Mitigating Risk: Who’s in the Room?

The SEC, rightfully so and perhaps long overdue, is flexing its enforcement muscle with regard to Reg FD and how companies disclose material non-public information.
 
We all know the drill by now and what public companies are supposed to do. Yet sometimes at private meetings with analysts and investors, management inadvertently says something it shouldn’t, and violates Reg FD. If there’s any unusual trading the next day, watch out.
 
While it is perfectly acceptable and even good practice for management to meet with analysts and investors from time to time, one way to mitigate the risk of Reg FD violation is to have an IR professional present at every meeting, or at least at the group meetings.
 
I know what you are thinking…”What a self-serving statement.”  Nevertheless, competent, experienced IR professionals know how to counsel management on what to say. More importantly, they can be right there, ready to intercede, when sensitive questions come up or to prepare a press release should the accidental comment be made that should really be disclosed widely.
 
Recently, the SEC began an investigation into Reg FD violation by generic drug maker Mylan, Inc., following a private meeting it held. I do not know if an IR professional was in the room, and even if there was, there would be no guarantee that harmful comments would not be made. However, at least in theory, if an IR pro was there, the risk of a disclosure violation would have been significantly reduced. And mitigating risk is really what it’s all about. Just ask your D & O insurance broker.
 
Reg FD has been around since the year 2000, and up to now, there have been few cases involving its enforcement.  Word on the Street and from Washington D.C., however, is “Beware.”  With financial reform now underway, things are about to change.

 

Roger Pondel, rpondel@pondel.com
 
 

IR and PR Are Not Like Oil and Water

BP’s future seems pretty bleak at the moment.  The stock hit another low this week as the company’s latest effort failed to stop the massive oil leak, which continues to spew millions of gallons of crude into the Gulf of Mexico, severely impacting the Louisiana coastline.
 
Making matters worse, BP boycotts are underway coupled with an onslaught of lawsuits and fines that undoubtedly will cost the company tens of billions of dollars.
 
Can BP ever recover? Some on the street say no and that the political, economic and environmental fallout from the disaster will be too tough to overcome.  Media pundits have even compared the crisis with the Arthur Anderson scandal of 2002, when the company surrendered its license because it was found guilty of criminal charges for its auditing of Enron.
 
No doubt BP will become a heavily studied case history among B-schools for years to come.  It’s important, however, to understand the dynamic between the company’s crisis communications efforts and its stock price, which dropped more than 30% since the April 20 explosion of drilling rig Deepwater Horizon, killing 11 workers.
 
No question the fact that they still can’t plug the hole is a key reason for the stock drop.  But by how much? Will the boycott hurt business?  Sure it will. Will that affect profits?  Of course.  Could a boycott be prevented?  Probably, but only if BP communicates more strongly and frequently about its repair efforts.  There has been some apprehension, at least on BP’s part, to get out in front of the problem and be more open in public statements.  This only invites public anger, which leads to a consumer backlash that can, in fact, result in a boycott.
 
BP will never get a handle on the crisis until the leak is stopped.  Only then can it begin to attempt to rebuild its brand among investor and consumer audiences.  In the interim, BP’s investor and public relations divisions need to work in unison, making sure key messages are tailored appropriately and communicated effectively (and regularly)  to each of its core audiences.  Understanding the needs of different target audiences creates a stronger overall messaging platform and allows for deeper dialogues between BP and its investors, as well as the media, which is paramount during a crisis.

 

George Medici, gmedici@pondel.com