulated a substantive refutation supported by facts of the bank’s current strategy. Likewise, his call for the resignation of Erastus Akingbola, the managing director, whom he describes as stunted by ‘intellectual dwarfism and shallow understanding of the financial system’, does not provide any objective rating criteria by which the bank’s performance or returns to shareholders has been found wanting. Was there an acquisition that the bank should have done that it failed to do? Was there a business line that was opened that has proven to be a disaster?
Knight Vinke Asset Management’s review of HSBC, the British investment bank’s strategy is a good example of the type of criticism to which management can respond and shareholders can relate to.
Another example would be the proposal by Jerry E. Finger and Jonathan S. Finger of Finger Interests, owners of 0.02% of Bank of America shares, calling for the removal of Ken Lewis, the CEO, non-reelection of certain directors, changes in corporate governance and limits on executive compensation. Their objective, which can be found on BacProxyVote.com, a website they created specifically for this campaign,
A Focus on Shareholder Value is the objective that we seek to instill in the management team and board of directors of Bank of America. Our objective is to change the prevailing corporate governance and culture of the management and board of directors of Bank of America so that the focus is on protecting and enhancing shareholder value. We believe that the current board of directors, while composed of sound and capable individuals, has failed to protect the interests of shareholders. We believe the board has taken actions that have resulted in the permanent destruction of shareholder value through dilutive and poorly structured acquisitions.
In their presentation, they list out the transgressions of the current board and submit their own proposals.
Of course, it would be preposterous for corporations to demand the privilege of dictating the terms of engagement or format of presentation during contests regarding the best strategy and means of execution. Yet, conventional activists understand that by articulating their alternative proposals in the traditional, comprehensible format like those of KVAM and Finger Interests, they increase their chances of invitation by management for further discussion, as well as support by shareholders or other key stakeholder group that are affected by the contents of the proposal.
It is good that companies should be interrogated about how they operate and manage assets. In fact, they have an obligation to respond when the issues raised are required to be disclosed by law or of sufficient interest to key stakeholder constituencies. In March 2001, Bethany McLean of FORTUNE magazine wrote an article, ‘Is Enron Overpriced?’, in which she questioned the opaque business model of the energy trading company and the heady multiples at which it traded. The article, which Enron executives tried to stop from publication but failed, was an invitation to them to shed light on their business and how the business generated the revenues to justify its valuation. No where in her article did she call for the bankruptcy of the company, the sacking of its CEO or insult the intelligence of its employees. While the company was later branded with the scarlet letter for corporate malfeasance, McLean recognized that without sufficient evidence, it would be unprofessional and counter-productive to accuse the company’s executives of criminal practices. Moreover, it is important to make a distinction between a focus on the valuation of a company, which is dependent on the future cash flows that the business will generate, and the criminal inclinations of the management. Successful companies can have criminal executives, and over-valued or failed companies can also have law abiding executives so it is important not to conflate the two.
Ultimately, the goal of any constructive engagement with the board and shareholders should be about the enhancement of value and protection from risks that threaten the future cash flows of the enterprise. Doubtless, any agitation, direct or indirect, for the collapse of the firm, as the blogger eagerly does, is vigorously contrary to the interests of shareholders, customers and employees as well as an unalloyed negation of the fiduciary responsibilities of the board.
It is also important to draw the line between the activities of investors like David Einhorn to get Lehman to declare its exposure to sub-prime mortages and its derivative securities, and Bill Ackman’s campaign for the rating agencies to downgrade the monolines AAA rating, on the one hand, from what Dayo Coker seeks to achieve, on the other. Their arguments of greater disclosure are directed at the boards of these companies to adopt transparent accounting and valuation methods. At no point did they urge clients of either to take their business elsewhere, or regulators to hasten the collapse of the firms for actions that are neither unethical nor illegal but business decisions.
This contrasts sharply with Dayo Coker’s advice to customers to flee the bank.
By the way, I received a ‘damage control’ text message from Intercontinental Bank today.
It read, ‘Dear esteemed customer, the minimum balance on your savings account remains N1,000. Kindly disregard our earlier SMS on the increase. We regret any inconveniences and appreciate your continued patronage.’
It came too late. I’ve already cleaned out my account.
I advise you to do the same.
