As loud as the grumbling has been regarding Regulation FD, the Securities and Exchange Commission rule that prohibits selective disclosure of material facts about public companies, chief financial officers are grudgingly starting to admit its value.
Among those surveyed for this month’s CFO Forum, 64.2 percent support it, while 20.8 percent oppose it. Not that its implementation has been regarded as a wholesale success. Although 43.1 percent of respondents believe that Reg FD has, in practice, increased disclosure of public information, a solid 25.5 percent say it has actually impeded it. Nearly 12 percent think the rule has increased market volatility.
The most noticeable change wrought by Reg FD has been the way in which companies choose to communicate with Wall Street. Almost 57 percent of CFOs used to have private conversations with analysts; only 37.2 percent do so now. Conference calls are replacing private contact, as evidenced by the fact that the number of CFOs citing conference calls as their preferred method of communication has more than doubled.
There is disagreement among the CFOs on whether the reduction in one-to-one contact with analysts is good or bad. While 10.2 percent consider less contact to be good, 16.3 percent say it’s not. And 26.5 percent feel that Reg FD has increased uncertainty about what may or may not be told to analysts.
Reg FD notwithstanding, personal relationships between analysts and executives remain extremely important. Although 86 percent of the CFOs surveyed believe that analysts face a conflict of interest in both giving investment opinions and soliciting banking business, 74 percent say their opinion of an analyst is important in deciding whether to use his or her firm for underwriting or advisory work. Almost half say it’s very or extremely important.
Is your company covered by at least one equity research analyst working for a brokerage firm or investment bank?
What is your company’s preferred method of communicating with research analysts?
Private in-person meetings 29.4%
Private telephone conversations 7.8
Group presentations 29.4
Conference calls 29.4
Written statements/e-mail 2.0
Before the Securities and Exchange Commission instituted Regulation FD, what was your company’s preferred method of communicating with research analysts?
Private in-person meetings 37.3%
Private telephone conversations 19.6
Group presentations 27.5
Conference calls 13.7
Written statements/e-mail 2.0
What is your opinion of Regulation FD?
I support it 64.2%
I oppose it 20.8
I’m undecided 15.1
If you oppose Regulation FD, what are the reasons?
Selective disclosure was not a big enough problem to warrant additional regulation 45.5%
It is too difficult to enforce 0.0
It discourages disclosure of important information 54.5
Companies should have the right to treat different analysts differently 0.0
It leaves companies open to lawsuits from disgruntled individual investors 18.2
It is difficult to interpret because “material information” is not well defined 45.5
How has Regulation FD worked in practice?
It has increased the public disclosure of information 43.1%
It has impeded the public disclosure of information 25.5
It has increased market volatility 11.8
It has made no difference 19.6
How has Regulation FD affected your company’s relationship with analysts?
It has reduced all contact with analysts 10.2%
It has reduced one-to-one contact with analysts - a positive result 10.2
It has reduced one-to-one contact with analysts - a negative result 16.3%
It has increased uncertainty about what may or may not be disclosed to analysts 26.5
It has had no effect on our relationship with analysts 36.7
In choosing underwriters for securities offerings and advisers for mergers and acquisitions, how big a factor is your opinion of the analyst covering your company at each of the candidate firms?
Extremely important 20.0%
Very important 28.0
Moderately important 26.0
Not important at all 26.0
Do analysts face a conflict of interest in both giving investment opinions about and soliciting banking business from the same companies?
Do you believe that analysts in general pay disproportionate attention to companies and industry sectors from which their firms can reap the most investment banking business?
The results of CFO forum are based on quarterly surveys of a universe of 1,600 chief financial officers. Because of rounding, responses may not total 100 percent.