Risk & Compliance


Agency officials say they will be "cautious" in enforcing controversial rule.
Ed ZwirnApril 24, 2001

CFOs complained, and the SEC has listened.

That’s the message coming out of a Tuesday meeting sponsored by the regulatory agency in New York.

Responding to CFO requests for both clarification of the rule and leniency in its enforcement, regulatory officials, including acting chair Laura Unger and commissioner Isaac Hunt Jr., pledged to avoid a “punitive approach” in regard to Reg. FD, which took effect last Oct. 23.

Unger and Hunt were joined by a full slate of senior financial executives in a 90-minute panel discussion that kicked off the daylong event.

As part of his presentation during the morning presentation, David Shedlarz, CFO for drugmaker Pfizer Inc., said that while disclosure on the part of his firm “always has been robust,” he pointedly added that the new rules had prompted his firm to “err on the side of caution.”

“It’s critical for the SEC not to second guess good corporate citizens,” Shedlarz said. “If that’s done, the atmosphere will quickly become more conservative.”

While virtually all the participants in the morning panel were quick to claim that they had always practiced full disclosure and changed little with the promulgation of Reg FD, most had specific concerns with both the interpretation of the rule and its effects upon the marketplace.

One criticism was that the regulation has contributed to increased market volatility by limiting the ability to disseminate earnings guidance to analysts.

“Issuing a news release every time somebody smiles or winks or does something that could be considered material could be like dropping a bomb on your stock,” said Polly Pearson, VP of global investor relations for EMC Corp., a manufacturer of network storage equipment.

Martha Demski, VP and CFO of Vical, a San Diego-based biotech firm, said that one of her colleagues at another biotech complained that the rule “did have some impact on the volatility of their stock.”

Another common complaint was that Reg FD was adversely impacting the quality of disclosures.

Bina Thompson, VP of investor relations for Colgate-Palmolive, complained that the new rules had put a “chill on communications.”

Many of her counterparts at other large companies she had contacted in advance of today’s roundtable told her that “the lawyers are being given veto power over presentations.”

“The public numbers are wrong but it’s too much trouble to correct them,” she added in reference to earnings forecasts made by Wall Street analysts.

Unger, echoing a pledge by commissioner Hunt to be “very cautious in terms of enforcement,” said that Hunt “does speak for me. We absolutely don’t intend to punish corporate citizens.”

Hunt, one of the commissioners who voted in favor of the rule last August, used his remarks to assuage critics of the measure.

“If Reg FD is having [a chilling] effect, we better decide how to fix it in either simple or very drastic ways,” he told the audience.

Unger was the sole commissioner to vote against the rule when it was passed in August 2000, and at that time pledged to “closely monitor its results,” according to David Levine, the regulatory agency’s chief of staff.

Prior to today’s meeting, Levine told CFO.com that the SEC hoped within “six to eight weeks after the roundtable” to come out with a document “summarizing it as well as maybe issuing some recommendations.”

The rule, which aims to curb selective disclosure of “material non- public information,” has been praised by some critics of Wall Street and advocates of individual investors for helping provide a level playing field between different investors.

But critics, many of whom represent the professional investment community and large, publicly traded firms, charge that Reg FD discourages executives from speaking frankly to the press and analysts and has spurred market volatility by discouraging earnings warnings.

The remainder of today’s session will feature top securities analysts, media players and legal experts. Click here for full agenda.

A session from 4 p.m. to 4:30 p.m. will offer “Observations of the Securities Bar,” and feature remarks by Harvey Pitt of the law firm Fried Frank Harris Shriver & Jacobson.

Pitt, who served as general counsel of the SEC in the 1970s, is, according to some media reports, the favorite to succeed Arthur Levitt as SEC Chairman.

P> Click here to read the full text of Regulation FD.

Click here for related articles from CFO.com and CFO magazine.

What’s in Store for Reg FD if It’s Not “In Play?”

Reg FD Memo: Don’t Talk to Reporters.

Reg FD and The Big Chill.

The Sounds of Silence.

The FD Effect.