In addition, the blogger’s constant reference to ‘toxic loans’, which are conflated with ‘toxic assets’ is a misnomer. He is confusing loans at risk of default, which is what Nigerian banks would have, with the illiquid, extremely complex, difficult to value residential or commercial mortgages and pools of those mortgages as well as other securities, obligations, or other instruments that are based on or related to such mortgages that banks in developed markets would have. These do not exist in Nigeria. There is nothing opaque about their valuation, including margin facilities, or illiquid about the trading of these loans.
In the first place, these loans were never repackaged to securities with the tranche ratings of collateralized debt obligations. Like difficult to decompose nuclear waste, the ‘toxicity’ of the loans that have plagued developed market banks is derived from their illiquidity, complexity and the difficulty of valuation and not, primarily, from the risk of default in the underlying loans.
As the dust settles, it becomes clear that the blogger’s intention is not greater disclosure, but to fuel anxiety and panic about the bank among customers.
So if Dayo Coker is not to be treated as an investor or spokesperson for other stakeholder group with an interest in the survival of the firm as a going concern, what or who do he and his blog represent?
Contrary to what many defenders of the bank feel, the fact or non-fact of the blogger being what he describes as a ‘hired hack to devil’s pawn’ should not be the issue. Even in the unlikely event that Dayo Coker became a fan of the bank’s management and started a blog called DayoCokerLovesIntercontinentalBank.com and Google, Yahoo Search and Live Search erased all traces of The Insider today there are a thousand others like him with access to the tools he used who can pick from any myriad of issues in which the bank is involved to create a reputational migraine for its board. Even if these are not at the intensity level of rumours of bankruptcy, once they can show significant gaps between the institution’s declared brand aspirations and real world practice, they can attract the attention of its customers, investors, employees and regulators.
While the issues raised by Dayo Coker are grave, his blog pales in significance in comparison to the implications of what he represents for institutions. Until quite recently, the production and distribution of information was circumscribed by what Richard Stacy has aptly described as the Gutenberg Principle. The insights he shares are so profound they deserve extensive quotation. According to him,
The Gutenberg principle can be expressed as the fact that mass distribution of information is possible, but expensive. The effect of the Gutenberg principle was the rise of institutionalized and mediated channels to create the efficiencies and scale neces sary to manage the interaction between people with information and needs on the one hand, and the people who wanted that infor mation or those who could satisfy those needs. . .
In the Gutenberg world, trust was institutionalized. Organizations worked to establish reputations such that people would trust anything and everything they did without feeling the need to interrogate it for themselves. This worked because it was efficient, from the organization’s perspective, and because individuals recognized that they could not (or could not be bothered to) comprehensively interrogate all the organizations they dealt with. They would accept an organization’s ‘institutionalized representation’ of itself (its brand) — provided they could have a level of reassurance that this representation was reasonably accurate.
The one flaw in this model was that if anything caused people to doubt this representation, this would undermine their confidence in the whole institution and cause them to lose trust. However, this could be mitigated against by the fact that, for example, one instance of poor customer service tended to live and die with the individual concerned and maybe the group of friends they discussed it with, and if it did come to greater prominence this tended to be through channels which could be controlled — either sidelined by effective PR or drowned out by advertising.
He continues:
In other words, the effectiveness of the model of institutionalized trust rested on two assumptions: people could not easily interrogate all aspects of an organization’s activities and behaviors nor could they easily publicize examples where the reality of corporate behavior was found to be inconsistent with its institutionalized image. Social media is undermining these assumptions. Now that the tools of mass publication are available to most, it is possible to expose inconsistencies between claim and reality. Every customer is potentially an investigative journalist, equipped with sound and video recording equipment (i.e., a mobile phone). Forums are springing up specifically to allow these experiences to be logged and promoted. And even if examples that highlight flaws in institu tionalized trust do not ‘go viral’ or get widespread promotion, they do not lie dormant or fade away as they used to either. Nothing, in the digital world, goes away or lies dormant. It gradually gets linked to other bits of information and pulled into the digital halo or storm-cloud that is slowly building up around organizations (and individuals) — their ‘digital identity.’
But perhaps the most critical thing is that this new transparency does not require that everyone takes the time to use these new tools to interrogate organizations — the power of the crowd comes into play. The fact that someone is taking the time to do this and you know it is happening and can interrogate the process if you wish is sufficient. As soon as sufficient numbers can be brought to bear a form of crowd intelligence can be generated very quickly — Wikipedia being the classic example.
