[I disagree rather strongly with this editorial in Monday’s WSJ, which strikes me as a knee-jerk laissez faire response to the fact that any company is going to be scrutinized by “evil” government agencies. Having read—and replied to—many of Mackey’s posts on the WFMI Yahoo board, I can attest to the fact that Mackey’s posts were far from well intentioned. I continue to believe that Mackey is a great entrepreneur whose time at the helm of WFMI should now come to a close.]
Reading about the covert blogging of Whole Foods CEO John Mackey, we were reminded of a New Yorker cartoon from some years ago featuring two mutts and a computer. "On the Internet," one says to the other, "nobody knows you're a dog."
Apparently U.S. financial regulators don't get the joke. They're responding to Mr. Mackey's anonymous blogging by treating him like a dog -- or more precisely a potential violator of U.S. securities laws, with the bonus goal of scuttling Mr. Mackey's attempted purchase of Whole Foods competitor Wild Oats. The SEC is leaking (as usual) that it has opened an "informal" enforcement probe. Sure, "informal."
That'll teach Mr. Mackey to flog the virtues of his company on the Web. He made the mistake -- in today's hyper-regulated world -- of giving the impression in his blogging that he was just another Internet-surfing schmoe with an opinion. Using the alias "Rahodeb," a scramble of his wife's name, he talked up his company while talking down competitors, and judging from the exchanges we've seen generally served as an anonymous corporate cheerleader.
He once shot down an online rumor about trouble at a London Whole Foods, for example, by posting that "I googled 'Whole Foods England' and read the connected articles and saw nothing whatsoever about Whole Foods having any problems building their new London store." Oh, oh. Can't have that.
The SEC is now going to unleash its army of ambitious 27-year-old lawyers to read these blog posts to see if Mr. Mackey let slip any insider information. The Federal Trade Commission is also using the posts as a PR and potential legal weapon in its campaign to block the Whole Foods acquisition of Wild Oats. The FTC, which apparently hasn't had enough to do, is alarmed that the two organic food purveyors overlap in all of 21 markets. Its gang of ambitious 27-year-old lawyers is already using Mr. Mackey's words against him to portray his takeover attempt as evidence of monopoly intent.
Without having read all of his posts, we can't say what Mr. Mackey might have disclosed. But from what we've read, we can't see how any reasonable person could conclude that Rahodeb's opinions were going to have any appreciable effect on the Whole Foods share price. The fact that they weren't was precisely the point: At a time when corporate execs are often accused of being isolated, Mr. Mackey seems to have enjoyed the Web engagement and used the semi-informed opinions voiced on a Yahoo message board as his own sounding board to sample the mood of his customers.
The straitjacket that has descended on CEOs, including Sarbanes-Oxley and the SEC's Regulation FD ("Fair Disclosure"), has often had the perverse effect of restricting the flow of information -- and thus preventing informed corporate insiders from participating in the market's increasingly democratic information free-for-all. In some cases, these prohibitions only keep news and informed views under wraps, leading to volatility and "surprises" that can themselves create incentives for insider trading.
Some media scolds will strain to find examples of Mr. Mackey trying to put more optimistic forecasts into circulation than he would offer as CEO, but the real lesson is in that cartoon about the dogs. Mr. Mackey's comments were the equal of any other. Investors who participate on such message boards know that they don't know who's on the other end of their exchanges. We hope regulators don't punish Mr. Mackey for barking on the Web on behalf of his company. <<
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