Full Disclosure For All
For years, American Home Products Corp. has been one of the nation's most tight-lipped companies. Reporters rarely hear from top managers, and most shareholders see little beyond mandatory disclosures and legal boilerplate. Only Wall Street analysts get regular access to the drugmaker's top officers during quarterly conference calls. Soon, however, the favoritism at AHP may end. The company is seriously considering broadcasting its quarterly earnings calls over the Web. Reporters, investors, and anybody with access to the Internet may soon be able to hear AHP officials discuss recent results, and maybe get a taste of what's in store in future months. "We're getting the technology to be able to do it," says Assistant Vice-President Lowell Weiner. "It's just a matter of time."
AHP is hardly alone. Prodded by Securities & Exchange Commission chief Arthur Levitt Jr. and abetted by the Web, candor is suddenly in style with Corporate America. Closed meetings with handpicked groups of analysts are fast-becoming outre, as companies ready themselves for an SEC rule taking effect on Oct. 23 that bars so-called selective disclosure. Now, growing numbers of outfits are scampering to Webcast quarterly conference calls they previously limited to a chosen few. Only a dwindling number of companies still quietly distribute phone numbers for selected analysts to call to hear chief executives elaborate on their quarterly earnings or, perhaps, warn about overblown expectations. The old-boy practices of denying information to the general public until those in the know have profited "defy the principles of integrity and fairness," thundered Levitt in urging the new rule.
Technological and regulatory sensibilities are aligning at the same moment to force more openness on public companies. The Web is proving a powerful catalyst. It's allowing corporations to share information with the growing audience of investors quickly and cheaply. While a 60-minute conference call with 100 phone lines might cost about $200,000, adding a Webcast with the same size audience may cost just another $400. Companies typically still pay for the phone lines so that analysts can ask questions easily, but investors and the press hear the executive presentations and the Q&A sessions over their computers just by clicking through corporate Web sites. "There has been a huge explosion in companies opening up their calls," says Mark Coker, president of BestCalls.com, which lists the times and phone numbers for Web sites for such sessions. "The Web has been a critical enabler of this openness."
To find out how much the Net is affecting the dissemination of corporate financial information, BUSINESS WEEK commissioned a survey of the Standard & Poor's 500 companies that was conducted over the summer by market research outfit Angus Reid Group Inc. The results offer surprising new insights into how corporate disclosure practices are evolving in the age of the Net and how individual investors are gaining access to information that used to be restricted to the favored few. We also name names, pointing out the leaders and laggards in using the Web. For the complete results of the survey, visit our Web site at www.ebiz.businessweek.com.
The rate at which corporations are using the Net to open up their financial disclosure practices is truly dizzying. Of the 458 companies that participated in the study, there were only 32 that used the Web for their quarterly conference calls at the end of 1998. A year later, that number had climbed to 138. Now 255 companies, or 56% of those surveyed, Webcast their quarterly calls. And the popularity of the practice is sure to go higher: Of the companies surveyed, 107 say they don't Webcast only because they haven't gotten to it yet. Very few have concerns about the security or cost of using the Internet.
Many companies see Webcasting as a way to comply with the new SEC rule, even though Regulation FD (for fair disclosure) doesn't mandate it. Instead, the rule simply requires companies to make broad disclosure--via press release at least--whenever executives release important information to outsiders, such as securities analysts or big investors. Still, to avoid a potential hassle, corporate lawyers are urging executives to take to the Net.
The trend has plenty of detractors. Wall Street execs and others argue that they'll end up with stage-managed ceremonial events, instead of the true candor a relaxed CEO might provide to a gathering of trusted analysts. Forget one-on-one sessions where analysts can ask tough questions they don't want to broadcast widely. "It would be as if the only setting for asking the questions would be Presidential press conferences," complains Stuart J. Kaswell, general counsel for the Securities Industry Assn., the brokerage-house trade group.
New risks. Such critics predict that Reg FD will pare back--not increase--information. They see executives huddling with lawyers before answering conference-call questions or giving the questions short shrift. "They're going to sanitize the information," grouses G. Leonard Teitelbaum, a managing director of Merrill Lynch & Co. Executives who were once forthcoming about, say, assessing competitors on an off-the-record basis won't be as revealing during Webcasts. "When Kellogg is talking, General Mills can get on. When Ford is talking, Chrysler management can get on the Webcast," complains Prudential Securities analyst John M. McMillin. "There will be less information disclosed."