Trust within social media is not vested in institutions, it is vested within visible processes. The best way to explain this is to look further at the Wikipedia example and its battle with Encyclopaedia Britannica. The Encyclopaedia Britannica is a classic example of institutionalized trust. You trust its entries based on your knowledge of the reputation for accuracy it has established and carefully nurtured over the years. You do not feel the need to look behind or interrogate this reputation in any way. Wikipedia is totally different. You trust its entries purely on the fact that it has made visible the way that entry was produced and refined. Even if you do not choose to examine the history of every entry, the simple fact that you can do this and there is a process in place which means somebody is doing this, gives you a level of trust. Critically, an element of this trust is based around the need for you to make your own assessment of the process and how much trust you will decide to allocate to it.
It is not that people are going to reject institutionalized trust, but the task of sustaining it is going to become much harder in the world of transparency brought about by social media. Organizations will, therefore, find that ultimately the only efficient way to maintain trust is to switch to a model based on process, which will mean creating the ability to see in much greater detail how an organization goes about its business.
The Gutenberg Principle has been in terminal decline since the emergence of what is now known as web 2.0. If one understands the power of this shift, away from the monopoly of communication by corporations to a free market of information publication, distribution and consumption, then the significance of what Dayo Coker represents finally hits home.
This is not to minimize the gravity of the issues he raises on his blog about the bank’s business model, earnings sustainability, valuation, loan book, risk management, credit approval process, strategy, management or board of the bank. We have already shown by copious references in Part 1 of this post that on each of those counts he lacks the analytical skills and resources to present a convincing argument on the past performance, current situation and future options of the bank.
The real issue is not the specific content of the blog, but the fact that the blogger can reach far and wide, without the intervention of a newspaper editor. All he had to do was go to Wordpress.com, open an account, select a theme and bingo! The Insider blog came into existence. Critical as it is to respond to the specific allegations in the blog, focusing on these while overlooking the presence of the trend is tantamount to missing the woods for the trees.
Recognition of the fact will cause a shift from reactive fire brigade tactics to a well thought out strategy of ongoing communications, social network growth and engagement with customers, investors and employees using the tools of the new communication paradigm.
In this brave new world, companies need to recognize that communications has moved from the signal event distributed via a press release to frequent communications about all facets that touch the organization. It used to be that the only time the company sent out communications were:
When it was mandated by the law, for instance, prior to a shareholder meeting, end of the financial year, etc. and
To announce good news, e.g. the launch of a new product, acquisition, government approval, winning of a contract, etc. or bad news, e.g., forced change in executive management, product recall, government investigation, lawsuit, etc.
For the single reason that there are several issues outside of these types of events that affect its publics, individuals and groups will publish and distribute stories about them. In the past, it was highly unlikely that one would read about the dismal service (bad) or extraordinary attention (good) that customers of a bank received at a branch office. Now, all they need to do is to start a thread on NairaLand.com or StockMarketNigeria.com, a blog on Wordpress.com, Vox or Tumblr, a group on Facebook or Ning, or a forum at Forums-Free.com or news site at MyBlogJournal and when one types in ‘customer service of Nigerian banks’ on Google, the chances are high that it would turn up among the first 20 results. Notably, all the services listed above are free-of-charge.
Interestingly, what is published not be limited to ‘good’ and ‘bad’ issues. There may be questions asked on these fora, or blogs seeking answers from:
Investors about shareholder services from a company’s registrars or AGM voting at the company.
Customers about the best place to get a mortgage,
Borrowers about consumer loan finance rates, and
Employees about treatment of married women.
These are just some of the issues that would never have been featured in the News section of the traditional website.
In the present dispensation, search engines, particularly Google, are the jump-off to information discovery on the web. This is a double-edged sword because the company site is gradually being overtaken by other sites in search engine page rankings. In fact, in the emerging web model of distributed content (via HTML embeds, Share This, AddThis and other sharing tools as standards on sites) the URL of origin may be superseded by web-wide piping of content. But it also creates an opportunity for the company to extend its presence beyond the company website, to social networks, content sharing sites and participation in forums and blogs created by others.
