The FD Effect

The SEC's new corporate disclosure rule has CFOs saying more and talking less.

Gregory Geswein feels a bit like a jilted lover. The reason: In recent months, the CFO of Diebold Inc. hasn’t been getting as many calls as he had from Wall Street analysts who follow the North Canton, Ohio, maker of automated teller machines. Sometimes Geswein will even get up the courage to call one he hasn’t heard from lately. Not for a heart-to-heart, just to see if there are any questions.

“It’s hard to get used to not hearing from some sell-side analysts on a weekly basis,” he confesses.

As Geswein sees it, his phone isn’t ringing as much, because of Regulation FD (Fair Disclosure), the new Securities and Exchange Commission rule that prohibits executives from feeding market-moving information to select individuals. It’s not that Diebold has tried to freeze out analysts or major investors, as some companies have done. Rather, Geswein surmises, it’s that Diebold is giving the Street more information than ever before.

Since October, when the regulation took effect, the company has disclosed additional performance data
in its quarterly earnings releases and conference calls. More significantly, it has begun to provide explicit forward-looking guidance, spelling out management expectations in bullet points: an earnings range for the upcoming quarter and full year, for example, or a revenue growth rate.

And one more thing: A disclosure policy statement on Diebold’s Web site notes that executives will steadfastly refuse to review analysts’ models, comment on estimates, or indicate whether the company is on- track to meet its targets–except in a public forum. “We’re shoving out more information, but the Street knows that it won’t get any more than is already out there,” says Geswein, who joined Diebold in March 2000. “Our approach [to FD] has been to disclose our guidance to everybody: Let’s guide the Street, rather than let the Street guide us.”

In other words, the curious effect of FD has been to make Diebold more open and more tight-lipped at the same time. Just as telling, CFO spoke with a dozen finance chiefs and investor-relations officers and found that they all have responded to the new rule in similar ways.


Reg FD is perhaps the most closely watched and hotly debated new securities rule in years. A pet project of former SEC chairman Arthur Levitt, FD was a response to his concern that executives would freely tip off analysts about the company’s earnings prospects without disclosing the news publicly. Before he retired in February, Levitt deemed the rule a success. “You are now privy to the same information, and at the same time, as analysts, investment bankers, and every other professional on Wall Street,” he told attendees at his 43rd and final town hall meeting for small investors.

There is no question that Reg FD has spurred companies to issue more press releases, file more 8Ks, and increase Web-casting of earnings calls in recent months. But while critics of the SEC rule acknowledge the increased volume of disclosures, they are skeptical about the quality of the information. “More dreck,” says Boris Feldman, a securities lawyer at Wilson Sonsini Goodrich & Rosati, in Palo Alto, California. “Is the market better informed? Of course not. There’s more transparency, but less meaningful information.”


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