Quattrone list spurs envy, not shame

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: "Paczkowski, John" <JPaczkowski () knightridder com>
Date: Mon, 10 Mar 2003 11:42:24 -0500
To: "'dave () farber net'" <dave () farber net>
Subject: Quattrone list spurs envy, not shame

Quattrone list spurs envy, not shame
By Scott Herhold
Mercury News
The ``Friends of Frank'' network says something about Silicon Valley that
escaped industry regulators.

It's nothing admirable. It's nothing we would readily confess. It is very
human. Among techies, the dominant reaction to the news that 63 friends of
banker Frank Quattrone made big IPO gains wasn't shame. It was envy.

Which is to say that the detailed chart the Mercury News published Friday
about the potential profits of the Friends of Frank evoked this reaction
first at breakfast tables in the valley: How did he or she get more than I
did?

How can I prove this? I can't. I have no scientific evidence. And I would
bet there are more than a few ordinary investors who are incensed that the
insiders got such sweet risk-free deals.

As I read through the list and talked to people Friday, though, two things
occurred to me. First, our sense of shame is less than our greed. And our
greed is less than our yearning for a place of honor in the pecking order.

My proof is anecdotal. One venture capitalist joked that his kids'
middle-school principal will use the list as a fundraising tool. A tech
executive confessed to jealousy as he e-mailed the list to dozens of his
friends. A prominent investor wondered who didn't make the list. The buzz
far outweighed any outrage.

You can bemoan this with reason. The NASD, formerly the National Association
of Securities Dealers, made an eloquent case that there were victims to the
``spinning'' Credit Suisse First Boston elevated to a high art. In their
view, companies left money on the table by selling their IPO shares too
cheaply.

Nobody suffers illusions about what went on here. With some precision,
Credit Suisse used the friends' accounts to reward executives who delivered
investment banking business. The bigger the business, the more the reward.

The curious ethics of Silicon Valley -- in fact, the ethos of the place --
lend Frank's Friends a half-dozen easy rationales for taking the money. The
refrain went this way:

. . . Sure, it's back-scratching. But it's not really so different from the
deals that happen every day in business. When a company awards a favored
customer a box at the Sharks' game, is the morality purer?

. . . Spinning is standard practice among investment banks cultivating their
business. It didn't affect our judgment of which bank was best.

. . . It wasn't really that much money, at least not compared to the wealth
created in IPOs.

Was a couple of million dollars really that much to Mory Ejabat, the former
chief executive of Ascend Communications, which was sold to Lucent in 1999
for $25 billion with Frank's help? Nah. It's easy to argue that it was
Ejabat's tip money.

Nope. If there was outrage at the publication of the list, it was that some
people got rewarded more than others.

The executives who had IPOs in 2000, for example, weren't able to
participate in the hot issues of the year before. And the largesse generally
extended to only one or two people at each company.

(One exception was Phone.com, where word of the Friends' accounts was passed
around and 12 employees signed up. The payoff there was a more democratic
affair).

While Quattrone has lost his job and faces a variety of investigations, it's
all but inconceivable that regulators will come after the Friends
themselves. Down deep, there's a wary pride in being on the list. After all,
they deserved it, didn't they?

You want shame? However richly it's deserved, you won't find much of it in
the corridors of tech. In Silicon Valley, we don't oppose special privilege
as a concept. We just want a piece of it for ourselves.

 
__________________________________________________
John Paczkowski
Good Morning Silicon Valley |
http://www.siliconvalley.com/mld/siliconvalley/business/columnists/gmsv/
<http://www.gmsv.com/>
SiliconValley.com | http://www.siliconvalley.com
<http://www.siliconvalley.com/>
-----
Knight Ridder Digital
35 South Market Street
San Jose, CA 95113 
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