That doesn’t mean everyone is happy with the information being provided. Indeed, Wall Street, which vigorously opposed Reg FD, continues to fume. The Securities Industry Association, its trade group, declares that “the regulation has had the impact the association feared: less information, lower quality, higher costs, and greater volatility.”
And Wall Street is particularly upset with the parade of companies that have stopped giving guidance. The trend really started last December, when the Atlanta-based Coca-Cola Co. vowed not to provide quarterly or annual guidance, and companies like McDonald’s and AT&T followed suit. They may not be the last. The April NIRI survey found that, overall, 28 percent of companies are considering eliminating guidance.
The stated idea behind restricting guidance, of course, is to refocus analysts on long term rather than quarterly results. But CFOs know that it also means material slips are less likely to occur. Material revelations have been at the root of the actionable cases to date. So, it’s little wonder that in a poll of finance executives two years ago, PricewaterhouseCoopers found that 68 percent wanted the SEC to issue specific guidelines about which information is material and requires disclosure, and which is not.
Some slipups under Reg FD represent seemingly obvious breaches, however. In one case, against Siebel Systems Inc., CEO Thomas Siebel allegedly disclosed material information at an invitation-only technology conference, assuming that it would be Webcast. Last November, Siebel became the first company to pay a fine—of $250,000—to settle a Reg FD case. It promised not to selectively disclose again, but the real message—one CFOs should take to heart, says Feldman—is that Siebel “wouldn’t have gotten into trouble if it had Webcast.” (As CFO went to press, Siebel revealed in its third-quarter financials that the SEC was investigating it for a second Reg FD violation.The potential enforcement action reportedly involves statements made by CFO Ken Goldman at an April 30 dinner with analysts.)
The message in the Raytheon case is that material breaches can also get personal. Former CFO Caine didn’t give quarterly guidance during an initial conference call in February 2001. Then, shortly thereafter, he allegedly made calls to individual analysts, telling them their estimates were too high. According to the SEC’s enforcement action, the problem leading to the sanction was Caine’s knowledge that “Raytheon had provided no public quarterly earnings guidance for 2001″ when he made those calls.
Even when the SEC only issues a report instead of taking enforcement action, there are lessons. In the case of Motorola Inc., the company said during a conference call that it was experiencing “significant weakness” in sales. The IR officer later allegedly told some analysts the decline in sales would be about 25 percent, after the general counsel advised him that the number was not material. The SEC’s decision against taking an enforcement action reflected its finding that the advice, while unsound, was given in good faith. The take-away? “When in doubt, check with a lawyer,” says Feldman, with a chuckle.