You go, Joe

The Qwest incident raises important issues about the role that analysts play in shaping the financial prospects of companies they are paid to cover and in which they often have financial interests.

One of my favorite stories involving Qwest Communications Chairman and CEO Joe Nacchio is the one about the time he ordered the corporate signage on U S West's headquarters in downtown Denver be covered with temporary Qwest logos mere moments after the merger of the two companies was finalized.

It was a bold move that spoke volumes about Nacchio's style. He had successfully led a scrappy start-up from relative obscurity to a position that allowed it to essentially take over one of the old-line telephone companies. Qwest became the first telecom upstart to accomplish such a feat, and it also completed the merger transaction in record time. Nacchio wasn't about to leave the remains of his conquered subject lying around, so he eradicated it immediately.

Now I have another favorite Nacchio anecdote. This one involves his response to a report by Morgan Stanley analysts that suggested Qwest has been using fuzzy accounting methods in reporting its growth expectations. The report doesn't exactly accuse Qwest of financial impropriety, but it challenges some of the ways the company has accounted for its earnings and, in turn, expresses concern that Qwest's accounting could hinder the company's ability to maintain its current financial growth.

Nacchio wasted no time in defending his company's practices. And he didn't stop at conveying his anger in a strongly worded press release. Nacchio did the financial equivalent of asking the jerk who hacked him off to step outside and settle this thing: He got on the phone with everyone who would listen and denounced Morgan Stanley. He yelled. He said he won't talk to Morgan Stanley again (even though, given fair disclosure regulations, he most likely will). He even used the word “hogwash.”

It worked. Several other analysts came out in support of Qwest and found the accounting esoterics in the Morgan Stanley report either inconsequential or flat out wrong. The damage already had been done to Qwest's share price, of course, but in the end Nacchio and Qwest were vindicated.

The whole incident raises important issues about the role analysts play in shaping the financial prospects of companies they are paid to cover and in which they often have financial interests. More important, it sets a compelling example of how CEOs in this industry should behave under fire.

Some critics wrote last week that what Nacchio called “innuendo” wasn't worth the hotheaded response he gave it, that the Morgan Stanley analysts were just doing their job. Maybe they were, and maybe all analysts should go beyond fluffy endorsements of their investment subjects and issue more honest assessments based on research that digs into the guts and reveals the skeletons.

But I say Nacchio did exactly the right thing. As a CEO, Nacchio has a responsibility to Qwest shareholders to defend his company against any attack. Nacchio is an extremely outspoken leader who takes nothing lying down.

The responsibility to fight back goes beyond the issue of financial analysis that companies might not agree with. The telecom sector is under attack from all directions. The general business press decries the collapse of this industry on a near daily basis, as though the Internet and telephony and high-speed data delivery and optical networking and everything else is all part of some elaborate ruse cooked up to make a fast buck. Sure, mistakes have been made. It's true that not everything is working out exactly as we were once led to believe. Maybe there is too much capacity right now. Maybe there are too many companies angling for not enough business. But it's still legitimate overall, and it's high time someone stepped up and shouted down those who challenge the integrity of his business.

I don't know about you, but I think Joe's just the man for the job.

Contact Jason Meyers at jmeyers@intertec.com