Insurance Fraud, Short-Selling and Why You Can’t Trust Stock Analysts

8AM, July 17, 1989: I’m driving on Route 2 outside Concord Massachusetts, lights flashing and horn honking, fighting rush hour traffic. My son is nearly being born in the back of the car. We reach Emerson Hospital; nurses rush my wife to the ER; I park the car and run back.

Birth time: about one minute after reaching the hospital. Delivery: by the good nurses, a minute before the obstetrician on duty arrives to bless what’s now history.

Two weeks later, the bill arrives. It includes several thousand dollars for the obstretrician. I call to complain. “What do you care,” the office says, “it’s all covered by your insurance.”

9:20AM May 12, 2007: I’m flying from Amsterdam Schiphol back home, reading Joseph Nocera in the Herald Tribune, Why Short-sellers Should Have Their Say. Think of short-selling as the “opposite” of buying stocks—betting that a stock will go down, rather than up.

Since precisely 50% of stock trades involve selling, you’d think Wall Street would put roughly the same emphasis on when to sell as on when to buy. Of course, you’d be wrong. There are few short-sellers, and they are often reviled, harrassed, even sued.

Reasons often given for the dearth of short-sellers are that losses from short-selling are potentially unlimited (true), that short-selling goes against the long-term natural rise of the market (true so far), and that human psychology is basically optimistic (debatable). But those are weak explanations.

The real reason is—wait for it—money. Wall Street gains more when you buy and trade than when you sell. This is one reason securities analysts overwhelmingly issue positive, not negative, ratings. But there’s more.

Companies don’t like negative ratings. To be more precise, CEOs and senior managers of companies with compensation tied to stock performance don’t like negative ratings. Many leaders call the analysts’ parent company to complain, even issue veiled threats to switch to other providers of financial services. Even sue.

And voila, the analysts either withdraw the negative rating or just stop covering the company.

The analyst will blame management for telling him to emphasize positive reviews. Thus he justifies his lapse in professionalism: the devil made me do it.

The poorly rated company blames the analyst for “unfair” analysis (meaning it hurts the CEO in the wallet). Easier to blame the analyst than to take responsibilty for the shortcomings identified.

Management of the analyst firm also caves in, blaming the blackmail tactics of the rated company.

Fingers point everywhere but back. Blame instead of responsibility And blame feeds the rot.

Our social “solutions” propagate the problem. We opt for an expensive regulatory program like Sarbanes-Oxley, to protect everyone from their presumed innate selfish tendencies. Our approach resembles airport security—“somebody will always cheat: let’s constrict everyone’s freedom, in order to stop the few.” But securities markets are not airports.

Far from stopping a culture of blame-throwing, this approach enables it by assuming bad motives.

Instead, we should selectively prosecute the hell out of individuals who behave badly. Prosecute analysts who won’t honor their role, CEOs who blackmail bankers, and bankers who cave in, and who lack the guts to call the cops.

A vibrant community of short-sellers would have seen Enron coming. A few people could have spotted the lies, and made a lot of money by publicizing the rot—saving a lot of lifes’ savings and careers. An MBA class at Cornell did just that—analyzed the numbers and recommended shorting Enron well before it imploded. No one was listening.

Business has no right complaining about government intervention if it can’t bring to bear the pressure of capitalism upon itself. Greed and lies aren’t the stuff of business—they’re the death of business, as long as they stay in dark rooms.

July, 1998, Madison, New Jersey: I go to a collision damage repair shop.

“I’ve got a dent in the back door of my car, can you punch it out? It doesn’t have to be perfect."

“Nah, we’d have to replace the whole door.”

“No you wouldn’t—the gas station will do it for me for a hundred bucks, I figure you guys could just do a better job. It’s a simple job to punch it out, I’d do it myself if I had the tools.”

“Buddy—god alone couldn’t fix that door, we’ll replace it or do nothing at all.”

Translation: “what do you care, your insurance company is paying. And we’re not about to ruin a good scam by being customer-focused.”

