The following guidelines will assist public companies in adapting their current analyst/investor relations practices and policies to comply with the SEC’s new Regulation FD (which became effective on October 23, 2000).
These guidelines are not meant to be a substitute for, or to eliminate the need for, formal legal advice, but instead are intended to focus your attention on steps that public companies should consider in developing policies and procedures to deal with the requirements of Regulation FD. There is no single "best" set of policies and procedures that will work for all companies. Instead, you will need to adopt and maintain a program designed for your company, your industry and your management. In addition, as a result of the inherent difficulties in identifying "material, non-public" information, as well as some ambiguities in new Regulation FD, your policies and procedures will need to be flexible to handle situations as they occur.
Of course, the following guidelines are only a brief summary of the steps we recommend. We encourage you to contact us for a more thorough discussion of the new rules, a detailed analysis of the application of the rules to your current practices and assistance with the preparation and/or review of your written policies and procedures.
Review your current disclosure policies and procedures focusing, in particular, on identifying:
who currently has contact with analysts and investors
how requests for information are addressed and how information is currently disclosed to analysts, investors, the media and the public.
Evaluate and modify your current policies and procedures to assure compliance with Regulation FD, including preparation of a written compliance policy addressing (among other matters):
identification of a limited number of people authorized to have contact with analysts and investors
procedures to channel inquiries and contacts to such people
procedures to monitor investor and analyst contacts (including telephone, e-mail, in-person, teleconferences, etc.) to (1) prevent selective disclosure of material, non-public information, and (2) detect intentional and unintentional selective disclosures in order to promptly implement remedial dissemination of such information to the public.
Designate a "disclosure committee" or "compliance officer" to be responsible for determining (with the assistance of counsel) whether information is material and/or non-public, monitoring analyst and investor contacts and assuring compliance with Regulation FD. The company’s chief financial officer, investor relations director or general counsel could serve as compliance officer, and all three could serve on a committee.
Design and implement a training program for people authorized to have contacts with analysts and investors (as well as the disclosure committee or compliance officer) to familiarize them with the new rules, policies and procedures, with particular emphasis on:
developing a strict approach to analyst/investor communications which eliminates intentional selective disclosure
developing an enhanced sensitivity to avoid unintentional selective disclosure
developing an awareness of unintentional selective disclosures, with immediate reporting to the disclosure committee/compliance officer (for prompt remedial action).
Consider preparing detailed scripts for the authorized contacts to use in meetings and other communications with analysts and investors, including answers to anticipated questions. In lieu of a script, the company may want to develop an outline for use by the authorized contacts, summarizing the information publicly disclosed so that such persons can limit their discussions to information and subject matter included in the outline.
Use a compliance officer as a witness/observer for analyst/investor meetings and conference calls to monitor the contact and detect unintentional disclosures.
Make all analyst and investor calls and meetings open to the public, with adequate advance notice. You should also consider making transcripts (written or audio) of these calls and meeting available to the public for some period of time afterwards, with adequate advance notice of your intentions.
Prepare in advance for public dissemination of unintentional selective disclosures by adopting a policy and procedures for identifying problem contacts, getting the material, non-public information to the disclosure committee/compliance officer, and selecting (in advance) the public dissemination methods (i.e., press releases, Form 8-K filings, Web site postings (though not alone), use of outside investor relations/media contact services, etc.). Please note that prompt disclosure under Regulation FD means the later of 24 hours or the beginning of the next day’s trading on the NYSE, so time is of the essence.
Continue to take advantage of the safe-harbor warnings for forward-looking information in contacts with analysts and investors. Of course, the "risk factors" must be continuously monitored and updated as needed. The safe-harbor warnings should also now include an additional specific description of your intention that none of the information to be disclosed will be material, non-public information.
Under certain circumstances, it may be necessary or appropriate to have the analyst or investors agree to a limited confidentiality window (to not publish or act on the selective disclosure until the company has made an anticipated public announcement). This limited agreement would be designed to take advantage of one of the exceptions to Regulation FD.
Avoid contact with analysts and investors during the company’s quarter and year-end blackout periods in order to minimize the possibility of selective disclosure. Avoid disclosure to analysts and investors of "intra-period" operating results (e.g., revenues for the first two months prior to the end of the quarter).
