A lot of people have (correctly) criticizedanalysts for producing unoriginal research, and not catching companies before they fail. These analysts are not dumb people. They are probably as smart as buy side analysts- they went to the same schools and worked for the same firms.
Why would you, as an ER analyst, stand against consensus? Your bonus is largely based on how well your forecasts line up with what actually happens. Institutional Investor does not award rankings retroactively.
Let's take the case offor the sake of familiarity. Allied employed fraudulent accounting practices, and was subsequently shorted by David Einhorn. The full story is detailed in his book, "Fooling Some of the People All of the Time".
Einhorn first publicized his short in 2002. The company's stock collapsed in 2007. Those investors that had not pulled their capital ended up seeing a nice payday.
Consider if Einhorn was a sellside analyst. He could be screaming "sell" and "fraud" all day, but he would be missing earnings estimates quarter after quarter. His price target would be multiple standard deviations from consensus. If Allied was one of just a few companies he covered, he would probably be out of a job before those 5 years were up.
Although he would eventually be proven right, it would be too late. The analysts playing along would have 5 years of rather accurate earnings estimates. They would also have better corporate access, and likely receive higher bonuses. Probably even better II rankings.
You often here "The market can stay irrational longer than you can stay solvent" but, in ER, the market can stay irrational longer than you can keep your job. So, ER analysts are not hacks...they are just rational players. You do not see banking MDs turning down deals because it would not help their client.
Full disclosure: I am just entering ER, so I could be way off. This is just how I see things.