The New Wall Street Town Hall

The IR Web Report opens today with coverage of Netflix CEO Reed Hastings' response on Seeking Alpha to Hedge Fund manager Whitney Tilson's explanation of his large short of Netflix's stock. Here is the opening statement:

"IN AN unusual move for a public company (emphasis mine) chief executive, Netflix (NASDAQ:NFLX) CEO Reed Hastings has responded via a blog post on the popular Seeking Alpha website to an investor who is shorting his company’s stock."

Reed's post is great: upfront, direct, data-driven, passionate, empathetic and forceful. Whitney's original explanation was well argued (though, like Reed, I disagreed with much of it). Most importantly, it was in the public eye. This is what IR report clearly found "unusual." In the clubby world of back room Wall Street, where information is confined to who you know and whether you can pay $2000 a month for a Bloomberg terminal, this, indeed, is unusual.

However, in a world where Wall Street meets Main Street and, as Umair Haque says in his New Capitalist Manifesto, where "Democracy is good for business," I think CEOs talking publicly, in full view of the world, is great for Wall Street and should become usual. Maybe the future is now. The great collapse of the banking sector and Wall Street in the Great Recession, showed everyone the need to shine a bright light on information about public companies, where pensioners and hedge funds alike have lots of money tied up. A public airing of the merits of owning a given stock and town hall discussion of its business is what the future of Wall Street and public stock ownership should be about. Public debate and public CEO comments make disclaimers irrelevant since everyone has the same information. It also enables public internet citizens to dissect all the data and bring critical eyes to bear on it. I wonder if the CEOs of banks were forced to defend their businesses publicly, whether the banks would have reached the crisis condition that they found themselves in in 2008.

Imagine forcing the banks to make their loan books public and having the citizenry analyze it. This is what Reed Hastings is sparking perhaps purposely and perhaps inadvertently. The world of public market investing should be like its name suggests, done in public. CEOs should respond to the market like Reed does.

Reed's and Whitney's entire posts are worth reading but Reed's final paragraph is fantastic.

To wrap up, I have to agree with my friend Whitney that there are many risks ahead for Netflix, that our valuation is substantial, and that it is possible that one could make money shorting Netflix today. But shorting a market leading firm as it is driving a huge new market is a very gutsy call. On balance, I would rather have my co-philanthropists on the long side of this particular bet.

Straightforward and honest (it is wise for Reed to acknowledge the risks since this is a public post) with a good insight. Hopefully, this is the future of public market investing, in the public view, with CEOs defending and pushing their case in public. (read the comments on Reed's post as well...democracy at work)