Keeping information under wraps seems to go against the very spirit of investor relations. Indeed, leading practitioners preach about the art of disclosure and transparency, the need to be honest and open in good times and bad.
Yet good IR is equally about knowing when and where to draw the line; when to talk and when to keep quiet. Competitive information falls into this category and companies have to work out the balance between a desire to inform the market of future plans and the fear of rivals obtaining information which could blunt the competitive edge. Timing and the method of information dissemination are key. Certain subjects that can safely be developed in the privacy of discussions with analysts might be inappropriate for a wider press release.
But this is also where warning bells should sound and the major reason for keeping news quiet comes into play. Most developed markets have legislation and regulations governing the release of price sensitive information: you can’t go discussing something with select parties – something which could have a material impact on share price – without making them insiders, thus preventing them from trading on the news, or making it public. That’s fine when you’re building up to an acquisition or in between the end of a financial period and the announcement of results; less satisfactory when a subject is on the borderline of price sensitivity. Then the experience and judgment of directors and IROs comes into play, often after advice from the legal fraternity.
Lawyers, of course, are out to protect their clients and will often advise the most conservative lines of communications. Anyone with the experience of a securities offering – particularly in the US – will have been made well aware of the dangers of talking about information not included in the prospectus during the marketing period. The usual line is to batten down the financial communication hatches in all but the scripted roadshow presentations.
Routine Problems
That may be okay during an offering, but the desire to maintain communication with the market without releasing price sensitive information can potentially cause real problems in the course of the routine IR calendar. In the time between the end of a financial reporting period and the results announcement, the ‘quiet period’ is the solution. Some companies use it as an excuse to revert to the ‘say nothing, do nothing, don’t take any phone calls’ approach advised in an offering period. At the extreme that could mean – if reporting quarterly – that for up to six months of the year, communication with the financial community is shut down. The policy also runs the risk of breaking the rules on making timely announcements relating to other material events.
Others take a more pragmatic line, once again using their experience and judgment to determine how to manage their communications during these times. Quiet periods, they say, shouldn’t cause a conflict between the desire to effectively and proactively communicate an IR message and the need to watch what you are saying about forthcoming results.
‘There are certain principles applied throughout the year that should determine how you communicate,’ says Paul Heward, head of IR at nuclear power group British Energy. He believes that those principles are equally valid in or out of a quiet period: know what you can and cannot talk about and stick carefully to the line. Heward says he tends to brief analysts a few weeks ahead of the quiet period to guide them on consensus estimates. Then he will deliberately avoid seeking any more meetings with the buy or sell-side until results are announced six to seven weeks later (maybe slightly longer for year-end results). Once out in the open, the IR machine can swing back into full gear and the usual round of meetings can resume.
Heward believes avoiding meetings during the quiet period is the best way to play it. Even if you’re careful as to what you are saying, ‘it can be misconstrued that you might be divulging information’. However he points out there could be a need for a major announcement during that time – say, the appointment of a key director or an acquisition – which should be played normally while taking care not to discuss forthcoming figures.
In the UK, the quiet period is often related to the close period defined in the stock exchange regulations during which directors must not deal in the securities of their company: two months prior to the publication of a half-yearly report or preliminary results; one month preceding quarterly announcements if they report on that basis. Lucas van Praag, a director at London-based communications agency Brunswick, points out that this ruling has been extended by some companies to mean no communication at all during the close period.
‘Some companies use quiet periods as an opportunity to say nothing to anybody. Clearly, no company should be divulging price sensitive information, but what’s required is a pragmatic approach,’ van Praag says. ‘The strengthening regulatory structure could lead to almost total silence but most companies are fairly pragmatic. I feel it’s most important that directors do what they feel most comfortable with.’
Of course, some directors would probably feel the most comfortable if they didn’t have to communicate with the markets at all. But that’s another story.
Before & After
Defining a quiet period as, say, between the end of a quarter and the announcement of results is fine, but what of the time leading up to the end of that quarter when many companies have a good idea of what performance has been?
Jan Bielinski, senior vice president of corporate communications and IR at the Julius Baer Group in Zurich, is well aware of that problem but says it shouldn’t mean a communications shut-down. After all, if he took that route, he might not be talking to anybody for four months of the year. He says that common sense should prevail, but notes that some companies seem to forget that basic premise. For example, prior to the end of a reporting period, it’s fine to guide analysts if they are far off a consensus; and, during the quiet period, to talk about five-year targets. They should just avoid commenting on the immediate future’s figures.
Along with others, Bielinski says most members of the financial community are well aware of the restrictions and respect company policy on the issue. They may well want details of the imminent figures but they don’t want to put themselves or you in a difficult situation. ‘It’s not just that IROs shouldn’t talk about it,’ says Bielinski. ‘It’s also about the situation of those who might obtain such information.’