Continue, if appropriate, a "no comment" policy with analysts, media or others. Be careful to note the difference between "no comment" and stating that the company does not have any knowledge as to the basis for a rumor or unusual trading activity, etc. The latter, in fact, may constitute selective disclosure and may create a duty to update.
Avoid voluntarily undertaking a "duty to update" information by making present-tense statements as compared to continuous predictions (e.g., "Your estimate will continue to be on track through the end of the year.").
Determine a specific company policy for (1) whether or not analysts' reports will be reviewed and (2) whether the company will give "comfort" on analyst forecasts. You will need to recognize that, under Regulation FD, a company "comfort" statement to an analyst, in a one-on-one investor meeting or on a restricted access conference call, is very likely to be viewed as an intentional selective disclosure, which must be simultaneously disseminated to the public. Either continue to (1) prohibit review of analyst reports and models, or (2) limit such reviews to checking historical facts only, avoid commenting on any forward-looking statements and advise the analyst (preferably in writing) of the limited nature of the company’s review.
Consider expanded disclosure of financial and business information in press releases and SEC filings (as well as more frequent press releases and filings, if needed) in order to make sure that the public has access to the same information to be discussed directly with analysts or individual and institutional investors. Since it is unrealistic (and not the intended purpose of Regulation FD) to expect your company to terminate analyst and investor contacts, this approach may be a good way to assure compliance with the rules and continue to promote these important communications.
Consider adopting a policy which would include summarizing the company’s forward-looking information (including, if desired, earnings projections) in 10-K and 10-Q reports, together with a statement of the company’s policies concerning updating this information with analysts and investors, and appropriate "quiet periods" in each quarter during which the company will not comment on or report any changes or updates to such information.
If possible, confirm the existence of confidentiality arrangements (by relationship or contract) with people who have access to material non-public, information to assure appropriate reliance on the exclusion from Regulation FD of selective disclosures to such persons. This may include reviewing existing confidentiality agreements with outside consultants, alliance partners and others, and obtaining new confidentiality agreements with outside parties. Particular attention should be given to the types of information protected under the confidentiality agreements, the companies (and their people) covered by the agreement and the length of the protection. The SEC has stated that a confidentiality agreement need not contain a specific prohibition on trading (so long as the agreement creates a confidentiality duty), but also has pointed out that a trading restriction alone (without a confidentiality duty) will not be sufficient to satisfy the exception to Regulation FD.
Carefully review the settings and circumstances in which the company has contact with analysts and investors (including one-on-one meetings, conference calls, plant tours, analyst-sponsored conferences, company open houses, on-line "chat" sessions, interviews and shareholder meetings, etc.) to assure compliance with the new rules. In certain circumstances, the company may need to make a separate announcement to alert the public to the company’s participation in forums, conferences or other similar events sponsored by others. Be wary of assuming that a purportedly "open" meeting is actually open to the public. Even if the media is present, you will need to assess whether statements made by company officials (intentionally or unintentionally) are being timely disseminated to the public or whether other procedures are needed. You need to recognize distinctions in the media -- immediate outlets (such as CNN, CNBC, Reuters, etc.) contrasted with delayed outlets (such as newspapers, magazines and newsletters). Advance intentional disclosure to a reporter for a newspaper, for example, may constitute a violation of Regulation FD since it is not accompanied by simultaneous public dissemination.
Establish and maintain careful Web site content management, including dating all information, stating the company’s updating and archiving policies, affirmatively disavowing a duty to update historical information, etc.
Recognize that the existing antifraud and insider-trading rules continue to apply to all company disclosures, whether made in an SEC filing, an offering document or a one-on-one meeting. You need to continue your vigilance to prevent false, misleading or incomplete statements. You also need to continue to exercise care in the management of information access and flow in order to minimize the likelihood of "tipping" or other insider trading violations.
Review and update insider trading policies and procedures. While Regulation FD does not affect communications to officers, directors and employees, these people are likely to also be stockholders and would be subject to insider trading liability if they trade or tip. This would include directors designated by or otherwise affiliated with significant investors.
Review your D&O insurance policies and indemnification agreements to make sure that these individuals are "covered" not only for litigation from shareholders but also from SEC investigations and related costs.