The Public Side of Gerson Lehrman

Apologies for the late start this morning, I’ve had a combination of digital and meatspace problems (I thought I was taking an aspirin in the middle of the night; it turned out to be an ambien. Oops.) But one thing I’ve learned in the wake of my blog entry is that Gerson Lehrman does have some public and vaguely bloggy content: look here for accounting and finance analysis, or here for energy and industrials, for instance. It’s not particularly user-friendly from a non-subscriber point of view – I still haven’t worked out how to navigate the public pages without running into a subscriber firewall – but it is there, and it’s not hard to find some interesting insights once you get there.

For instance, I didn’t know that the NiMH batteries used in hybrid cars have been soaring in price due to supply constraints on their constituent metals, which seem to be mined only in China.

When Toyota inaugurated the hybrid in 1999 the raw material costs for the nickel metal hydride battery, NiMH, pack used in the compact sized car was around $1000.00. The total cost of the battery’s construction was then around $2,000.00. Toyota made an error of judgement in its marketing plan in 1999; it decided not to list the cost of the battery separately in the invoice and not to make provision to recover the battery at the end of its or the car’s life.

The NiMH battery introduced into a mass production vehicle by Toyota in 1999 was then a proven reliable and safe, long lived, device, which gave the car more than twice the range of the best lead-acid batteries then available. The performance of NiMH batteries has been improved since 1999, and there are credible reports of another advance, which would give 50% more range to a Prius.

Unfortunately the raw materials for a NiMH battery for a Prius now cost some $6,000.00 and the finished battery pack costs Toyota about $8,000.00 to build. This is entirely due to the explosion of demand from Asia for natural resources and the fact that the production and supply of a key component of NiMH batteries, rare earth metals, is today totally controlled by companies in the People’s republic of China.

Theoretically a lithium-ion battery system is capable of holding more energy per pound than a NiMH battery system. In fact battery developers have been trying to make a safe reliable long lived vehicle size lithium based battery pack for as long as the NiMH battery has been in existence. So far lithium batteries have not proved to have the safety required. Lithium batteries used in laptop computers and portable electronics are regularly reported to have overheating problems including the occasional outright fire.

But I also didn’t know that Gerson Lehrman raises some serious hackles out there in the real world. One econoblogger emailed me:

Someday Gerson is going to get busted. Their whole business model is getting people at companies to sell what amounts to inside information. They protest up one side and down the other that they don’t and claim to have procedures to prevent it, but they are all form. They are the moral equivalent of subprime lenders with no doc loans: they pretend not to know misrepresentation is going on when their processes encourage it. And like the no-docs (if you recall Tanta on this subject) the effect of their procedures is to shift any liability on to the person providing the information to them.

I would never take a dime from them. They make the old Drexel look good.

Of course, morality has gone out the window in America, so my view doubtless seems quaint. But I am still appalled that any legitimate conference would give them a slot.

I’ve never found it particularly easy to get excited about insider-trading, but the fact remains that so long as it’s illegal it shouldn’t be done, and GLG does seem to exist to make it as easy as possible. Now it’s entirely possible that there’s nothing illegal going on, and that all GLG consultants are extremely scrupulous about not divulging non-public information. But it’s also true that those consultants don’t work in the securities industry and don’t have their utterances cleared through layers of compliance officers. And if someone knows important secret information, he doesn’t always have to divulge it directly for his interlocutor to be able to pick up from other things he says – and how he says them – what that information might be.

So I’m sympathetic to my interlocutor’s point: it’s certainly hard to trust a company which is built on secrecy and opacity and non-public information. Later today, I’ll blog about another company, which pays bloggers in a much more transparent (although not entirely transparent) manner.

Update: GLG’s Jonathan Glick responds:

Thanks for mentioning that we do indeed put hundreds of our experts out

on the Web, but your anonymous "econoblogger" clearly doesn’t begin to

understand our platform.

Gerson Lehrman Group not only has the strongest compliance procedures

and systems around expert consulting in the world, and the real story is

that our clients specifically pay us for those features. It’s our key

differentiator, and everybody in our industry knows it.

These include:

  1. Every expert must sign a contract and re-sign once a year. In

    addition to that, Council Members (our experts) go through very clear

    and required training on confidentiality specific to the expert’s

    industry’s issues. (Sign up and try it.)

  2. We require that experts disclose conflicts in writing before

    participating in projects and we use those disclosures to block experts

    from projects for which they have disclosed conflict.

  3. An enormous investment in ‘rules and tools’ around employed experts,


    • A massive ongoing outreach to the GCs and CEOs of public corporations

      to learn about and implement their companies’ policies around outside

      consulting. These campaigns are conducted by email, FedEx, and through

      loud visible partnerships and appearances with credible organizations,

      including the New York Stock Exchange and NIRI. (Look here for a recent

      event we did — this was

      sent to every investor relations professional of a NYSE listed company!)

      When a company informs GLG about a policy against employees consulting,

      GLG immediately and comprehensively blocks that through the platform,

      including at lesser known subsidiaries and business units.

    • Formal policies that prohibit an employed expert from consulting about

      their company.

    • Systematic limits on what kind of consulting, the amount of consulting

      and the amount employed experts can be paid without a formal consent of

      the company by a senior manager — this is true about public AND private

      company employees. We do not require such consent from CEO’s, CFO’s,

      GC’s, and certain other senior executives.

    • Incidentally, only a small percentage of our experts are employed,

      anyway. The vast majority are independent consultants and academics.

  4. A robust oversight dashboard that lets our clients — including the

    largest and most risk-averse financial and professional services firms

    in the world — implement additional rules, screens and reminders

    surrounding their own use of the GLG platform. With regards to

    transparency, a compliance officer from any of our clients can log into

    a website review every telephone consultation, before or after it’s

    taken place. Imagine you’re a malicious expert looking to sell inside

    information — do you really want a perfect record of when and how long

    you spoke, about what topics, to whom, and how much you got paid?

Once again, our services are used by most of the major investment banks,

private equity firms, and mutual funds — and more broadly by leading

law firms, corporations and not-for-profits. These clients, and our

experts, demand robust compliance systems to manage their interactions,

and those are what we continue to develop.

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