ANALYSIS: Financial PR - Teleconferencing: in or out for the media? Companies can benefit from sharing financials with media and single investors, but they remain wary of the practice. Kelly Holman reports

The rise of the corporate teleconference has transformed public companies’ ability to disseminate financial news. Since the early 1990s, the teleconference has been used as a medium by executive management for assembling a group of stock analysts on the telephone and hashing out corporate earnings results.

The rise of the corporate teleconference has transformed public companies’ ability to disseminate financial news. Since the early 1990s, the teleconference has been used as a medium by executive management for assembling a group of stock analysts on the telephone and hashing out corporate earnings results.

The rise of the corporate teleconference has transformed public

companies’ ability to disseminate financial news. Since the early 1990s,

the teleconference has been used as a medium by executive management for

assembling a group of stock analysts on the telephone and hashing out

corporate earnings results.



The popularity of the teleconference call has since grown to become the

corporate communications forum of choice. The National Investor

Relations Institute (NIRI) conducted a survey in June with 490 of its

member companies and found that 84% conduct conference calls with their

analysts.



Today’s teleconference allows corporate executives to discuss financial

performance with an audience of anywhere from 50 to 500 investment

professionals within hours after an earnings announcement has been made.

For IR pros concerned with helping their clients avoid selective

disclosure (intentional or inadvertent release of material, non-public

information in restricted forums), the teleconference is potentially an

important tool in their arsenal. Corporations that release information

to select parties like securities analysts and institutional investors

run the risk of committing selective disclosure and subsequently facing

the wrath of the SEC.



Nevertheless, much of corporate America is apparently willing to run

that risk. In the NIRI survey, only 55% of the surveyed companies let

individual investors listen in on the calls while only 42% allowed media

on the calls. And corporations aren’t the only parties that don’t want

the media listening - the Association for Investment Management and

Research, a global professional investor association, conducted a survey

in March that found 63% of portfolio managers and analysts don’t want

news media representatives listening to conference calls.



’The majority of public companies today are still reluctant,’ says Ted

Pincus, chairman of the Financial Relations Board and vice chairman of

BSMG Worldwide, ’to take the final step to level the playing field, and

allow individual investors and media to participate in the

teleconference - even in the listen-only mode.’



Closed doors



Just exactly why analysts and the companies they cover aren’t receptive

to opening conference calls beyond the financial community isn’t an easy

question to answer, but there are several theories. Industry observers

say analysts from buy-side institutions don’t want media on the calls

because the analysts don’t want to be quoted in news stories. Senior

corporate executives, on the other hand, are concerned with media

misinterpretation of financial data and worry that opening Q&A sessions

will cause discussions among executives and analysts to be less

spontaneous.



’Some argue that opening the conference call will water down the call,’

says Louis Thompson, president and CEO of NIRI. Corporate management is

concerned about a lack of education on the part of listeners outside the

financial community. ’My personal opinion is that analysts will not be

as forthcoming in the Q&A segment if they know a lot of individual

investors or hedge fund managers are on the call,’ adds John Lovallo,

SVP and head of the IR practice at Makovsky & Co.



The issue of opening earnings calls really began to heat up in 1997.



The Wall Street Journal ran a story that year on the subject while

researchers at the University of Michigan studied 1,056 conference calls

made by 808 publicly traded companies. The authors of that study

concluded that institutional investors engaged in significant trading

during the calls, raising concern among members of the news media.



In April of 1998, NIRI held a symposium examining corporate disclosure

at the National Press Club. Harvey Pitt, a noted securities attorney and

partner with Washington law firm Fried, Frank, Harris, Shriver &

Jacobson, moderated the event and addressed the issue of disclosure from

a liability standpoint. ’What I worry about is that company (at a

conference call limited to analysts and professional investors) will be

exposing itself to potential liability. Whereas if the press were there,

that at least would say they were telling everybody all at one time, and

there was no intent to make this selective disclosure.’



Individual investors, the SEC and the media are also concerned that

exclusion in the calls gives the institutions an edge over other

investors.



Conference calls enable reporters to cover companies more effectively

and provide insight on operating performance, which is crucial for

investors.



The value of opening the calls to parties beyond the investment

community couldn’t be any clearer to Bridge News newswire reporter Ian

Fried. He listens to one or two conference calls daily during earnings

announcement periods and issues one-line news alerts during the

calls.



’It’s a time that companies give a much more focused discussion of their

business,’ Fried says. ’I think it definitely offers clarity beyond the

press release. It’s good to understand where they see things going from

a dollars-and-cents perspective.’



Helpful how-tos



So how should a company handle its conference calls? NIRI recommends

that conference calls be open to all interested parties including

analysts, investors and the media. In order to avoid potential call

disruption, the industry association advises that individual investors

and the media be allowed on the calls in a listen-only mode. It suggests

that a news release be issued in advance of any forum that is used to

elaborate on earnings, to discuss with analysts and/or investors

anticipated material trends or developments that have not been released

previously.



In an ideal world, to help avoid selective disclosure, material

information that is not contained in a news release or other readily

available SEC filing should not be divulged in a conference call. If the

information is released during the Q&A, the association feels the

company is obligated to issue a news release that publicly updates the

material information.



Clearly, from a standpoint of good PR as well as moral obligation,

public companies have much to gain by allowing individual investors and

the media access to conference calls. And many IR pros, including Pincus

and Thompson, are keen to open them up.



The calls can broaden clients’ shareholder bases allowing corporations

to tap into the rapidly growing class of individual investors who are

driving Internet investing, as well as enhancing corporate reputation

through fairness in reporting financial data.



Pincus says financial data shows that it is in corporate America’s

self-interest to broaden its earnings conference calls: ’Look at any

company whose P/E multiple has consistently outperformed its peers and

you’ll find a company that, through thick and thin, telegraphs its

expectations and aspirations through an aggressive open-door policy,

seeking a broader investment base.’



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