Many public companies now host conference calls for analysts and investors in conjunction with the reporting of their financial results. If management is careful, they can be ‘forward-looking’ without fear of sailing into unsafe harbors in the US, according to W Brinkley Dickerson Jr, a senior partner with the Chicago-based law firm, Schiff Hardin & Waite.
The 1995 Private Securities Litigation Reform Act, referred to by many more simply as the ‘Safe Harbor’ Act, ‘seeks to protect investors, issuers, and all who are associated with our capital markets from abusive securities litigation.’
‘The act provides broad protection for public companies that issue statements about their expected performance, and fashions significant stumbling blocks for plaintiffs seeking to bring securities class-action lawsuits,’ says Dickerson. ‘Undoubtedly the most important part of the 1995 reform act is the so-called safe harbor for forward-looking statements. What many companies don’t realize is that the safe harbor applies to both written and spoken statements that project financial performance – such as earnings and revenues – or describe a company’s plans and objectives.’
The shallow water for many public companies is that the ‘rules’ for forward-looking written statements are different from those covering forward-looking oral statements made, for example, during a conference call, insists Dickerson. Indeed, a company cannot safeguard itself on a conference call simply by saying that ‘portions of this call may contain forward-looking statements.’
The reform act acknowledges that management often cannot accompany its forward-looking spoken words with the same ‘meaningful cautionary statements’ provided in written documents like press releases. And it allows companies to incorporate into their oral statements references to ‘cautions’ that already are contained in ‘readily available’ written documents. To wit, all documents filed with the SEC or ‘generally disseminated’ qualify as ‘readily available.’
Identity management
But here’s the rub, according to Dickerson:
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You should identify for conference call participants what forward-looking statements will ‘sound like’, at a minimum, stating that the conference call will contain them;
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You must remind your audience that actual results could differ materially from hoped-for results;
You must reference a specific document that contains appropriate cautionary language.
What about written transcripts of your company’s conference call? Are they automatically protected if the appropriate oral disclaimers are uttered during the call? ‘No,’ says Dickerson.
While the sample safe harbor statement recommended for a conference call would certainly fulfill the reform act’s requirements for oral statements, it would not fulfill the reform act’s requirements for the written versions of such statements. As a consequence, once your conference call is reduced to writing, the safe harbor statement may be in the wrong form.
‘If written transcripts of your conference call are distributed, the safe harbor statement needs to be bolstered to meet the requirements for written statements,’ says Dickerson.
As a consequence, ‘cautionary language’ must be included in the transcript – not merely cross-referenced – and forward-looking statements should be fully identified, according to Dickerson.
Strict adherence to these suggestions should ensure that public companies’ conference calls are indeed safe harbors.
Ronald Trahan is president of Ronald Trahan Associates (RTA), an investor/public relations agency headquartered in Newton Lower Falls, Massachusetts
