Regulation FD, now in its 13th year of implementation, remains a source of consternation for senior management and investor relations teams in their communications with investors. Some companies err on the side of excessive caution and end up rarely engaging in regular, productive dialog with The Street. Other companies go the other extreme and provide copious amounts of detail while filing an abundance of 8Ks. Finding the appropriate balance is the best strategy for open, useful relationships with investor audiences while steering clear of actions that could lead to SEC penalties.
Here, we offer a brief description of what Reg FD is, followed by a simple test to help you determine your level of compliance with the regulation. We hope you will find this helpful as a starting point as you think about Reg FD. Since the following answers should not be construed as legal advice, we also urge you to talk with your legal counsel before deciding what practices are best for your company and its particular disclosure situations.
What is Reg FD?
Reg FD is the SEC’s attempt to level the playing field for all investors – institutional and individual – by prohibiting selective disclosure of material information.
Only material non-public information is subject to Reg FD. No bright line defines materiality, but hot buttons chiefly include earnings, M&A and other capital market transactions, new products or customer developments, and changes in control or senior management.
While best practice involves disclosing news to the broadest community possible and achieving “full disclosure” before or at the same time as disclosure to a select group, this process may not happen. If it doesn’t, the offending company has until the next opening of the appropriate stock exchange or 24 hours, whichever is later, to file an 8K documenting the news.
Reg FD Quiz – True/False:
Our quiz is offered in two parts – Part 1 has “warm-up” questions; Part 2 is a bit trickier. For Part one, answer the following true-false questions to measure your compliancy and or familiarity with Reg FD: (Watch for Part Two in next week’s blog post.)
- Disclosing an earnings shortfall from guidance to your sell-side analysts achieves full disclosure because they will then issue research notes to investors detailing the miss. True or False? (False. These notes only go to a select group of investors.)
- It is acceptable to provide immaterial, non-public information to select investors. True or False? (True. Reg FD applies to material information. Every effort should be made, however, to provide all information broadly to ensure minor information is truly immaterial or at least covered in your 10Q/K.)
- Attending an investor conference just days before you report a shortfall in earnings relative to consensus expectations is OK so long as you only reference the last public information available from your prior quarter. True or False? (True, technically – but generally not a best practice, especially if the shortfall is material. Better to issue a press release disclosing the news before the conference presentation or decline the invitation.)
- Holding a private dinner meeting with a handful of investors is acceptable and not a Reg FD violation. True or False? (True, provided that no material, non-public information is disclosed unintentionally. If it is, the situation must be promptly rectified via an 8K.)
- Inviting a board member to join management in a meeting with an exclusive group of people at an investor conference is Reg FD compliant. True or False? (True, provided that the board member sticks to the company’s public disclosures and doesn’t share material, non-public information.)
When Westwicke Partners conducts Reg FD training, we engage in actual scenarios to help our clients get more comfortable with this SEC regulation (our training includes people who measure body language, to prevent unintended, “unspoken” disclosure). Contact us for more strategic information that can help with your IR decision making, and sign up for our newsletter to learn more about this and other IR-related topics.