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| Paula Poskon |
A prominent Wall Street analyst recently expressed alarm about reports that the CEO of a company with a $380-million IPO has ties to cases of child abuse. The analyst promised to research the matter and said investors would be "very concerned" about such issues.
The same analyst changed her tune considerably in a followup conversation. Paula Poskon, of Robert W. Baird and Company, essentially now says that child-abuse issues connected to Campus Crest Communities CEO Ted Rollins are no big deal, and investors aren't particularly concerned about them.
Poskon made it clear in my initial interview with her that she was genuinely concerned about reports that Rollins had been convicted for assault on his 16-year-old stepson, and two years earlier, had been the subject of an investigation for child sexual abuse of the same stepson. Upon learning about Rollins' documented ties to child abuse, Poskon audibly gasped and said, "Oh, my God."
Poskon also stated that she intended to look into the matter: "Oh, my God, I was not aware of any of that. . . . It certainly sounds like I need to do a lot more digging."
After sending Poskon copies of public documents and published reports about Rollins' ties to child abuse, and giving her an opportunity to digest the information, I had another conversation with her. This time, her stance was pretty much one of, "This is a personal matter involving Mr. Rollins, and it really doesn't concern us here on Wall Street." (See video at the end of this post.)
Why the dramatic change in tone? Do investors and Wall Street analysts really take such a cavalier approach to matters of child abuse, even in the wake of the headline-grabbing Jerry Sandusky scandal at Penn State?
We still are trying to sort out the answers to such questions. But the change in Paula Poskon's tone was unmistakable. And she left the distinct impression that she had no intention of conducting serious research on the matter.
This came after she earlier had acknowledged that the child-abuse issue was of particular concern because Campus Crest builds and manages student-housing complexes that are marketed to students near universities. In other words, Ted Rollins' primary market is young people--even though he has a documented history of abusive relationships with young people.
How might we summarize Paula Poskon's new stance on Ted Rollins' ties to child abuse? It's a matter of "he said/she said" and the simple fallout from "messy divorce proceedings"--"and a lot of executives have messy divorces."
Does Poskon now expect us to take her seriously on this, or any other, subject? We're not sure, but here are some nuggets from my followup conversation with her.
If issues related to child abuse don't matter to investors, what does attract their attention?
Let's just make a hypothetical: If one of my storage-company executives was arrested for drunk driving, or hurt somebody in a drunk-driving accident . . . or something like that, of course investors would view that very seriously and probably would look to the board to say, "How are you going to deal with this . . . ?"
There are situations where executives are held accountable, where investors really care and the way they show they care is by walking with their feet—they sell their investments. But when things start to branch into personal lives, where it can be construed as "he said/she said" or messy divorce proceedings, . . . to the extent where it's something recent and major--that the person’s ability to continue to execute their obligations as an executive of a public company were called into question--investors would be all over that. . . .
But my sense is that when it gets into the grayer area of "he said/she said"—a lot of executives have had messy, ugly divorces . . . —investors are much more prone to draw a healthy line and distance.
So drunk driving is to be taken seriously, but child abuse is not? I noted to Poskon that such a stance was quite different from her original statements on the issue. I also noted that, aside from the child-abuse issues, public documents show that Ted Rollins lied under oath on a child-support document. That is recent, it goes to criminal conduct, and it goes to Ted Rollins' integrity--even if he hasn't been prosecuted for it, yet. Poskon hinted that investors care about criminal conduct only if someone is prosecuted for it:
If someone did (prosecute it), my guess is that investors would pay attention to that, but no one has, and we’re not in position to opine on the circumstances; only courts and appropriate authorities can do that. I think the investment community will err on the side of drawing a clear line between corporate and personal lives, where there is lot of ambiguity around the circumstances. . . . People, I think, are sort of, “Well, can’t infer too much from that because we don’t know the circumstances. . . . "
But in a situation like I outlined, where a CEO demolishes his car for drunk driving, or is arrested for soliciting prostitution--something that is completely over the line of good judgment and moral turpitude and all the things we think about in terms of public-company officials? Would investors care? Of course, they would. But looking back and making a judgment from that vs. how the person is leading a company today . . . is probably a much bigger stretch for investors to make, and they probably would be unlikely to do that.
Now we know that drunk driving and soliciting prostitution are seen as bad, conduct that reflects badly on a executive's character. Child abuse and perjury? Ah, not so much. Here's more from Poskon on the values of Wall Street:
Let me put it differently: I haven’t gotten any inbound calls. Nobody has called me and said, “Geez, I did a Google search and found all this stuff on this guy named Ted Rollins. What’s up with that . . . ?
I have the sense, with no scientific approach, just anecdotally . . . to the extent that anybody knows about any of this stuff, people apparently aren’t worried about it, or don’t care about it, or have appropriately discounted it in some fashion in their own views around investing in the stock.