“What makes Jack Grubman the Michael Jordan of analysts?” asks Geoffrey Smith, in his article “The superstar who wears two hats.” Jack Grubman was the lead stock analyst in the telecom sector for Salomon Smith Barney, a division of Citigroup (owners of Citibank). Like superstar athletes, Grubman had a superstar annual paycheque of $25 million in cash and stock.
Smith notes that “Grubman gets the big bucks because he's among Wall Street’s hottest ‘superanalysts,’ high-ranked analysts who also bring in lots of investment-banking business. In the past two years, he has helped orchestrate some of telecom’s biggest deals. His friendship with WorldCom Chairman Bernard C. Ebbers helped land Salomon the role of lead investment banker in the $35 billion WorldCom-MCI merger.” (WorldCom later entered and emerged from bankruptcy in 2003, and was purchased by Verizon in 2006.) Deals such as the WorldCom-MCI merger helped Salomon to bring in $200 million in investment banking fees in the telecom sector, half of which is attributable to Grubman, according to Smith, based on his discussions with industry sources.
However, Smith notes that Jack Grubman’s dual roles, both as analyst and invest-ment banker, put him in an “awkward position.” Companies provide investment bankers information not normally available to stock analysts. "Sources close to the WorldCom-MCI deal say Grubman sat in on closed-door meetings weeks before the merger was an¬nounced that are normally off limits to analysts,” writes Smith. A Salomon spokeswoman says, "the firm maintains strict ethical wall procedures to insulate [stock analyst] research from confidential information related to the firm’s banking clients.”15
Grubman’s investment-banking activities do not appear to have harmed his reputa-tion as an analyst, and have perhaps enhanced it. Institutional Investor had rated him the top analyst for "wireline services.” “He’s accessible, knowledgeable, and I don’t think he is unduly influenced by investment banking," says Brian B. Hayward, manager of the Ivesco Worldwide Communications Fund. “All the big-name analysts have investment¬banking ties, and those of us on the other side have to keep that in the back of our minds.”
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Discuss the above article using financial accounting theory.