This year's National Directors Institute in Chicago demonstrated a strong desire among board members to have more involvement with IR strategy. IR Magazine spoke to Foley & Lardner partner Peter Underwood about the issue
A big takeaway from this year’s National Directors Institute in Chicago was that board members have a view on IR strategy and want more interaction with IR teams. They organized a roundtable to focus specifically on IR, with proxy solicitor Richard Grubaugh of DF King and IR adviser Gordon McCoun of FD/Ashton Partners helping to steer the discussion. Among the observations was that shareholders are asking more for direct contact with boards. The consensus was that IROs need to facilitate the interaction, but must also act as gatekeepers for already stressed boards. Directors also wanted views on how to deal with dissident shareholders.
Room to write
Securities lawyers have their imprint all over compliance documents filed with regulators. The criticism is that they write disclosure not for transparency, but with the primary concern of limiting liability exposure. So it was a surprise at the IR roundtable at the National Directors Institute to find Foley & Lardner partner Peter Underwood espousing expansive management’s discussion and analysis (MD&A) in relevant filings. IR magazine sat down with him to find out more.
Why should companies say more in their MD&A?
My view on this is based on both the SEC’s statements about MD&A and the practical realities surrounding companies’ needs to discuss their businesses with customers and investors. The SEC encourages expansive, readable and meaningful disclosure, including forward-looking statements where appropriate. In fact, part of MD&A mandates forward-looking disclosure as companies are required to discuss identifiable trends and uncertainties.
To do that well you have to get to the heart of what is driving results. Also, executives need to be able to speak to investors, analysts and the industry in some depth about business drivers and how they analyze their own results. Meaningful MD&A helps them do that.
Is the SEC guidance on MD&A motivating you to get your clients to say more?
Partly. It is also helpful to investors because it creates more transparency, which ultimately helps the company as it lets the market better understand the company and judge its results. Another motivation is a bit more traditional, coming from a lawyer: expansive disclosure can actually help reduce the potential for lawsuits based in securities fraud claims, in some circumstances. If a company does a good job publicly explaining its business drivers, that can help prevent ‘you didn’t tell me that’ claims when market conditions change in a way that affects results.
Do your clients resist writing expansive MD&A?
Typically, yes, primarily because they fear giving away too much and in the process helping their competitors. I also think they fear lawsuits.
How does having an expansive MD&A help you as a company when you report your quarterly earnings guidance?
I’m not sure it does if you are providing specific guidance, but it is a tool that can be used to guide ‘softly’ if things are done properly. There is more than one way to signal that revenues will increase next quarter: you can expressly guide to it, or you can provide a softer forward-looking statement in the MD&A.
