Amazon Scrum Chases Analysts to the Sidelines
A contentious debate has one group saying it may tone down its discussions.

A Wall Street analyst group may just have succeeded in making talk even cheaper.

In July, investors in Lone Star Steakhouse were bracing for a bruising proxy fight. Dissident shareholders sought to oust the CEO from the board, saying among other things that he was overpaid; the company rejected the accusations and started a campaign against the dissidents.

Messy? Certainly. Fortunately, a group of Wall Streeters wanted to sort it all out for investors. Investment banker Gary Lutin had scheduled a series of forums at the New York Society of Security Analysts, which had earned some recognition by concluding that Internet retailer Amazon.com needed to be more forthcoming with financial information. The Lone Star forums promised to be elucidating, if contentious.

But just as sparks were ready to fly, the society pulled back. The society's just-elected president, Jeffrey Evans of Advest, canceled the Lone Star forums, saying the series on Amazon had become too confrontational.

Now, the society is discussing restarting the forums. Members say they'll focus on educating investors while avoiding free-for-alls like those that marked the Amazon series. But several independent observers wonder what purposes such a discussion will actually serve. With Wall Street under siege over conflict-of-interest claims, investors may be asking what the point is if these discussions elide the hard questions.

Divided

The forums, which began in 1999, were largely ignored by the public until they took aim at Amazon. Amazon had long been a cause celebre for investors and a source of disagreement on Wall Street, having at one point achieved a market capitalization north of $30 billion in spite of an ongoing torrent of red ink.

The Amazon forums, held as the once-highflying stock came under increasing pressure, concluded that investors' needs weren't being served by Amazon's disclosure practices. Amazon management initially participated in the discussions, only to pull back when the proceedings took on what it saw as a more aggressive tone.

Regardless of Amazon's view, the forum was widely lauded in the investment community. Notably, the series resulted in tangible benefits for shareholders: In April, Amazon began reconciling its favored pro forma earnings method, which excludes many noncash charges, with earnings using generally accepted accounting principles, or GAAP. Analysts had long advocated the change.

"Forcing Amazon's management to be more responsive and responsible is only part of the corporate governance committee's agenda," wrote Investor Relations magazine, in an article published shortly before the program was halted. "Another is encouraging the public -- everyone from securities analysts to retail investors -- to rethink the valuation of dot-coms."

In another instance, the forum publicly chastised Amazon after the New York Observer reported that the company's board of directors had tried to delay the release of a critical analyst report. That report, by Lehman Brothers' Ravi Suria, later appeared; it predicted a credit squeeze that hasn't come to pass.

"I thought it was a mistake" to end the series, said Jerry Flum, chairman and chief executive of ratings agency CreditRiskMonitor.com, who participated in the Amazon forum when the debate turned the company's creditworthiness.

Shunning the Limelight

But while the society's directors said little publicly about why the forums were stopped, Evans complained in a memo obtained by TheStreet.com that they "could be misinterpreted by individuals as platforms for the expression of their own personal views."

In a subsequent interview, Evans explained that "the sense was that -- from the perspective of many who participated in the Amazon forum and watched it -- was that the educational process had been fulfilled and at that point ran the risk of becoming a platform for badgering management of Amazon.com."

The statement was clearly a jab at Lutin, who chaired the Amazon forum but is not a member of the society, an 8,000-member group founded in 1937 by famed Wall Streeter Benjamin Graham. Rather, Lutin served at the behest of the corporate governance committee.

Some people have claimed that Lutin sought to benefit from a decline in Amazon shares, a charge he denies, saying he held no position in the stock. Indeed, he insists he was motivated by nothing more than a desire to raise important questions about the company's finances and its disclosure practices. (In June TheStreet.com published an interview with Lutin.)

Irked

Nonetheless, his aggressiveness clearly clashed with the society's more bookish tradition.

For instance, some society directors were miffed when The New York Times in June reported that the forum would take on the disclosure practices of Lone Star Steakhouse. (Lutin has said that he planned to examine those practices independent of the society;  the Times later corrected its report to indicate that it had erred in saying the society would host the Lone Star series.)

Lone Star had long faced scrutiny from some investors concerned over the board's dealings. Specifically, investors were upset over pay raises to Jamie Coulter, the company's chairman and chief executive, at a time when the company's sales and stock price were declining. In addition, dissidents were miffed when the company paid Coulter $10.5 million in 1998 to purchase Coulter Enterprises, which provides administrative services to Lone Star. They also questioned the need to reimburse Coulter Enterprises $900,000 for the use of an airplane and pilot.

A lone disgruntled shareholder, Guy Adams, gained support from large institutional investors and was able to oust Coulter from his board seat this year. The stock promptly doubled.

The report of the planned forum prompted Evans, who was already concerned about the aggressive tone of the forums, to abolish the program, because the topic had not been approved by the society, these people said.

Mute Button

There is no timetable for resuming the program, says Evans, and it is unclear what form it may take. But any future programs will likely take a more muted approach than the Amazon series, according to several people associated with the forum. Evans alluded to his when he described the goal of the forums, saying they "were originally conceived to create a learning tool for analysts and our members," he said.

The risk, say Lutin and others, is that the low-key approach could stand in the way of progress.

"If they are going to go after subjects of controversy, it has to be open for all views," says Lutin, who is currently trying to establish a nonprofit institute to tackle issues of disclosure and shareholder rights. He says he will likely not participate in future forums organized by the society.

But if the forums do reappear in a watered-down form, investors may not be much better off than if they hadn't resumed at all.

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