We don’t have to put up with this crap. Call your better business bureau. Call your state regulatory agency. Call your insurance company. Write a letter to the editor. Rat these people out.

With the market in nosebleed territory, you might want to short a few stocks yourself. If your broker doesn’t know how, then help create trust and integrity in the market while you make money—by getting a new broker.

Hostage Negotiation – Lessons for Selling, Customer Service and Business Relationships

Pierre Cerulus steered me to Hostage at the Table by George Kohlrieser, now a professor at IMD, and a former hostage negotiator. The metaphor of hostage taking is one of the best I’ve seen for thinking about leadership and personal development.

Are you a hostage? Or a hostage taker? Or—both at once?

Here’s a remarkable statistic—professional hostage-negotiators have a 95% success rate. 95% of the time they persuade potential killers drenched in adrenaline to change their minds.

Compare that with your success rate in closing sales or persuading clients. (And they’re not even homicidal. Yeah yeah I know).

Kohlrieser’s most compelling vignettes, however, are about amateurs. The lady in Atlanta who talked down her abductor. The grandmother who, with her 9-year-old granddaughter at her side, talked down the blood-drenched escaped convict who had killed a neighboring family minutes before entering her bedroom at 3AM.

The “trick” is to make a human connection with the hostage-taker. Simple to say, hard to do. This is one of the better books I’ve seen on just how to do it. For more—read the book.

Of course, we’re not likely to be in a hostage situation. But metaphorically—we are all the time.

Hostage-taking is an alienated act of desperation—a cry for help. The failing of most hostages, and most amateur hostage-negotiators, is that they cannot see past the threat to themselves, to see the desperation in the other.

Apply that to work. The angry customer. The resentful co-worker. The “gotcha” performance review. All are driven by states of mind others—which we choose to experience as personal attacks on ourselves.

We let them hold us hostage. But there are no guns here. Our response is within our control. It is not that they are attacking us—it is that we are feeling attacked. We own our own oppression.

In Mel Brooks’ hilarious Blazing Saddles, the sheriff faces a hostile mob. He realizes he can escape by taking a hostage—himself. Pointing the gun at his own temple, he shouts, “No one moves—or I’ll blow his head off,” then slowly backs out of the room.

That’s what we do, when we allow ourselves to be hijacked by the emotions of others; when we react to those emotions, rather than acting from our own true selves. We become hostage-taker, with ourselves as hostage; a double-bind, with no win-win possible.

But the angrier or more distressed someone is, the more they want to find someone to relieve them of that anger of distress – someone to care. Passion gives you something to work with.

The answer is the same in the metaphor as in life. See the person beneath the fear—first the customer/co-worker, then ourselves. Connect with that real person. Engage in a true dialogue.

It is the same principle that governs the creation of trust, and it disproves an old myth about trust—that trust takes time.

It doesn’t. It takes connection.


Welcome to Charles H. Green’s Blog: Trust Matters

Let’s get right down to it. Here’s how to tell if this blog is right for you:

It’s a serious business blog—but done with taste, irony and wit.

It’s about building trust—for:

  1. Those who want to be trusted advisors
  2. Those who want to instill trust in their selling
  3. Those who want to enhance trust within and between organizations.

It aims at two extremes:

  1. Big picture thoughts on trust in business and society
  2. Very practical tactical advice for practitioners
  3. Not so much at the intermediate ground of programs and analyses.

My name is Charles H. Green, and I write this blog:

  1. I wrote Trust-based Selling, McGraw-Hill, 2005
  2. I co-wrote The Trusted Advisor, Free Press, 2000, with David Maister and Rob Galford
  3. I spent 20 years in general management consulting
  4. For 10 years, I have done seminars, speeches and consulting for large complex relationship businesses on the subject of trusted relationships

If this sounds good to you, then welcome! I’ll do my best to offer you a consistent diet of thoughtful, provocative ideas from my own work and from that of others. I hope you’ll chime in on the comments pages and contribute to a dialogue that raises the value of the site for everyone.