PALO ALTO, Calif. (CNN/Money) -
MONEY Magazine recently asked, "Is Jack Grubman the worst analyst ever?" It didn't exactly answer the question, though the implication, of course, was, Yes he is.
Now Jack's been tossed overboard the Good Ship Sollypop, left alone in a $32-million lifeboat. He's being investigated by Congress and the New York Attorney General. He's been derided for being too chummy with WorldCom former CEO Bernie Ebbers. Grubman has even been chastised for having been vague and evasive while testifying before a panel of U.S. legislators. Imagine.
So what exactly did Jack Grubman do that he deserves to be, at least briefly, Public Enemy No. 1?
Well, let's review. In the eyes of Congress, the media and the American public, it most definitely was wrong of him to get paid $25 million a year. A few years ago we admired smart guys from tough neighborhoods who got prestigious organizations to bid for their talents. Now, in more Capraesque times, making big money is bad.
Of course, Grubman was no angel. He was supposed to be an analyst, but investment banking paid better. So he did that without changing his job title, offering merger and financing advice to his firm's investment banking clients and then rating those very same firms for brokerage clients.
But let's remember a couple of things. His employer, the world's largest financial institution, had no problem with that -- at least not then. According to MONEY, Salomon Smith Barney (bought by Citigroup, when it merged with Sandy Weill's Travelers Group in 1998) raked in $1.8 billion in telecom investment banking fees during the four years ending in 2001. And plenty of professional money managers who paid for Grubman's ratings knew exactly what he was doing but didn't care -- at least not then. Telecom stocks were rising and investor money was pouring into mutual funds.
In the end, what's gotten Grubman in so much trouble is that he was wrong. And in a very public, very large, rather egregious way. In a statement attributed to an e-mail Grubman wrote his boss Thursday in resigning from the firm, he said he "always wrote what I believed." He continues: "The current climate of criticism has made it impossible to perform my work to the standards I believe the clients...deserve."
There's the laugh. Grubman should have hung on. He clearly wasn't capable of performing well when he was getting praised all the time. He might actually have done some great work had he gotten more used to the criticism.
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Recently by Adam Lashinsky
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Jack Grubman wasn't unique. For a while, he was just more influential, more audacious, and richer than his brother analysts. It is his bosses, however, who allowed his behavior to continue. And it is the fund managers at the big mutual funds -- professionals who should have known better -- who kept listening to Grubman and many other analysts even when they knew how compromised their research was.
Jack Grubman provided information to his brokerage clients and advice to his corporate clients. Turns out it wasn't discerning information and it was bad advice. But as he fades from the scene -- a few months from now it'll be "Jack Who?" -- investors should remember that it is they who uncritically and cynically heeded his calls.
Is Jack Grubman the worst analyst ever? There's plenty of time yet for this competition to play out.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.
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