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IR and communications that employees understand the company’s priorities and how each area of the business drives success. Now more than ever, management needs to engage employees on the company’s strategy and help clarify the overall vision. When a company elects to engage employees, research shows that the company will outperform its peers across several financial measures, including operating income, net income and earnings per share. 1 Business partners: Business partner communications can also be an important part of an IPO. Maintaining a consistent level of customer service is a priority during this process, and to the customer, a public listing should appear to be a nonevent. In most instances, interactions with vendors, customers and other business partners will not change following the listing. However, a company may be required to disclose information about its top vendors or customers in its registration statement and subsequent filings with the SEC following the IPO. In these cases, outreach to inform partners of the required disclosure or to communicate any changes in interaction with them may be advisable. Additionally, management may want to consider communicating to business partners more generally around the listing or after the IPO to promote the message of “business as usual” or to reinforce the benefits (e.g., growth, investment, change in capital structure, etc.) of the transaction. 5.4 Legal framework for communications Cleary Gottlieb Steen & Hamilton LLP Following the IPO, the company will be required to produce a number of reports pursuant to SEC and stock exchange listing rules, as described in Section 6.1. In addition to those reports, however, the company will want to provide regular information to its security holders and 1 Crush, Peter,—Employee Engagement ROI— Rules of Engagement. © 2008 Towers Perrin various market professionals such as financial analysts, investment advisors and broker-dealers to assist them in properly understanding the company’s results and business trends. Open communication with the market is encouraged by stock exchange rules and will play a key role in the company’s ability to effectively disseminate information into the market. These additional communications are not, however, legally required, and when provided voluntarily, should be carefully managed to comply with the legal framework and minimize potential legal risks. Complete and accurate disclosure: The company’s public disclosure must not contain misleading statements of material information and must include any additional information necessary to make the statements made not misleading. Duty to update: If the company discovers that a public statement was materially inaccurate or misleading when made, it should promptly correct the statement to reduce its risk of liability. Even if it was accurate when made, a forward-looking statement may need to be updated if changed circumstances make it inaccurate or misleading. U.S. courts have reached conflicting conclusions on whether this kind of duty to update exists. Research analysts: Management should not participate in the preparation of analysts’ reports, because there is potential liability if company officials become so “entangled” with a report that the report can be attributed to the company. Selective disclosure and Regulation FD (Fair Disclosure): When divulging material nonpublic information, company officials may not disclose it selectively— for example, exclusively to securities analysts or security holders—but rather must make the information available to the general public. Selective disclosure can lead to liability for the company and for company officials themselves for insider trading by persons receiving the disclosure. U.S. public companies are subject to the requirements of Regulation FD, which prohibits selective disclosure (for a discussion of this topic as it applies to foreign private issuers, see Section 9.6): • Regulation FD focuses on what the SEC believes to be the core issue— selective disclosure to those that will foreseeably trade on that information or prompt others to do so. Accordingly, it applies to communications with market professionals (e.g., research analysts, broker-dealers, investment advisors and managers and investment companies) and with security holders that will reasonably foreseeably trade on the basis of the disclosed information. The regulation does not apply to communications with, among others, media representatives, advisors in a relationship of trust or confidence with the company (e.g., legal advisors and investment bankers), employees and government officials. • The regulation applies to communications by senior officials and officers, employees or agents of the company who regularly communicate with market professionals or security holders. • The regulation applies to selective disclosures of material nonpublic information. “Materiality” is not further defined in Regulation FD, but it is the subject of extensive case law and SEC guidance in other contexts. • Whenever the company makes an “intentional” disclosure of material nonpublic information, simultaneous public disclosure is required. A disclosure is intentional if the company knows or is reckless in not knowing that the information being disclosed is both material and nonpublic. Whenever the company learns that it has made a nonintentional selective disclosure, it must make public disclosure of that information promptly (generally within 24 hours). • Violations of Regulation FD are subject to SEC enforcement actions, but do not give rise to Rule 10b-5 liability or private causes of action. They also do not result in ineligibility for shortform registration or the Rule 144 safe harbor for resale of securities. Public disclosure for purposes of Regulation FD can be made by filing or 56 NYSE IPO Guide