The possibility of difficult situations arising is the main reason for the development of quiet periods. The vast majority of companies and members of the financial community do their utmost to abide by the rules on insider trading and dissemination of price sensitive information. However events and actions can still be misinterpreted. Cutting down on the number of meetings and making it clear that the company is in a quiet period during phone calls can help to minimize the risk.
Taking no risks results in no communications rewards, however. ‘Generally I’d advise to keep performing as you normally would but be cautious not to comment on earnings related topics. If you have something which is material news then you must disclose it,’ says Philip Webster, president of the Webster Group in Pennsylvania, which advises US and European companies on investor relations issues.
Marisa Jacobs, a former lawyer and now a director at Gavin Anderson in New York, points out that the length of a quiet period varies from company to company and sector to sector. Some industries and businesses evidently know results at an earlier stage than others and behave accordingly. Winding down the number of meetings as results become clarified is one approach. Jacobs notes that the lack of specific SEC rules on quiet periods allows US companies flexibility as long as they stay within the wider securities legislation.
She adds that US companies don’t see it as a time to shut down the communication channels altogether, though. Indeed, those that did would lose out in the competition to keep the financial community well informed. ‘You won’t find any US company not talking to anybody four months of the year,’ says Jacobs. There may well be a reluctance to meet with analysts and the financial press but it should not be allowed to interfere with routine announcements and conversations which don’t deal with the forthcoming figures.
Nor should companies get so paranoid about communicating with the financial community during these periods that they record all their phone calls, asserts Jacobs. Sure, it makes good sense to keep a brief note of what was said to whom and when, but going further than that is a little extreme. ‘I would suggest developing an internal policy to deal with the issue,’ she says. ‘The first prong of that policy should make clear the rights and responsibilities of those charged with talking to the financial community and press. Next it should give guidelines as to when to go into a quiet period and what that entails.’
Extra Ordinary Events
Jacobs says the issue of going quiet can be more of a problem when it is outside the ordinary calendar – when making an acquisition, for instance. A whole host of questions arise then. Do you cancel meetings already set up, thereby possibly alerting analysts or institutions that something is up? Do you not take phone calls? Do you refuse to comment on issues which would normally appear run-of-the-mill?
‘I think such events can be extremely difficult to handle,’ agrees Bielinksi at Julius Baer. ‘Say you schedule a meeting with two brokers in London and then become aware of an acquisition which will be announced after the meeting. Would you then call the meeting off?’
There are no correct answers here, says Jacobs. ‘You don’t want to alarm people or alert them that something out of the ordinary is going on. Sometimes it’s best just to say you’re not available [even to cancel a pre-arranged meeting] which can mean 101 different things. You don’t have an obligation to explain why you’re not available at a certain time; you just have to get back to people and ask to reschedule.’
The alternative to being unavailable is to carry on as usual and hope that nothing crops up relating to the forthcoming acquisition or deal. This is a risky line to take, though, since you may then find yourself in a position of having to deny something is happening – or likely to happen – right up to the date of an announcement. Misleading information can often prove more detrimental than no information at all. It’s difficult to lay down rules or best practice for such events due to the varying circumstances – experience and judgment enter into it once again.
Whatever choices are made internally to govern communication during quiet periods, one thing is worth bearing in mind. Quiet is usually defined as not being noisy, or speaking in hushed tones. Rarely is it used to signify silence.
Quiet Practice
Do…
produce internal guidelines
keep communication lines pen
maintain material announcements
keep a brief record of conversations
Don’t…
shut down all communications
feel obliged to tape phone calls
mislead audiences prior to an announcement
lose your common sense
Softly, Softly
‘Quiet periods are a time when you’re the most sensitive about communications but you still want to keep the lines open,’ says Roger Friedberger, CFO of Ilog, a small cap French software company listed on Nasdaq.
Friedberger defines his company’s quiet period as being the last month of each quarter until the results have been announced. If the company went silent during these periods, there would be seven months of the year without communication. Obviously, that’s impractical.
Instead, Friedberger relies on the fact that only he, the chief executive or the vice president of marketing can talk to the financial community, and they ensure a common line by restricting conversations to information already publicly available in press releases. Friedberger signs off every release before it is sent out.
Prior to the end of each quarter, Ilog is happy to give guidance along the lines of ‘We continue to be comfortable with analyst estimates’ and is then careful in any further discussions not to refer to the forthcoming figures. ‘We stick to more general information during these times and try to use the press releases as a guide,’ he says. ‘We’re a lot more sensitive but we don’t like being in a position where we can’t return phone calls.’
Earlier this year, Ilog delayed its year-end results by one week so it could tie them in with the announcement of its acquisition of Cplex, a Nevada-based software company. Friedberger says he explained the delay by saying the chief executive was on vacation. Indeed, he was on vacation but was in constant contact with the company as the deal was being finalized. However the situation prevented further difficult questions about the delay from arising.
