Every quarter Debbie Weber enters a conference room crowded with Microsemi’s CFO, CEO and other senior executives. The walls are papered with every likely – and unlikely – question they might be asked.
Then Weber’s computer screen lights up with a queue of names of analysts and investors dialing in to the California semiconductor firm’s quarterly earnings call. Unlike the line-up at Starbucks or the airport check-in, however, this queue may not be first come, first served.
Like most firms today, Microsemi monitors who’s on its earnings call using a web interface, in this case InterCall’s LeaderView. Conferencing companies doing high-end, operator-assisted IR calls have invested heavily in these tools in the past five years, and their estimates of how many earnings calls use them range from around 50 percent to over 90 percent.
What’s new is that IROs are starting to talk openly about what nearly every analyst already knows: questioners can be bumped to the front of the question queue, pushed to the back, or knocked off altogether. This is done by talking to the operator on a separate line, sending an instant message or, increasingly, just clicking on a web page.
A case study from Premiere Global Services (PGS) candidly reveals that difficult or irrelevant questions used to throw Cadbury Schweppes’ CFO or CEO off course. Now PGS’ host controls ‘enable us to control the calls and the questions we get asked. We can push down questions that are less warranted or welcome,’ says a Cadbury IRO. There are other reasons to rearrange the queue, most of them benign, but the stigma lingers.
Unfair disclosure
The trouble is that in this era of fair disclosure, rearranging the question queue seems somehow unfair. In 2005, when the SEC investigated Altera for retaliating against sell-siders, analyst Tad LaFountain complained the company had stopped letting him ask questions on earnings calls. Getting bumped from the Q&A is also the top complaint of analyst respondents to the IR Magazine US Awards survey who say they’ve been shut out of communications after downgrading a stock.
In 2004 CFA Centre for Financial Market Integrity teamed up with NIRI to produce guidelines for issuer/analyst relations. While these don’t address earnings call Q&A specifically, Jonathan Stokes, CFA Institute’s director of standards of practice, says they still apply. ‘It depends on the intent of the person managing the queue,’ Stokes explains. ‘Companies have the right to handle calls as they see fit, and seeing who’s on the call and answering the questions in a certain order may be done for reasons other than trying to freeze an analyst out.’
Lawyers also greenlight the practice. ‘If a company chooses not to take an analyst’s question, there’s likely no legal basis for the analyst to take action,’ says Howard Suskin, partner and co-chair of the securities litigation practice at Jenner & Block in Chicago. Suskin advises caution, however, as negative publicity can ensue from even just appearing to freeze out analysts. ‘It’s an IR and PR problem, not a legal one,’ agrees Jay Rothman, a partner in Foley & Lardner’s Milwaukee office.
Julie Tracy, vice president and chief communications officer at Kyphon, a California medical device maker, says she likes the control but rarely exercises it. ‘I don’t care if they have a buy, sell or hold, they get to ask questions,’ she says. She mostly wants to see who’s coming up in the queue and track who’s listening or missing so she can follow up later.
Just how open should IROs be about this open secret? They never say, ‘We’re now going to take questions in whatever order we like.’ And those deleted from the queue are never told they’ve been bumped. Still, with good intentions and the help of technology, IROs are firmly in control. ‘It’s my call,’ Tracy says. ‘There’s no law or fair disclosure rule that says I have to let everybody ask a question.’
