The Aftershocks of September 11

Most investors have already written off the third quarter, and perhaps the fourth as well, says investor-relations expert Maureen Wolff-Reid

By Amey Stone

For companies in financial or tourism-related industries, the damage inflicted on business by the September 11 terrorist attacks was evident immediately. But for other kinds of industries, assessing the full impact of the attacks continues to be something of a waiting game. It's still unclear how much consumer spending, worker productivity, or demand for technology will be affected by the attacks. Yet with the markets so volatile and earnings season under way, investors are eager for answers.

Meantime, Regulation Fair Disclosure (Reg FD), which requires companies to release material information to all investors at the same time, has made it harder to simply reassure shareholders in this difficult time, says Maureen Wolff-Reid, president of investor-relations agency Sharon Merrill Associates and the Boston chapter of the National Investor Relations Institute. Wolff-Reid spoke recently with BusinessWeek Online Associate Editor Amey Stone about how her clients, which include Beacon Power (BCON ), Clean Harbors (CLHB ), Charles River Associates (CRAI ), Forrester Research (FORR ), and Signal Technology (STCO ), are doing since the attacks and how the market is reacting to subsequent news of anthrax attacks.

Q: How are companies communicating with investors since September 11?


Most of our clients, after first making sure all their employees were safe, began reaching out to the investment community, particularly the people they know in the New York area. But it wasn't a matter of focusing on what the company was doing or answering questions about earnings. It was really about reaching out and supporting the people they have relationships with and listening to their stories. So many people in the investment community lost colleagues and friends. There was a lot of sharing of information about people involved. In that sense, it really brought people together.

Q: What about individual investors? Are companies getting a lot of calls?


Individuals haven't been calling that much in the past few weeks. I think they mostly understand why the stock prices are low. There are still some investors, who have the Yahoo! type of mentality, who are calling in and asking the same types of questions they always were, ignoring the factors of the last three weeks...but there are not that many people like that.

Q: What are the businesses issues companies are grappling with?


In the first week after the attacks, productivity was down, as people were reaching out and making sure everyone was safe. It wasn't until the third week where everyone really had to think a bit more about what kind of impact this is going to have on their business. [For example,] there were issues because products couldn't ship.

Also, a lot of large companies are prohibiting travel. That has actually turned out to benefit some small companies, where executives are still willing to travel anywhere in the U.S. They're going out and are able to get meetings with some big investors who normally wouldn't come to them. For some of our clients, this has been an advantage, as far as investor relations goes.

Q: For most of your clients, is there a significant deterioration in business as a result of the attacks?


Not really. Things were not going great for the last two quarters, so expectations had already come down for the third quarter. For that reason, we didn't preannounce weaker results in the third quarter for anywhere near as many companies as we had in the second quarter. People already assumed this was not going to be a strong quarter, and that's pretty much how it came in.

Q: How is the fourth quarter looking?


That is what we're struggling with now. So far, investors seem to have written off the fourth quarter as well.

Q: Does that mean stocks have already taken their hits?


I don't think [missing the numbers are] going to have the same effect on companies in upcoming quarters as [they] would have prior to September 11. I also think that's partly because the stocks are so low right now. Hopefully, they can't go much lower.

Q: What impact is Reg FD, now a year old, having on companies' communications efforts?


The problem with Reg FD is that it has made everyone very concerned about what they can say. They want to reassure their investors, but they have to be very careful. It's pretty obvious that most businesses are going to be affected by September 11, but beyond that, what can you say? Unless they come out with a formal release, they can't say much. But they don't want to come out with a formal release until they're really sure of the impact. That puts companies in a difficult position.

Q: Why can't they come out with a release then?


If you're going to go out with a release, you really have to quantify the effects on financial results -- which companies are having a hard time doing. Things are not black and white. But Reg FD requires them to put information in a black and white format. It is always difficult for anyone to predict the future, and right now, the future is very uncertain.

Q: But don't you think Reg FD has helped level the playing field?


Reg FD caused companies to prepare a lot more for quarterly news and conference calls and think about what exactly they were going to say. As far as whether it leveled the playing field, companies were already moving in the direction of opening up calls to the general public. It has leveled it, but it also caused companies to be a bit more cautious in communicating with shareholders.

Q: Do you think Reg FD should be revised?


I think it will end up having some small modifications. Probably the biggest issue is freeing up companies to discuss their comfort with guidance they gave earlier. Now, a lot worry they shouldn't leave forward-looking information up on the Web [in case investors see a release from weeks earlier and assume it is still current]. We advise our clients to make it clear it is information as of a specific date.

I also think the whole issue of what constitutes material information that has to be disclosed should be clarified. What might have moved the stock today might not have moved it six months ago.

Q: Are you encouraging your clients to get out and speak with investors?


Companies should be willing to go out and communicate in good times and bad. Even in these difficult times, companies need to go out and talk about long-term strategies and their vision and how they are going to get there.

Stone is an associate editor of BusinessWeek Online and covers the markets in our daily Street Wise column.

Questions or comments? Join in the discussion at our Ask Amey Stone interactive forum

Edited by Patricia O'Connell

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