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IR and communications<br />
that employees understand the<br />
company’s priorities and how each area<br />
of the business drives success. Now<br />
more than ever, management needs to<br />
engage employees on the company’s<br />
strategy and help clarify the overall<br />
vision. When a company elects to<br />
engage employees, research shows<br />
that the company will outperform its<br />
peers across several financial measures,<br />
including operating income, net income<br />
and earnings per share. 1<br />
Business partners: Business partner<br />
communications can also be an important<br />
part of an IPO. Maintaining a consistent<br />
level of customer service is a priority<br />
during this process, and to the customer,<br />
a public listing should appear to be a<br />
nonevent.<br />
In most instances, interactions with<br />
vendors, customers and other business<br />
partners will not change following the<br />
listing. However, a company may be<br />
required to disclose information about<br />
its top vendors or customers in its<br />
registration statement and subsequent<br />
filings with the SEC following the IPO. In<br />
these cases, outreach to inform partners of<br />
the required disclosure or to communicate<br />
any changes in interaction with them may<br />
be advisable. Additionally, management<br />
may want to consider communicating to<br />
business partners more generally around<br />
the listing or after the IPO to promote<br />
the message of “business as usual” or<br />
to reinforce the benefits (e.g., growth,<br />
investment, change in capital structure,<br />
etc.) of the transaction.<br />
5.4 Legal framework for<br />
communications<br />
Cleary Gottlieb Steen & Hamilton LLP<br />
Following the IPO, the company will be<br />
required to produce a number of reports<br />
pursuant to SEC and stock exchange<br />
listing rules, as described in Section 6.1.<br />
In addition to those reports, however,<br />
the company will want to provide regular<br />
information to its security holders and<br />
1<br />
Crush, Peter,—Employee Engagement ROI—<br />
Rules of Engagement. © 2008 Towers Perrin<br />
various market professionals such as<br />
financial analysts, investment advisors and<br />
broker-dealers to assist them in properly<br />
understanding the company’s results and<br />
business trends. Open communication<br />
with the market is encouraged by stock<br />
exchange rules and will play a key role<br />
in the company’s ability to effectively<br />
disseminate information into the market.<br />
These additional communications are<br />
not, however, legally required, and when<br />
provided voluntarily, should be carefully<br />
managed to comply with the legal<br />
framework and minimize potential legal<br />
risks.<br />
Complete and accurate disclosure: The<br />
company’s public disclosure must not<br />
contain misleading statements of material<br />
information and must include any<br />
additional information necessary to make<br />
the statements made not misleading.<br />
Duty to update: If the company discovers<br />
that a public statement was materially<br />
inaccurate or misleading when made, it<br />
should promptly correct the statement to<br />
reduce its risk of liability. Even if it was<br />
accurate when made, a forward-looking<br />
statement may need to be updated if<br />
changed circumstances make it inaccurate<br />
or misleading. U.S. courts have reached<br />
conflicting conclusions on whether this<br />
kind of duty to update exists.<br />
Research analysts: Management should<br />
not participate in the preparation of<br />
analysts’ reports, because there is potential<br />
liability if company officials become so<br />
“entangled” with a report that the report<br />
can be attributed to the company.<br />
Selective disclosure and Regulation<br />
FD (Fair Disclosure): When divulging<br />
material nonpublic information, company<br />
officials may not disclose it selectively—<br />
for example, exclusively to securities<br />
analysts or security holders—but rather<br />
must make the information available to<br />
the general public. Selective disclosure<br />
can lead to liability for the company and<br />
for company officials themselves for<br />
insider trading by persons receiving the<br />
disclosure.<br />
U.S. public companies are subject<br />
to the requirements of Regulation FD,<br />
which prohibits selective disclosure (for<br />
a discussion of this topic as it applies to<br />
foreign private issuers, see Section 9.6):<br />
• Regulation FD focuses on what the<br />
SEC believes to be the core issue—<br />
selective disclosure to those that will<br />
foreseeably trade on that information<br />
or prompt others to do so. Accordingly,<br />
it applies to communications with<br />
market professionals (e.g., research<br />
analysts, broker-dealers, investment<br />
advisors and managers and investment<br />
companies) and with security holders<br />
that will reasonably foreseeably<br />
trade on the basis of the disclosed<br />
information. The regulation does not<br />
apply to communications with, among<br />
others, media representatives, advisors<br />
in a relationship of trust or confidence<br />
with the company (e.g., legal advisors<br />
and investment bankers), employees<br />
and government officials.<br />
• The regulation applies to communications<br />
by senior officials and officers, employees<br />
or agents of the company who regularly<br />
communicate with market professionals<br />
or security holders.<br />
• The regulation applies to selective<br />
disclosures of material nonpublic<br />
information. “Materiality” is not<br />
further defined in Regulation FD, but it<br />
is the subject of extensive case law and<br />
SEC guidance in other contexts.<br />
• Whenever the company makes an<br />
“intentional” disclosure of material<br />
nonpublic information, simultaneous<br />
public disclosure is required. A<br />
disclosure is intentional if the company<br />
knows or is reckless in not knowing<br />
that the information being disclosed is<br />
both material and nonpublic. Whenever<br />
the company learns that it has made<br />
a nonintentional selective disclosure,<br />
it must make public disclosure of that<br />
information promptly (generally within<br />
24 hours).<br />
• Violations of Regulation FD are subject<br />
to SEC enforcement actions, but do<br />
not give rise to Rule 10b-5 liability or<br />
private causes of action. They also do<br />
not result in ineligibility for shortform<br />
registration or the Rule 144 safe<br />
harbor for resale of securities.<br />
Public disclosure for purposes of<br />
Regulation FD can be made by filing or<br />
56 NYSE IPO Guide