Experts’ views on possible lessons from the latest Reg FD case are mixed. Feldman believes the Schering-Plough case “dwarfs the prior enforcements” and “may signal a policy shift, because it now is not just what you say, but how you say it.” At issue is one line in the September enforcement action against the $10 billion company and former CEO Richard Kogan. There, the SEC noted that Schering-Plough violated Reg FD “through a combination of spoken language, tone, emphasis, and demeanor”—a phrase that has sent some lawyers searching for duct tape.
Still, if you read the complaint, says Louis Thompson Jr., NIRI’s CEO, “what Kogan said was more than adequate” to constitute a material breach of Reg FD. In fact, during the 2002 meetings cited—an initial closed-door meeting with three big shareholders and a follow-up meeting with analysts and investors—Kogan allegedly said that the company’s 2003 earnings would be “terrible,” among other things. That led the stock to fall more than 17 percent. (Troubles at Schering-Plough also led to the departure of CFO Jack Wyszomierski in November.)
But it was the SEC’s reaction to the downbeat way the remarks were delivered that has given companies and general counsels the most pause. “Body language is a tough legal standard,” says Stuart Kaswell, a partner with Dechert LLP in Washington, D.C. To be on the safe side, says Feldman, CFOs and CEOs should guard against looking “depressed when they talk to analysts.” And since that may be impossible to do, Feldman advises companies to reevaluate the form in which they choose to communicate to Wall Street. The ruling “could be the death knell for one-on-ones,” he says.
Such advice is leading to something of a standoff between lawyers and IR professionals. “There’s a natural tug-of-war between communications and legal anyway,” says McCoun. The Schering-Plough case, however, has led to “a tendency to retreat and say we are not going to give one-on-ones,” he says.
At Emcor, Matz says that smaller meetings are necessary, and that the company has done a good job of self-policing its comments there. For one thing, Matz limits the number of communicators as a way of guarding against Reg FD violations. “I don’t think FD is out there to trick people,” he says. But by limiting Emcor’s spokesmen to CEO Frank MacInnis and himself, the former treasurer says, the company doesn’t “deviate from protocol” and “keeps the information standard.”
Limiting the time spent communicating is another way companies avoid accidental transgressions. “But the best bright-line rule is to have a permanent quiet period except for one day per quarter,” says Feldman. That is when a company releases earnings. Then, it should “give guidance with enough variables for analysts to draw conclusions”—and say no more. He calls this the only “viable and secure approach for a CFO.”
Other safeguards continue to evolve. While most companies Webcast their own earnings announcements, for example, many now insist that outside investor-conference sponsors offer the Webcast. In fact, the June NIRI survey found that 21 percent of companies refuse to participate in such events unless they are Webcast in that manner. That approach, says Feldman, should extend to the breakout sessions at those conferences, which he terms the “Wild West” of investor relations.