VideoGrouse all you want about the costs and headaches of Sarbanes-Oxley compliance, but the new regulations are having a major and largely positive impact on the way many publicly traded companies view their investor relations (IR) function. CFOs and other senior executives, in fact, are now enlisting IR as a primary means by which to restore investor trust and drive shareholder value. These efforts are being aided by new technology that greatly expands what IR can do.
Traditionally, IR "has been a fairly static function," says Stephen Schultz, director of corporate governance programs at Shareholder.com, a company that supplies its clients with Web-based technologies and services for disseminating information to shareholders. Beginning in the '90s, CFOs did take a more active interest in how company information was presented to investors, but their enthusiasm for technology tended to be slight.
At best, "you had IR using the 'push' approach to generate information out to shareholders," says Eric E. Olsen, a senior vice president of Boston Consulting Group (BCG). "That approach doesn't get you clear information about your investor base. It tends to ignore the fact that your investor base is segmented and doesn't allow you to establish a dialogue with investors."
Today, however, many corporate IR departments are adopting technologies that allow investors to access multiple levels of information in innovative, interactive formats. They are targeting specific information to investor segments to better align corporate objectives with those of their shareholder base and are employing a range of IT solutions to obtain feedback and other data involving investor concerns.
At the same time, IR continues to gain more executive mind share. "There is a lot more emphasis on IR these days," says Brian Miller, treasurer and vice president of finance at Tyler Technologies, a small-cap firm that he says must "go the extra mile in IR" in order to get visibility among investors.
"IR as a discipline is beginning to escalate within public companies," agrees Schultz. "And because of its increasing importance, it's attracting interdisciplinary teams — investment-relations officers, CFOs, chief legal officers — who work together as a disclosure committee and are active in determining what needs to be communicated." Given that most of the technology solutions aimed at senior executives are Web-based, they provide an economical way (usually priced by the month) to manage the increasing volumes of information that companies are eager to convey to shareholders.
Sarbanes-Oxley comes on the heels of a number of developments that have propelled IR, including the unprecedented bull market, Reg FD, and early experiences with Web conferences. Progressive companies are not only complying with the new regulations but also adopting best practices in IR, such as those established by Pfizer and General Motors. At the heart of those efforts is a desire to do more than merely disclose information. "You can disclose a lot of information that's buried in footnotes and [therefore] meets all of the regulatory requirements. But until that information is presented in a clear, understandable manner, it's not transparent," says Louis M. Thompson, president and CEO of the National Investor Relations Institute (NIRI).
The Internet — or, more specifically, using the Web as a venue for investor relations — is quickly proving to be a valuable tool for dealing with transparency and governance issues. Of course, companies were using the Internet to communicate to investors well before Sarbanes-Oxley enforcement was imminent. A 2002 survey by NIRI underscores how important the Web has become as a source for investor information. Of the 200-plus members surveyed, 99 percent used the Web for quarterly earnings releases, 95 percent for annual reports, 92 percent for Securities and Exchange Commission filings such as 10K or 10Q reports, and 68 percent for stock price information.
That usage is increasing markedly as a result of Sarbanes-Oxley. "With Sarbanes-Oxley, the providence of Web disclosures came to the fore," says Greg Radner, vice president of marketing at CCBN, which builds, manages, and hosts the IR sections of Web sites for more than 2,500 companies. It also hosts live and archived conference calls for some 3,000 companies each quarter. Radner explains that in conjunction with the passage of Sarbanes-Oxley, the SEC officially sanctioned the Web as a venue for disclosure.
The Web's suitability as a communication channel is fairly obvious, but some companies, including Pfizer, Cisco Systems, and American Express, are also using it to address corporate-governance concerns raised by Sarbanes-Oxley. "We have a corporate-governance Web site where, among other things, we display Form 4 filings electronically," says Peggy Foran, Pfizer's corporate secretary and vice president for corporate governance. Form 4 details "changes in beneficial ownership of securities," including stock purchases and sales, as well as the exercise of options on the part of company executives and directors.
Thanks to the governance site, Pfizer investors are privy to these transactions almost immediately. The site also provides CEO/ CFO certifications, company charters, and other governance-related information. Shareholder.com recently added a Whistleblower Hotline service to its array of Web functions; the service gives would-be whistle-blowers several ways to communicate confidentially with a company's audit committee.
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