Full Disclosure…

In a week filled with Middle East violence, playoff baseball, and Presidential debates, an email from a young PR account exec could easily have gone unnoticed in the morning pile of spam. Luckily, she did it right, and her pitch opened the trail to a breaking story.

As of yesterday, the practice of PR and investor relations (IR) has changed forever thanks, in part, to the efforts of the CEO of a small Silicon Valley public relations agency.

Over the vociferous objections from the powerful National Investor Relations Institute (NIRI) and Securities Industry Association (SIA), the Securities and Exchange Commission (SEC) implemented its Full Disclosure Regulation yesterday, October 23. And it’s high time. The basic idea behind Regulation FD is simple: Level the playing field for investors. No more advance leaking of earnings estimates to analysts or private conference calls to institutional investors and fund managers.

In the language of the new regulation, if, in private discussion, a company official “communicates selectively to the analyst nonpublic information that the company’s anticipated earnings will be higher than, lower than, or even the same as analysts have been forecasting, the issuer will likely have violated Regulation FD.”

The NIRI’s Guidance for Compliance with Reg FD will be useful for PR/IR practitioners in coming weeks, as will a look at the full SEC Regulation.

Basically, Reg FD requires, before material information is discussed in a nonpublic, selective forum, that a publicly owned company must disclose that same information in advance through one of three means:

  1. A news release
  2. An 8K filing with the SEC
  3. An open electronic conference call via telephone or web broadcast

A Tale of the Dove

I stumbled over the story behind this ruling last week while following up that email story pitch from a Dovetail Public Relations PR account exec. Along with a piece of blue-chip clients like Sun Microsystems and IBM, the Dovetail client roster includes a small company called BestCalls.com. BestCalls is a kind of TV Guide of corporate conference calls aimed at investors, analysts, and media.

Online conference calls, a fairly arcane medium just a year ago, has been brought into the forefront of media consciousness with the publication of Reg FD. Soon, it will be as common as dust.

Here’s the Background

Public relations practitioners have access to information that will affect corporate earnings — products, patents, mergers, acquisitions, even appointments. All the stuff we pump out in largely unread press releases for private companies becomes financially significant when applied to publicly owned companies. The rules covering corporate insiders — including consultants, attorneys, and PR people — prohibit us from profiting from such information. Reg FD goes a lot further. Tipping off a favored analyst or presenting market-moving information to selected investors is now clearly off limits. This widely practiced activity was never a good idea. The Internet just made it worse.

That was the position Mark Coker, president of Dovetail, took when Legato Systems Inc. refused to give him access to private conference calls it had held with institutional investors. Coker sold his Legato stock, and with the $120K proceeds started BestCalls.com as a free public service. (It still is.) The idea was simple. Companies needed a place to list their online conferences, and investors needed a place to find out when these conferences would take place.

Coker’s preliminary research was definitive: Nobody cared. Fewer than 5 percent of investors even knew what an online conference call was and “over 75 percent of companies had a policy of excluding individual investors.” Facing essentially no demand for his product and strong resistance from publicly owned companies to supply access to their online conferences, Coker took the plunge.

BestCom Took Issues Online

“We took on an enormous PR challenge,” said Coker. “We identified several perceptions and realities we needed to change. My primary source of input was my own experience. I was an active investor and active participant in message boards, in tune with what individual investors were thinking and what they knew.”

Coker used corporate message boards, posting messages in his own name informing shareholders that the corporate conference calls were closed, explaining selective disclosure, and providing links to magazine articles on the subject of conference calls. “We did a short poll. A couple of investors thought we should be able to listen in. A couple of others said, ‘What’s a conference call?'”

A Capitalist Revolution

“I saw this as a tremendous opportunity. Things would change with or without me. Look at the online investor revolution[‘s] last two years [which have been] driven by the discount brokers and the private investors. Millions of investors are becoming self-directed, going on to the web to research stocks, making trades, getting their first taste of real-time information, starting to read press releases…”

On the one hand, there was the investor need. “If individual investors only knew how screwed they were by these practices, they’d rise up and demand access… It shouldn’t matter if you own one share or one million, you’re an owner.”

And there was a corporate benefit as well. “If companies opened up their online conference calls and took a more proactive stance at defining themselves in their own words to investors instead of letting analysts do it, they’d do a better job of attracting and retaining investors. We’re just talking about marketing to shareholders.

“We helped launch the open conference call movement. Media was our partner in this cause, giving us the kind of coverage we couldn’t get for our clients. And media attention helped put pressure on the SEC and the companies and raised awareness.”

Today, Mark Coker can count 74,000 registered members. “And if 75 percent of companies closed their conferences to private investors before BestCalls.com opened its web site, as of yesterday, more than 80 percent of disclosure conference calls were open.

Thanks to Reg FD, 100 percent of such conferences are open to individual stockholders today.

Score one for public relations and the SEC under Chairman Arthur Levitt Jr.

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