Since the SEC’s implementation of Regulation FD, the sweeping decree that finally defines, more or less, the thorny issue of fair disclosure, IROs are fighting the impulse to say nothing at all. Analysts are terrified their special preferential briefings may be over. Investors are concerned that there will be less, not more, information out there on which to buy, sell, and make cocktail party chatter. FD is supposed to benefit small investors, but in the short run, the only group that clearly benefits is Niri: membership at the National Investor Relations Institute has spiked in the last few months, and attendance at chapter meetings is often standing room only.
Although membership has been steadily growing since Niri was founded in 1969, officials say the recent surge is generated by the new SEC rule. ‘We don’t ask people why they joined, but we suspect it’s the implications of Reg FD,’ says Niri president and chief executive, Lou Thompson.
Niri’s membership increased by 190 during the month immediately after Reg FD was announced, compared to an average of 134 new members for each month since January. Niri averaged 88 net new members a month during 1999, down somewhat from 96 the year before. The professional and educational association counted 5,190 members as of mid-October, up from some 2,500 in 1995. ‘There’s no question it has to be Reg FD,’ says Susan Nunn, Niri’s vice president of member services. ‘That, and attendance at Lou’s roadshows.’
On the road
Thompson has been presenting his Regulation FD roadshow to Niri chapters, corporate secretaries and executives, lawyers and other groups, all of whom are anxious to learn how the SEC guidance will affect their particular company, industry and competitors. ‘I’ve been in the office three days since Labor Day,’ admits a somewhat weary Thompson by telephone from yet another hotel lobby, this one somewhere in Ohio.
The affable Thompson has been schlepping a 30-minute presentation around the country, hitting 26 cities in six weeks. Sometimes there’s a securities lawyer on hand, sometimes he’s performing solo. After his remarks, he says, the audience peppers him with at least an hour’s worth of detailed questions.
Thompson says that every show is different, and that attendees voice their diverse concerns at every presentation. ‘Everyone has to learn by trial by fire,’ he believes. ‘Niri tries to reduce the number of fires.’
Reg FD may account for the recent surge in Niri membership, but the group’s membership has been expanding for years. Longtime IR practitioners and corporate governance experts say the group’s rolls have more than doubled in five years because corporate IR responsibilities have grown increasingly complex. ‘When I was chairman of Niri in 1995 we had 2,000-2,500 members, max,’ announces Mickey Foster, vice president, corporate and investor relations for Millennium Chemicals in Red Bank, New Jersey.
He says much of the increase has come from new economy companies that have small staffs or young officers who need to get up to speed on many related topics in a hurry. ‘Niri can educate and inform these companies, and it’s not the kind of profession where you can easily [cover up] a mistake.’ Foster himself has been speaking extensively on the new SEC rule.
Under Reg FD, all material disclosures have to be made in public, at the same time, and accessible to all concerned. An accidental disclosure must be followed up within 24 hours by a formal announcement. One worry is that such an announcement could potentially compromise a company’s competitive edge or destabilize plans that are just shy of fruition.
Although many companies have long maintained an open approach to material disclosures, old economy companies and some with more hidebound policies have a lot to learn. And they have to do it in a hurry. Reg FD ‘is going to change the way everybody involved in earnings guidance does business,’ Thompson warns. ‘We’ve always told people if you’re to review earnings models, stay away from the conclusions. In fact that was legal before, but it isn’t anymore.’
Thompson warns that pressure on IROs will be great, at least for the next few months, until the terrain shakes itself out. Consider the analysts, he says, who are expected to stay at least one step ahead of Joe Day Trader. ‘This law doesn’t cover analysts or investors, and… there is not a thing to stop them from trying to screw the IRO to the wall’ to get guidance on earnings. Thompson fears that small caps especially will be under tremendous pressure to provide information to analysts who are accustomed used to being spoon fed. That’s one reason why Niri chapters are gathering new members so quickly.
Inescapable
Foster says he’s been living and breathing Reg FD since the SEC approved it in August. ‘It’s been inescapable. There has been a lot of interest, a lot of trepidation.’ Which is why IROs – or the public relations and financial officers who are increasingly forced to take on the IR functions – are flocking to Niri.
‘Of all the professional associations I belong to, Niri does by far the best job with education seminars for members,’ says Smooch Reynolds, a headhunter whose Los Angeles-based company, The Repovich-Reynolds Group, fills specialist jobs in investor relations, communications and marketing. ‘Lou Thompson has done an enormous job of creating visibility,’ including the roadshows, presentations to the SEC and stock exchanges, and writing editorials. ‘Niri does a really thoughtful job of maintaining and evolving the profession; they are extremely proactive.’
Niri maintains 31 local chapters, many of which, says Susan Klein, managing director of Boston-based IR consulting firm Pondel/Klein, ‘engage in a little friendly one-upmanship’ for content and members. She notes that what works in Boston doesn’t necessarily work in Austin, and all the chapters learn and adapt from each other.
Indeed, the Niri national web site (www.niri.org) has links to the chapters, many of which offer detailed schedules of upcoming events, texts of recent presentations, and even links to travel and tourism sites. There are also lists of local contacts and social events. The job bank is one of the most popular features, Niri says. The ever-expanding job market for IR professionals is another reason for the recent bloom in Niri membership. The usual route into the IR job is through the financial side or corporate communications; either way there’s a lot of learning to be done.
That’s where the professional development comes in. And with companies so eager to hire, less seasoned or more narrowly trained people find themselves taking on broad responsibilities, according to Smooch Reynolds. Increasingly there is outside recognition that IR functions are important not just to how a company is run, but how its management fulfills its responsibilities to investors. For the last year or so, the New York Stock Exchange, Nasdaq and the American Stock Exchange have given free one-year Niri memberships to newly listed companies.
Niri gives these organizations a slight discount on the $425 yearly membership fee, but with no more than a dozen of these new members a month, the money is not the point. ‘What’s more important to us is the endorsement,’ Thompson says. ‘It’s [the exchanges] saying they see enough value to put their own money behind it.’ He believes corporations that continue their memberships recognize the benefits: ‘It beats writing a check to the SEC for a huge fine.’
Thompson notes that not all IROs from newly listed companies take advantage of Niri expertise, however. ‘Some people still look at IR as tomorrow – that’s until they get clobbered.’
With an ever-expanding economy, more new companies are coming to market, and small caps and start-ups especially are aware that if they want analysts’ attention, they’re going to have to earn it. In the past, many experts say, the IR portfolio was divided among the CEO or CFO or anyone else who had the time to run conference calls and work the Street. ‘But in the last couple of years, micro-cap and small-cap companies have realized that in order to compete for quality time they need a dedicated IRO,’ Reynolds declares. ‘How you communicate with Wall Street is something you pick up; it isn’t taught in any class.’
