When one of Wall Street’s scores of travel industry analysts or real estate fund managers wants to see where their Cendant Corp holdings are heading, they can click on the company’s web site for the latest amended 10Q or read the CFO’s recent remarks from an investment conference.
And when a budding investor clicks onto Cendant.com to peruse the corporation, he can click onto Cendant 101, a page that clearly outlines the company’s history, brand names, basic financials and market overview. ‘We wanted to make the site palatable not just to a financial analyst, but to investors who want to see which hotels are ours, or what’s happening to revenues from the car rental business,’ says Anna Gralinska, Cendant’s investor relations manager.
Gralinska recognizes that not all investors are created equal, and neither are their information needs. That is why the company offers the full spectrum of information – from the basics to the complex – in one centralized source. ‘By 1999 we did a major overhaul of the site because we wanted people to rely on it as primary source for information,’ she says.
Cendant is one of hundreds of companies that have committed to using their web site as a comprehensive, democratic and transparent source of corporate information for the increasingly demanding – but not necessarily more sophisticated – public.
Different strokes
The National Investor Relations Institute (Niri) in the US recently endorsed a ‘two-tier disclosure’ policy designed to make it easier for companies to communicate with whoever happens to click in. The first tier of information is a simplified, plain-English summary of the company’s business and prospects, including all the elements of the MD&A. This section should be designed to give a clear overview to the casual investor or curious observer.
The second tier would feed the more sophisticated investor – one who reads SEC filings and detailed balance sheets the way other people read the business pages. This reader doesn’t need the plain English as much as they do the raw information – and plenty of it. ‘The SEC is pushing really hard for full transparency, and that means that anyone can pick up a document that is required and understand it,’ says Don Eagon, Niri chairman and a veteran IRO. ‘That means more than moving things from legalese into English.’
Another IRO compares the two tiers to the Good News and King James versions of the bible: the first conveys the important basics to an impatient reader without slowing him down with the poetry and detail of the second. If common sense isn’t a good enough reason for dual disclosure language, remember: it is now the law.
Regulation Fair Disclosure doesn’t explicitly advise companies to post digested versions of company earnings. But it does say that material information must be presented in a way that is widely available and easily understood. And that means English. Plain English. The kind of language you’d use to explain your company to your fiancé’s parents.
Although Reg FD was passed two years ago, transparent disclosure may be more important now than ever. IROs say that the series of scandals that rocked Wall Street could have been at least partially contained if the Enrons, WorldComs and Global Crossings had attempted to communicate their situation in clear and honest language.
If the panic on Main Street isn’t enough, Congress is passing laws and the SEC is tightening up certification procedures to make sure that companies present a true and comprehensive picture to the general public.
This summer the SEC adopted the Sarbanes-Oxley Act under which CEOs and CFOs must certify the accuracy of their public reporting and speed up federal filings to give investors more accurate and useful information. It’s an attempt at corporate accountability the government says is long overdue, and most IROs welcome it.
‘Two-tier disclosure has been evolving since Reg FD, but what’s really driving it now is the fact that investors want transparency,’ explains Eagon. ‘They are trying to understand how a company makes its money and what the risks involved in investing are. They want a clear picture, but unfortunately, until now most of the reporting has been in legalese. Pick up an earnings release or a Q or a K and you need a securities lawyer to interpret what is said.’
The right tone
But even IROs who have been consciously presenting simplified versions of 10Ks and 10Qs say there is no universal template to follow. Striking the right tone is difficult, and deciding how to present the information is a challenge. Even deciding what to make available, beyond the mandated disclosures, is an important decision.
‘You don’t want to turn anyone off, but you can’t insult them either,’ says Alice McGuire, succinctly summing up the fears of a new generation of IROs. She acknowledges having wrestled with the mechanics of presenting information that is meaty enough for a big fund analyst and incisive enough to satisfy a journalist, without repelling the individual investor looking for a value stock in a bear market.
Several investor relations professionals speak of the instinctive friction between the companies’ public relations department and the financial and legal side. They say it can be a constant battle to get the CFO or legal advisors to retell the stories in plain English, or even to let them post the documents on the web site.
‘We would have to get the controllers, treasurer and CFO to sit down with us and explain what all those changes mean, and how to communicate them,’ says McGuire, who ran investor relations for Compaq Computer until it merged with Hewlett-Packard this year. ‘I could take a 15-page document and get it down to one page.’
Don Eagon, who is also the vice president of global communications and investor relations for Ohio-based Diebold, says his company has for some time put out a one-page summary of the MD&A as well as the document itself, as ‘a further distillation of the information.’ However he says it began as a fractious effort to coordinate with the company’s financial side.
‘You are really making drastic changes in several overlapping professions. Accountants and finance people are ingrained in accounting procedure and FASB and Gaap,’ Eagon says. ‘But as an IR person, as a communicator, it’s my responsibility to translate that.’ He notes Enron’s meltdown has hastened the accounting side’s embrace of public disclosure.
‘The companies that make the changes and meet the new standards for rules are those that really will come out ahead as far as the Street is concerned,’ says Eagon. ‘Can you imagine the company whose president refuses to agree to SEC certification? Fighting that is like fighting apple pie.’
Keep it simple
Many IROs say that once management is on board, the trickiest part of the web site is designing for the casual investor. It’s easy to post the SEC filings, but it’s a lot harder to translate them into the kind of language that a lay reader can appreciate.
McGuire says that when she was running Compaq’s investor relations department, she would test-drive their newly redesigned web site ‘and if it wasn’t easy or natural, I’d make them do it over.’
A consumer-oriented company with a high profile, Compaq had an IR team that instinctively knew it had to communicate with people who don’t have MBAs. ‘The site had to be friendly,’ explains McGuire, who still mentors young Niri members. ‘You start with the investor base and you provide as much information as you possibly can, and provide it in a variety of forms that allow you to deliver it with as much interest as the reader has.’ She says people ‘love the USA Today approach,’ and only want their information in concentrated doses.
Proactive IROs know you can’t really fight the trend. Niri has long counseled exceeding the minimum disclosure rules as a simple matter of good business practice. That policy is especially important now.
Anna Gralinska of Cendant says that companies have a responsibility to turn information into knowledge. But she notes that full disclosure, translated for a novice or newcomer, can also be an opportunity. ‘Cendant has an obligation to issue all material information and we can present that to the investing public while valuing the company in a way that we believe is the most effective. But that is only one way of looking at the company.’
Corporations that are unusually diversified may consider applying the two-tier approach to other aspects of their investor relations pages as well, she advises. ‘For us, two-tier disclosure is not just about the [sophistication level] but the interest, as well. Some people want corporate information, others only cover the hospitality sector and some are more interested in real estate. For us, two-tier means not only a variety of investors, but also a variety of specializations.’
