IROs are at the center of one of the most fundamental issues a company must address: disclosure. What to say, how and when to say it, and who should deliver a message is a complex matter. It requires deep knowledge of the company, the audience, and the regulations and practices within regions and industries. And there is no person better placed than the IRO to lead the charge for a written disclosure policy.
Putting practice down on paper exceeds corporate governance requirements around the world, yet IROs find many reasons to take this step. Larry Spencer, director of IR at Idacorp in Boise, Idaho, says he was motivated in part by fear. He pressed for a formal disclosure policy at his company after he saw Flowserve draw SEC attention for violating rules against selective disclosure. Others find written policies a more prosaic organizational tool. ‘It’s a complicated time for disclosure,’ says Sara Wilkins, director of IR at Journal Communications in Milwaukee. ‘A written policy serves as an excellent framework for what to do in a variety of circumstances.’
Some companies do not have formal disclosure policies in place – either because their guidelines are evolving or, as is the case with Taiwanese companies, government requirements are so specific that written corporate policies would be redundant. Yet many seeking to raise the bar of corporate governance and communication have committed their guidelines to ink.
IROs from around the globe talked to IR magazine about their policies and processes for putting these guidelines on paper. They take seven basic steps.
STEP 1:
Start the conversation Ask (and answer) two primary underlying questions:
- Why create a formal policy?
- What kind of written policy will work best at the company?
A written policy serves as a constant guide for senior executives, IR and communication personnel to consult when they are faced with a broad range of complicated situations that require comment. It provides standards and continuity when a new employee is hired from outside the company or moves from an internal position in which communicating to the outside world is not a consideration. ‘Unwritten guidelines can give the appearance of being optional,’ Spencer points out. ‘A written policy tells every director and employee that proper disclosure is mandatory.’
A policy set down in black and white also promotes credibility. Since Royal Philips Electronics formalized its policy 15 years ago, disclosure is now as integral as DNA, says Alan Cathcart, senior vice president of IR. The policy helps formalize the company’s philosophy of disclosing as much information as possible, he explains: ‘The more the market understands and can trust a firm, the higher the valuation the market will give, thereby connecting disclosure with value creation.’
The key question to answer is what sort of policy will best serve the company. Policies vary in length, their level of detail, and the audience at which they are aimed: the investment community, employees, or executives and directors. Ohio-based Diebold’s concise eight-point online policy, for example, informs the investment community about its disclosure standards and basic procedures. OneSteel in Australia posts a four-page document that addresses employees’ responsibilities and actions.
Allianz provides a checklist of the requirements, suggestions and recommendations of Germany’s corporate governance code and indicates which items it has implemented. UK insurance group Aviva distributes policies for disclosure internally within different departments’ manuals, so policies for IR, media relations, group risk management and others share the same core messages, but are shaped for specific areas of responsibility.
In addition to understanding the purpose of a policy, decision-makers must determine what style and format will fit their goals. Timothy McKenna, vice president of IR and communications at Rockwood Holdings in Princeton, New Jersey, says managers at his specialty chemical company wanted a simple policy, not one accounting for every possible scenario. ‘The goal was not to add extra formal activity,’ he says. ‘We wanted it general enough that it would work.’
STEP 2 :
Take inventory
- Determine what norms and rules govern disclosure in your company’s country, industry and listing exchange.
- Set your own goals and objectives as an Iro and assess best practices already in place.
- Understand which practices are requirements and which are simply recommendations or suggestions.
McKenna says that at each company where he initiated a written disclosure policy during his 22-year IR career, executives began by looking at their informal guidelines and sought to make them formal. Even before Regulation FD and Sarbanes-Oxley were instituted, management reviewed practices with outside attorneys. ‘By the time we created the policies, we already knew we had solid best practices to put on paper,’ McKenna explains.
One example of a practice that fed into a subsequent, more comprehensive written policy was Journal Communications’ ‘Stop and go’ initiative, a reference guide for a broad range of employees to understand who could talk to whom. After decades of being a privately held company, Journal Communications needed everyone to understand disclosure on a practical, day-to-day basis when the company went public in 2003, explains Wilkins.
Having surveyed business unit managers, the company generated a list of issues that media and investors might ask about, topics that specific employees could or could not discuss outside the company, instructions to follow if material, non-public information was accidentally disclosed, and contact information for legal and IR personnel.
STEP 3 :
Form a committee
If a disclosure committee, as recommended by Sox, has not already been established, start one by including the CFO, IRO and in-house counsel, at least. In many cases, the CEO, controller and corporate secretary are also members. Managers whose business units impact line items in the financial statements can play a role, too.
STEP 4 :
Determine the basic content to be included in the policy
- The disclosure committee considers what to communicate and to whom, and who may speak on behalf of the company.
- Decide which pieces of this information – and at what level of detail – to add.
Many disclosure policies begin with an explanation of government or listing requirements to which the policy is adhering, such as Reg FD. IROs whose companies have dual listing – for example, Infosys Technologies, listed on Nasdaq and the Bombay Stock Exchange – describe regional differences, yet emphasize that the main principles of non-selective disclosure and equitable treatment of investors do cross boundaries.
Policies often list authorized spokespeople and procedures for approving press releases, announcements or other communications. Other topics include methods for disclosing information like web site, press releases or investor presentations; types of information that will and will not be released; whether the company will address analysts’ reports; quiet periods; and remedies for inadvertent disclosure.
STEP 5 :
Write, review/redraft and approve the policy
After the committee drafts the policy, the chief executive, CFO and general counsel (if they have not already done so by being part of the committee) should sign off on the document before submitting it to the board for final approval.
STEP 6 :
Distribute it
- The company’s needs and how it operates dictate to whom the policy is distributed, both internally and externally.
- The number of calls employees receive from analysts and investors affects whether the IRO posts the policy on the company web site.
The age of the company as a public entity affects whether or not a disclosure policy should be broadly disseminated to all employees by intranet and other means, or to a few top executives only.
Long-time employees of established public companies who know not to accept phone calls from analysts might not need many reminders about proper disclosure, but guidelines can be helpful to employees new to a public company or simply at a new level of management, says Anne O’Driscoll, head of IR and capital planning at Insurance Australia Group in Sydney.
Sandeep Mahindroo, manager of investor relations at India’s Infosys, seconds the need for passing along rules and standards to new employees, explaining that it contributes to consistency, which in turn leads to credibility.
STEP 7 :
Regularly review and update the policy
According to corporate secretary Deborah Foo at Pacific Internet in Singapore, her company’s disclosure policy gets reviewed annually, as well as on an ad hoc basis. Triggers for reexamining the policy, say many IROs, include a merger or acquisition, or any changes in regulations, exchange rules or the company manual.
Finally, with so much ground to cover and so many readers to address, drafting can be tricky. Still, like disclosure itself, it’s crucial to get it right. ‘A written disclosure policy must be understandable, usable and enforceable,’ Spencer says. ‘If the people reading it don’t get it, it’s not much of a policy.’
