Proposed SEC Changes May Bolster Confidence
Businesses Urged to Implement New Disclosure Policies
BY RENEE GRABLE MULLEN
Special to the Business Journal
In light of the events of the past several months along with proposed Securities and Exchange Commission financial disclosure and accountability changes, public companies must examine their current disclosure policies and implement changes to the way they disseminate information. Companies that implement new polices will help to restore and strengthen investor and employee confidence in today’s bear market.
Although the proposed changes are very detailed and may seem overwhelming, if companies start the implementation process today, the transition will be very easy when the anticipated changes become required.
In February, the SEC announced they would seek changes in current disclosure rules as the first step in a series to improve financial reporting and disclosure. Proposed rules include accelerated reporting of transactions involving company insiders in company securities; shortened deadlines for filing reports on forms 10K, 10Q and 8K; and the posting of these reports to the company’s Web site.
The SEC also hopes to expand the list of significant events requiring disclosure on existing Form 8K. The commission will also require that companies report critical accounting policies in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained in a public company’s annual report.
While these proposed changes are not currently required of public companies, proactive companies should start to make changes now to their current disclosure policies. Not only will such changes better position them for when the SEC proposed changes become law, modifications to their existing policies will help to regain investor and employee confidence and respect.
– Making Changes Early
May Generate Good Will
Investor relations tools and technology for most of the proposed disclosure changes are available. High-level investor relations professionals can utilize these tools and technology to ensure a company is prepared for when the changes become law, which could happen in the near future and over the course of several years.
The good will created by making the changes now is well worth a company’s investment in time and resources. Waiting until the changes are mandatory might actually hurt a company , especially if its competitors are proactively making modifications.
Below are a few things public companies can do right away to strengthen confidence in the market and their industry sector while preparing for the proposed changes.
A written disclosure policy states the company is committed to providing full, fair and consistent disclosure to maintain realistic investor expectations and details the company’s procedures for releasing information. Typically included in a company’s disclosure policy are procedures for making a public statement, responding to rumors and chat room postings, and communications with analyst, just to name a few.
An insider trading policy defines who is an insider, what is material vs. non-material information, when the company’s blackout periods occur, and what are insider-prohibited transactions. In light of the Enron situation, it is now recommended that an insider trading policy include reporting procedures for all company stock transactions that the company executes in addition to the above items.
– Investor Information
Available On The Internet
Once these policies are established, it becomes very clear to investors that the company is committed to releasing all material information to all parties in the investment community. Executive management, the company’s board of directors and all employees are made aware of the policies and vow to carry them out. In addition to gaining investor confidence, a company may be able to save up to 10 percent annually on their director and officer’s insurance by implementing and submitting these policies to their carrier.
Anyone involved in investing in today’s market is using the Web to research companies. It is by far the fastest-growing way of obtaining company information.
Beyond the proposed SEC changes, providing investor information via a company’s Web site should be a public company’s top priority.
First, the information should be easy to find. A company that places investor information behind the home page without easy accessibility is defeating the purpose of clear disclosure and access to potential investors. Today, analysts and investors go to a Web site and if the information is not readily available, they simply move on to the next company.
Public companies should have a button on the home page that indicates where investor information can be found. Behind this button there should be several items including annual and quarterly reports, press releases, a real-time stock quote and replay of analyst conference calls.
If a company is using a wire service for their press releases and filing reports electronically, which is required by the SEC via EDGAR (the SEC’s Electronic Data Gathering, Analysis, and Retrieval system), then most information can be updated automatically as the company releases information.
Investor Web development technology is widely available. Public companies just need to use it.
Bottom line, if a company does not post investor information on their Web site, they are hurting their shareholders, employees, and anyone else involved with the company.
– Host Analysts’ Conference
Calls Via Web Casting
Companies hosting conference calls can now post a replay of the conference call on the company’s Web site through Web casting. Web casting allows investors to listen to conference calls via the Web while the call is taking place or at a later, more convenient time. Web casting also helps meet regulation full disclosure (regFD) requirements by allowing all investors to listen.
Analysts benefit from posted conference calls because it allows them to go back to the company’s Web site during the quarter or before an upcoming call to listen to what has been said in the prior quarter(s) and see whether the company accomplished what was announced in previous quarters.
Typically, companies leave quarterly conference calls on their Web site for three months to a year. It is recommended that a company seek advice from their legal council regarding the length of time a quarterly conference call be kept on the Web site.
Changes in financial reporting and accountability will be easier if public companies start implementing changes now. If companies use the tools currently available in the marketplace for placing information on the web and have disclosure procedures for releasing significant information in place, changes in reporting will be simple.
Investors value those companies that promote full, fair and consistent disclosure of information. Executives must comply and implement procedures today in order to continue success in the future.
Mullen is an investor relations consultant who implements corporate disclosure policies and procedures for public companies nationwide.
