Risk & Compliance

Press to CFOs: Lighten up on Reg FD!

Could compliance with Reg FD be easier if financial executives were more, not less, open with the news media?
Jennifer CaplanApril 25, 2001

The conventional wisdom says that the SEC’s Regulation FD has been a nightmare for financial executives since the rule’s enactment late last year. But, at an SEC-sponsored forum on Tuesday, several members of the news media and some financial information providers said that compliance with the rule could be a lot easier if CFOs and other corporate officials relied upon the press more often to distribute financial information.

For example, Louis Thompson, CEO of the National Investor Relations Institute, said companies should use as many channels as possible for disseminating material information, even if it means issuing a press release every time they file an 8K form with the SEC.

“An 8K filing as the sole means of disclosure is not sufficient,” Thompson said. “You are certain to upset the investment community by submitting information in an 8K and not in press release.” Likewise, he stressed that a conference call, on its own, does not constitute sufficient disclosure.

Thompson also noted that more investors are listening to replays of conference calls than to the live events. He suggested that companies leave their conference calls on their Web sites for a minimum of one week, and archive the information for future reference.

On the whole, the media panel’s consensus in favor of the rule was a far cry from the views expressed at the event’s prior session, where several speakers noted that the rule had caused corporate officials to sharply curtail their contact with both members of the press and the financial analyst community on Wall Street.

Tuesday’s Reg FD Roundtable was the first public, SEC-sponsored discussion since the rule’s enactment last October.

All seven members of the press panel, including Ron Insana of CNBC, Floyd Norris of the New York Times, and David Armon of PR Newswire, agreed that Reg FD has indeed leveled the investment playing field and eliminated selective disclosure of material information. The panelists also praised the regulation’s role in prompting companies to distribute material information via a wider range of channels, including the Internet, press releases, and broadcast and print media.

But unlike the speakers at the morning panel, who were concerned that the limits imposed by Reg FD were partly to blame for the increased market volatility of the last six months, the press panelists all but chimed in unison, “Give us more.”

“We have seen an increased willingness of companies to embrace new technologies,” said Armon. Information that can move a company’s stock or the broader markets is now accessible to a much wider range of investors, he said.

Cathy Tamraz, chief operating officer of Business Wire, said the percentage of people listening to conference calls has increased by 300 percent in the last six months, and the number of Web-casts has risen by 54 percent in the same period.

Members of the press also stressed that Reg FD has made their jobs easier and improved the quality of their financial coverage. More importantly, it has forced securities analysts to improve the quality of their reports.

“Reg FD has enabled me to do my job better,” said The Times’ Norris. “Listening in on conference calls is invaluable to me.” He also recalled the numerous times he had been denied access to the exclusive discussions between corporate officials and the analysts who cover their firms.

“I remember when our reporters had to pretend to be analysts,” joked CNBC’s Insana, referring to the pre-FD days.

Norris said, “Now people who release information have to release it in a way that I can get to it. That’s a tremendous change.”

Although analysts have been hurt by the rule in the short run, Norris said, it is forcing them to spend more time evaluating company fundamentals and tracking market trends, and less schmoozing with CEOs and working on investment banking deals. The general feeling was that this trend has improved the quality of sell-side research coming from Wall Street.

It has long been argued that analysts sugarcoat their research in order to preserve their access to corporate executives. With Reg FD, corporate executives have less discretion to play favorites with some analysts and relegate others to the doghouse.

Former SEC chairman Arthur Levitt, whose term ended earlier this year, had campaigned for the rule, in part, to end the long-standing practice on Wall Street of selective disclosure.

The rule requires companies to inform the public of intentional disclosures at the same time as they disclose information to Wall Street, and within 24 hours if the disclosure is unintentional.

Although members of the press were vocal about praising the benefits of Reg FD thus far, they had some recommendations for the SEC, too.

The commission should provide some guidance to issuers in terms of what constitutes proper disclosure in order to make companies more comfortable with the requirements of the regulation, thus mitigating the reaction many corporate officials have had to date, where they sharply curtailed their public statements.

Mark Coker, President of BestCalls.com, a posting service that publicizes corporate conference calls, urged regulators to “provide guidance on what constitutes minimal disclosure.”

The press panelists also urged the SEC to broaden its definition of sufficient disclosure.

For example, CNBC’s Insana said, “We have the opportunity to deliver real time earnings information but need to be recognized as a legitimate means of disclosing information.” He commented that a number of CEO’s have used CNBC as a channel for breaking quarterly earnings.

CNBC’s rivals in the broadcast and cable fields might disagree with a proposal that would make the cable network the primary channel for releasing corporate earnings, but there was a general consensus on the panel that companies could help shareholders by broadening the access to information, not restricting it.

“The impact of Reg FD transcends borders and will ripple across the globe as capital markets compete for investors’ confidence,” said BestCalls.com’s Coker.