The new paradigm has shifted the goal posts of what corporate communications is all about in two ways. First, it is no longer, uni-directional where the company broadcast a message and that was it. Now, people want to comment, send feedback, read others’ feedback, and keep the discourse on the subject going long after the message is published. Second, as a practice, corporate communications as institutional communications will be increasingly subsumed under individual communications, where individuals within the company, such as the CEO, a member of the IT dept, a brand champion in sales, marketing team, etc., are responsible for bringing a personal touch to the messages being sent out about it.
According to Tom Allinder of NetGenPR, the ubiquity of social media will impact the way investment decisions are made, especially among retail investors because people no longer invest in stocks but in brands [up to an extent]. All the old distinctions between investors and customers are fading away, while the compartmentalization between traders and investors will become more stark.
Companies like Intercontinental Bank need to spend time learning about these new technologies, how their publics are using them and how it affects their ability to engage with their publics. This goes beyond an counter-offensive techniques against guerrilla narrators like the owner of The Insider blog. In fact, it would be advisable for companies to adopt a constructive as opposed to an offensive strategy in engaging individuals or groups who have less than savory things to say about them for the simple reason that all responses are public by default. Certainly, the types of replies Dayo Coker received from supposed staff of the bank are a no-no.
In addition, our post, On the beat: Why every company needs Online Community Engagement Officers, is also a good primer on the reputational implications of failure to monitor the social web. In Parts 1 & 2 of another post, One thousand ways to say ‘I Connect’: How companies on the Nigerian Stock Exchange can use social media, we also show numerous ways in which companies can use these new publishing, sharing and distribution technologies to reach their publics.
It is vital for companies to realize that there has been a tectonic shift in the ways that information that affects them is produced and distributed. A few days ago, Chadbourne & Parke, lawyers to Goldman Sachs, the global investment bank, sent a letter to Michael Morgan, a blogger asking him Cease & Desist from the use of the name of the firm on his blog, GoldmanSachs666. In case the blogger is obliged to take the site down, a screen shot can be seen here. In the site’s introduction, the blogger clearly states that the purpose of the blog is to provide:
An open forum for facts and discussion about what part Goldman Sachs and their executives played in the current Global Economic Crisis. . .
Please do NOT submit comments or information with any profanities or those that are purely malicious attacks or commentary. We welcome facts and comments to build a library of useful information.
This is the clearest demonstration that corporate communications now has a lot more work on its hands. According to a report by The Telegraph, Morgan has said that if Goldman Sachs succeeds in shutting down the blog, he has substitute domain names already registered. This one will not be going away so easily. While his specific intentions may not be identical to Dayo Coker’s, they share the common mission of presenting counter-narratives that challenge those that the concerned institutions seek to establish. Another point of interest is that Michael Morgan uses Blogger, the free blog engine. This is costless publishing at its prime best.
We conclude by rehashing the main points.
The global economic meltdown has created anxiety among investors and depositors in financial institutions.
The environment of uncertainty is an ideal petri dish for the spread of guerrilla narratives that question the health of these institutions. ‘De-marketing’ is the term used to describe this if done by a banking rival. But the rumours of impending collapse or illiquidity may as well be spread about a non-bank or non-financial institution. The spotlight in recent weeks has been on Intercontinental Bank.
Dayo Coker, owner of The Insider blog, is the public example of the type of case that is built by these guerrilla narrators.
Contrary to what one expects, the arguments presented by Dayo Coker, fall far short of any analytical merit. Furthermore, on several other points, including the intent of the blogger, quality of evidence and credibility of his review of the situation, he does not fit into the traditional mold of an activist investor, whistle blower or short seller, each of which classes he pretends to qualify for on first reading.
Rather than seeing the blogger as an isolated case and specific to the current banking sector troubles, he represents a trend that is the product of costless publishing and distribution of information.
As part of a trend, what Dayo Coker represents will only gather steam. It is unstoppable. Uncontrollable.
It is in the best interest of companies to understand and use these new technologies to their advantage.
Focusing on Dayo Coker is to miss the woods for the trees.
So are those the barbarians at the gate? No, they are not at the gate. They are already in the palace. The invasion took place while the sentries slept. It’s time to make peace with the hordes. Resistance is suicide. The genie won’t go back into the bottle.
One cannot help noticing how Niyi Meka Olowola, Oando's Head of Corp Comms, is nodding in approval. Maybe Goldman Sachs can learn lessons.04:47:49 PM January 25, 2012from HootSuite
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