Some executives fear broader exposure will open them up to new risks. UnitedHealth Group, now mulling a move to Webcasts, worries that the general public and press may misinterpret comments in calls. "We have been careful with the media because we recognize that the general press, the nonbusiness press, could take the company's comments out of context in order to advance their own opinions or agenda," frets John S. Penshorn, director of capital-market communications for the Minneapolis outfit.
Proponents of Webcasting counter that savvy CEOs have long known when to bite their tongues. Executives accustomed to operating in the limelight, they suggest, won't be any more or less guarded. They'll simply be playing to bigger crowds. "We don't see a substantial change in the way we're doing business now," says Clif Webb, DuPont's director of media relations. DuPont has opened its analyst calls to the press for a while. And, mindful of SEC rules, DuPont says it doesn't selectively disclose data.
Most of Corporate America is putting aside fears and barreling toward fuller disclosure. Of the companies surveyed for BUSINESS WEEK, over half--271 in all--already give phone access to their conference calls to journalists, and nearly as many, 266, open them to any shareholder. In both cases, that is a solid majority of the 395 companies surveyed who regularly schedule such calls.
Changed playing field. These companies argue that no one should have a monopoly on information. "The shareholders are the owners of the company, and they have a right to information about the company," argues Toni Simonetti, who heads financial communications for General Motors, which began Webcasting analyst calls in April. "The technology has reached a point where it makes it practical and efficient for people to access this information."
Much of Wall Street senses that the playing field has changed for good. No longer can analysts simply package up tidbits from closed calls and dish them to clients as hot news. "We're in an age where everything is so instantaneous that your ability to sequester information and have it resemble a proprietary product is rapidly diminishing," says S.G. Cowen drug analyst Stephen M. Scala. "Any analyst who believes they could gain something proprietary from a conference call is living like it's 20 years ago."
Webcasts or no, Reg FD is written broadly enough to permit probing beyond readily available information. Nothing prevents analysts from visiting privately with lower-level executives for insights into less-sensitive information. It states that only CEOs, other senior-level executives, and investor relations professionals must be mindful of selective disclosures. And the rule provides an exemption to the press so that CEOs or other execs can share their thoughts--so long as the company issues a press release if honchos reveal something deemed "legally material," a squishy term that usually means the news is important enough to move the stock. The press release requirement is not new, disclosure experts say.
Age not a predictor. Not everybody is riding the tide of openness, of course. Chewing-gum maker Wm. Wrigley Jr. Co. in Chicago, for instance, doesn't host conference calls and doesn't plan to Webcast. Legally, it doesn't have to, either. It simply releases earnings to Wall Street, news services, and regulators simultaneously, and then responds to inquiries with answers that don't go much beyond the releases. Since it's a one-product company, and about 40% of its stock is held by Wrigley family members, the outfit draws little notice on the Street and doesn't see a need to drum up more. Only about 10 analysts follow it. "There wouldn't be any change in the policy right now," says Wrigley Corporate Communications Director Christopher J. Perille.
Wrigley isn't alone. Conference calls have long been shunned by Winn-Dixie Stores Inc., for instance, and the 75-year-old company meets with analysts only when it has something important to discuss. "It's genetic," says Winn-Dixie spokesman G. E. "Mickey" Clerc. "If we felt we had something we needed to talk about, then we would. There's no set schedule." And while Colgate-Palmolive Co. talks with analysts, it maintains that its releases suffice for reporters and meet the SEC requirements. True to form, a spokeswoman for the toothpaste-maker declined further comment on the company's closed-door policies and on whether change is in the offing.
While generally younger technology companies are more inclined to openness and stodgy older outfits balk, age isn't always a predictor. Century-old Weyerhaeuser Co., for instance, jumped onto the Web with its semiannual analyst call in July because it believes the more investors know, the more they'll be inclined to buy and hold the company's stock. "We want to get the message out to investors broadly and publicly about what is going on in this company," says treasurer Richard J. Taggart.
For now, it appears that Weyerhaeuser's attitude will predominate. America Online Inc. believes so strongly that the trend of corporate openness will grow that it has gone into partnership with the Corporate Communications Broadcast Network (CCBN.com), a Boston-based facilitator of Webcasts. Critics of universal access, especially some analysts, are using Reg FD "as an excuse to get grumpy," chides AOL's investor relations vice-president, Richard E. Hanlon. He maintains, "we're always better off when more people have a better and fuller understanding of what we're about." These days, more and more companies are feeling the same way.