I’ll admit I have a tendency to obsess about ways investor relations can leverage time already being invested by a company in other activities. I look for these opportunities because management time is a limited commodity, particularly at smaller companies. And it is at those smaller companies where management involvement in investor communications is most critical.
One of the best opportunities companies have to create efficiencies in the communications process is by being consistent — making strategic use of their required (and time-consuming) SEC filings and leveraging that time to simplify development of other communications. Plus, investors read the SEC filings, and trade on the information they contain. Investors rely on the filings whether or not those documents share the strategic messages contained in presentations, news releases and other written and verbal communications.
I nearly jumped up and down for joy at NIRI’s National Conference when consistency (and IR’s appropriate role in SEC filings) was highlighted in the keynote address given by Meredith Cross, Director, Corporation Finance.
But rather than editorialize, below is a transcription of a section of Director Cross’s speech. The excerpt includes her segue into the use of non-GAAP data, which is a topic of particular interest to insurance companies.
At the beginning of her remarks, she included the normal SEC disclaimer that these were her beliefs, not necessarily those of the commission.
Follow the link to read what Director Cross said on consistency:
“Another approach we are taking to improve disclosure is to look at our existing Interpretive Positions. One of our goals is to make sure that the company is telling a consistent story inside and outside its SEC filings and isn’t just creating SEC filings as compliance documents.
“Now, of course, we expect companies to comply with our rules, but working within those rules, companies can and should take a look at their disclosure to try to see it through the investors eyes. Does it tell a coherent story about what the company is doing and how it is doing or is there room for improvement?
“For example, the division recently took a look at our guidance on the use of non-GAAP measures. We were concerned that the way we were reading our rules was causing companies to keep key information out of their filing. The historical guidance had the practical effect of prohibiting inclusion of certain information in SEC filings that was actually allowed under our rules.
“So companies may have been using information to tell their stories to investors but not including the information in filings. I don’t think that was helpful, since the result is less transparency for information that people may be relying on to make investment decisions.
“I do want to note that contrary to some press reports, we are not encouraging the use of non-GAAP measures, either inside or outside of filings. The practical effect of our revised guidance is that information that has been communicated to investors in press releases or on company websites but excluded from SEC filings because of our prior guidance will in most cases be allowed to be included in filings.
“We are not requiring the non-GAAP measure be included in filings, even if they are used outside of filings, but we do want you to make sure the stories you are telling are consistent. If the trends are different with and without the non-GAAP measures, you would need to sync up the disclosures by at least discussing the component parts.
“But remember that non-GAAP measures that are misleading, or are not reconciled to GAAP measures where required, are not allow anywhere — on websites, in press releases, on earnings calls, in analysts presentations, or in SEC filings.
“On a related note, we’ve made some changes to the review process for company filings so that the staff of the division is spending more time looking at information outside of the filings. As I said, companies should tell a consistent story, both inside and outside their filings.
“Where appropriate, the staff is issuing comments relating to what they are finding on company website or in press releases that should be addressed in the filings. I’m hopeful these changes will cause companies to make their filings more communicative so that investors will find them more meaningful. [Note from Heather: A simple search of EDGAR found 2010 comment letters that are asking why companies were not including in their filed documents the analysis and related data used elsewhere!]
“Investor relations is key in this process. I think it would be very useful if companies, when preparing disclosure documents, would more effectively pool their resources. My understanding is that most IR folks are very involved, indeed lead the team, in drafting earnings and financial press releases and similar public communications.
“But at least at some companies, (IR is) not as often involved in drafting and reviewing SEC filed documents, such as the Form 10-K. However if the goal is to tell a consistent story across all documents, which I think it must be, I think it is time for more IR professionals to play a greater role in looking at those filings to check for a consistent message.”