Regulation Full Disclosure was always going to represent a wind of change for the IR industry. But many people believed it would be a light breeze rather than the gusty gale it’s turning out to be. They were wrong: the wind is blasting through just about every area of investor relations.
Of course, Regulation FD was meant to spoil the cozy relationship between listed firms and their money-wielding institutional shareholders. But not many people predicted such a rapid and widespread leveling of the investor playing field.
The regulation did not actually call for the equal treatment of all investors – if it had, the practice of privately lunching with a fund manager would have been consigned to history, supplanted by a scenario where a massive gaggle of retail investors are invited along to a lunch that’s as intimate as the feeding of the five thousand.
No, Reg FD wasn’t meant to change the entire practice of investor relations. All it called for was wider, fairer distribution of material corporate information; the snuffing out of disclosure discrepancies that could disadvantage smaller investors. You can achieve that with circumspect communications, a conference call or a press release. But companies are now on edge. And that means that any obvious avenue of favoritism is being hastily blocked.
There are already scant areas of privilege for the investment institution – secret-spilling one-on-ones and select access to meetings or literature that contain material information are of course no-nos. But the effects of Regulation FD are being felt even in investor conferences.
December 5, 2000: The eleventh annual Salomon Smith Barney chemical conference at the Marriott Marquis Hotel in New York, now webcast for the first time ever. As always, it was a coveted opportunity for 55 companies from around the world to speak and attract the eye of the assembled professional investment fraternity. But, in the build-up to the event, it seemed that some companies were worried. ‘Some companies were concerned about the introduction of Regulation FD,’ says Gil Yang, specialty chemicals analyst in North America for Salomon Smith Barney, the man responsible for the conference. ‘They wanted some mechanism by which they could comply with the regulation.’
The result was a live – and subsequently archived – webcast of the entire conference, in an effort ‘to allay the concerns of a few participating companies’, according to Yang. Accessible via www.veracast.com/ssb2/chemicals_2000 and with links from most of the participating companies’ corporate sites, the conference was there for all to see. The investor conference – once the privileged preserve of the professional investment community – has been invaded by retail investors; such conferences have shaken off their secretive shrouds and stepped into the spotlight.
Even in an age where webcasting is de rigeur for those who take corporate communications seriously, this a big deal. Those who disagree should cast their minds back a year to December 7, 1999 and check out the stink surrounding the investor conference on media companies hosted by Donaldson Lufkin & Jenrette. When it became clear that reporters were barred from entering the conference, Dow Jones pulled out, claiming that it could not ‘acquiesce in the exclusion of news reporters – not only ours, but our competitors’ as well – when our own company is making news.’ It added that Dow Jones did not want to run the risk of making selective disclosure of information in an age in which there was ‘a rising tide in favor of full and complete disclosure in the financial markets that we believe cannot and should not be ignored.’
What a difference a year makes. The webcasting of the Salomon Smith Barney conference is the sort of event Dow Jones would applaud – even more so if it were a chemical company. But this is by no means a one-off event. And Salomon Smith Barney is by no means the only investment bank to adopt such an approach. Merrill Lynch has also taken up the stance. ‘We started webcasting very early,’ states its spokesman, Joseph Cohen. ‘Merrill Lynch has always had a very open policy. Since the introduction of Regulation FD, we have started to webcast our investor conferences and that is simply a continuation of that policy.’
Webcasting technology has improved rapidly over recent months to the extent that it is really not a bad substitute for physical attendance. Take a look at the archived chemicals conference to see for yourself. Transmission quality – particularly audio quality – is fine for conferences in which talking heads are the chief attraction. But it’s not the same as actually being there – for one thing you don’t get refreshments over the internet. Yet inviting the general public to attend such conferences in person would obviously create impossible logistical difficulties. At Merrill Lynch, however, they do strive to break down the exclusivity of attendance that has traditionally been granted to professional investors.
‘Members of the media do physically attend a lot of our conferences,’ explains Cohen, ‘but in terms of providing full public access we simply put the events on the web.’
Dilution danger
Yang was unable to supply online attendance figures or data on who had been hitting the SSB archive but he was adamant that, in general, the decision to webcast the conference received a positive response. However, the obvious question that this development raises is this: do companies alter the content of their presentations in the knowledge that they will be heard by a wider audience? Is there a danger that firms will dilute the meatiness of the message?
Yang concedes that there were some reservations following the announcement of their decision. ‘Not every company wanted to have the conference webcast,’ he says. ‘I think some people wanted better control over who got to see their presentations. At the same time, they were concerned that they didn’t say anything that might be commercially sensitive.’
Doling out this kind of information to professional investors may not be such a problem; after all, the chances of a fund manager bothering to pass it on to rival companies is remote. But the prospect of that information moving into the public domain must change the entire complexion of conference presentations, mustn’t it? ‘I think people are a tad more careful about what they divulge,’ concurs Cohen. ‘But then they were always slightly apprehensive. In the days before Regulation FD and the webcasting of conferences, people always operated on the premise that there would be attendees with pocket tape recorders.’
And this isn’t simply a paranoid bout of excess caution. There is plenty of anecdotal evidence to vindicate these companies’ prudence.
‘Even if you have a conference call with security task codes to control who listens in, things would get out,’ declares Cohen. ‘And an hour after the conference ended you’d get stories over the news wire. So companies would assume that the caller would have a reporter sitting next to them.’
Yang, likewise, doesn’t see the webcasting of investor conferences as a world-shattering event and insists that the Salomon Smith Barney conference was not blighted by nervous company executives keeping mum. The gathered investors certainly didn’t seem to mind. ‘I don’t think people really noticed,’ he remarks. ‘For most people there it was just a normal conference.’