IR and communications furnishing a Current Report on Form 8-K or by disseminating the information through a method or combination of methods that is “reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” The most common method is by press release. If the company wishes to make public disclosure of material nonpublic information by means of a conference call or webcast, it must give adequate public notice, including the date, time, subject matter and dial-in information for the call. Disclosure at a shareholders’ meeting, even one that is open to the public, is not sufficient if the meeting is not webcast or broadcast by electronic means, and the presence of the press at an otherwise nonpublic meeting does not render the meeting public. Posting information to the company website or use of social media is also permitted if the company regularly uses the website or other media for that purpose and the company alerts the market to the distribution channel it plans to use and the information it may disclose through the channel. The SEC has aggressively investigated cases under Regulation FD, resulting in several enforcement proceedings. SEC personnel have indicated that they look for egregious violations involving the intentional or reckless disclosure of unquestionably material information. The enforcement actions also confirm that the SEC will look to market reaction as an indicator of the materiality of selective disclosure. One significant similarity among the enforcement actions is that visible and sometimes dramatic changes in stock trading price and volume occurred in the aftermath of the selective disclosures, and the SEC has stated that a very significant market reaction to selectively disclosed information requires public disclosure of that information. Non-GAAP financial measures: Special disclosure rules apply when the company presents certain financial information in a way that is different from the financial statement presentation under GAAP. Use of non-GAAP financial measures in a public statement (whether written or oral) is subject to Regulation G, which requires that the disclosure be accompanied by a presentation of the most directly comparable GAAP financial measure and a quantitative reconciliation (by schedule or other clearly understandable method) of the two measures. More stringent requirements apply if the company uses non-GAAP financial measures in a report filed with the SEC or in an earnings release, and some non-GAAP financial measures are not permitted in filed reports. The following are some practical guidelines for a company’s communications with the market: • Designate one company executive to communicate with analysts. • Make each presentation to analysts on the basis of a prepared text that has been reviewed by senior executives and by counsel. • Do not disclose material nonpublic information to analysts unless the information is disclosed to the public at the same time; this can be done by permitting the public, on reasonable advance notice, to participate in any call with analysts during which material nonpublic information may be discussed. • Refrain from responding to analysts’ inquiries in a nonpublic forum unless the company is certain that the response does not include material nonpublic information. • If asked about a matter that has not previously been disclosed, simply say, “No comment.” • If requested by an analyst to review a research report, do not comment except to correct errors of fact. Do not comment in any way on an analyst’s forecasts or judgments, including by saying you are “comfortable” with them, that they are “in the ballpark” or other words to similar effect. To avoid entanglement, be cautious about distributing analysts’ reports or including hyperlinks to them on the company’s website • Avoid favoring one analyst over another. • Review public statements to identify any non-GAAP financial measures. To avoid the need to reconcile non-GAAP financial measures in presentations given orally, telephonically, by webcast or broadcast or by other similar means, provide the most directly comparably GAAP financial measure, with the required reconciliation, on the company’s website and include the location of the website in the presentation. Written materials (whether distributed electronically or in hard copy) must include the most directly comparable GAAP measure and the required reconciliation. • Do not make specific forward-looking statements, unless: • you set out the assumptions on which the forecast is based; • you indicate the factors that could prevent the forecast from being realized (both this and disclosure of the assumptions can be done by referring to a filed document that contains the relevant information); • you make the statements to the public at the same time; and • you are always prepared to evaluate the need to update the statement when circumstances change. 5.5 Market intelligence and surveillance Ipreo Sections 5.5 through 5.8 cover a group of advisory services and tools that allow investor relations officers to stay informed of ongoing market activity and perceptions, access the most detailed information possible on investment community participants, effectively implement an investor relations strategy to prospect for new investors, manage interactions with the investment community efficiently and measure the success of their investor relations efforts. These services and tools are used widely by investor relations officers individually and collectively at listed companies around the world. Once a company successfully completes the IPO process and begins trading in the secondary market, information regarding that trading and the ownership changes that result are difficult to come by in the absence of a market intelligence and surveillance program. A market intelligence and surveillance program should act as a company’s eyes and ears to the investment market and NYSE IPO Guide 57
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