2001 News: SABEW defends Regulation FD

October 2001

One May 17, the Capital Markets subcommittee of the House Financial Services Committee, held a hearing on the merits of Regulation Fair Disclosure (FD). Several witnesses at the hearing called for the repeal or modification of the new rule.

The rule was adopted last fall by the Securities and Exchange Commission to ban selective disclosure of material information by companies to certain analysts or shareholders without public dissemination to all investors and the media.

The hearing followed several recent review sessions concerning Regulation FD sponsored by the Securities and Exchange Commission, the National Investor Relations Institute and other groups.

SABEW was not invited to testify at the House hearing, but was invited to submit a statement about Regulation FD. Please e-mail your comments about Regulation FD and the effort to repeal or weaken it. Send comments to sabew@missouri.edu

Bill Barnhart, SABEW President and financial markets columnist at the Chicago Tribune, 312-222-3599.

Friday, May 11, 2001

To: Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises of the House Committee on Financial Services

From: The Society of American Business Editors and Writers, Inc.

Re: Regulation FD

The Society of American Business Editors and Writers (SABEW) is a tax-exempt education organization of business journalists. With 3,300 members nationwide and in Canada, we are headquartered at the University of Missouri School of Journalism.

Business writers cover issues and events of importance to the economy and the investing public. We stand at arm’s length from the issuers of public securities, but we share with issuers the benefits of fair disclosure under the securities laws.

Our readers, listeners and viewers are the owners of American businesses and the providers of capital for growth. On their behalf, the Securities and Exchange Commission carved out from Regulation FD an exemption for communications between the news media and securities issuers covered under the regulation. To quote the preamble of the regulation, “…Regulation FD will not apply to a variety of legitimate, ordinary-course business communications or to disclosures in the media.”

The exemption, as well as Regulation FD itself, enhances the flow of information to the investing public and thereby facilitates capital formation for economic growth.

Given our professional reluctance to participate in the events and issues we cover, business writers might well remain silent in any review of Regulation FD. But we would fail in our obligations to our readers, listeners and viewers if we did not support the rule as a vital new tool for our work.

Regulation FD is undergoing a shakedown cruise. When someone turns on the lights in a dark, crowded room, many people will blink to adjust their eyes; others will be dazed and temporarily lose the focus of their activities; some will try to scurry for cover. But these inconveniences are no reason for dimming the lights again. So it is with Regulation FD.

Issuers, underwriters and security analysts are wrestling with real and imagined changes in their standard operating procedures implied by the new rule. To address one apparent point of confusion, the rule does not prevent an issuer from disclosing information, either material or nonmaterial. It simply says that material information may not be selectively disseminated. Companies that cite the rule as a reason for not disclosing information either misunderstand the regulation or are being disingenuous.

Business writers are climbing a learning curve, as well. We must, for example, not take “no” for an answer when company executives incorrectly cite Regulation FD in refusing the answer our questions.

A brief review of recent history reveals how far we already have come under Regulation FD. Now, we as journalists can hear, and report to the public, what information companies are distributing. In his testimony to an SEC roundtable on Regulation FD April 24, Floyd Norris of The New York Times, a member of our Society’s board of governors, recalled typical circumstances that business reporters faced before Regulation FD: “I’ve been kicked out of road shows that let in every retail broker who was willing to come, on the basis that the brokers were professionals while I was not worthy to listen. …; I’ve also been lied to more than a few times about what companies said (in analyst meetings and road shows for investors); I’ve been refused permission to listen to conference calls. I’ve found myself calling analysts, not seeking insights but just a briefing about what was said.”

Carol Loomis of Fortune magazine, speaking at the National Investor Relations Institute conference on May 8, mentioned another common pre-Regulation FD experience. She would ask companies why she was being barred from listening to their analyst conference calls. “Companies would say the analysts don’t like it. Why is that an answer? I just don’t feel that should be a relevant standard.” As Loomis noted, information – good and bad – about companies eventually emerges in the public arena. “All that’s being prohibited (by Regulation FD) is serial disclosure,” she said.

Fair disclosure requires that dissemination be made to all who are interested at the same time. With today’s burgeoning communications technology, no instrument is better suited to achieve timely and broad disclosure to the public than the financial press. Regulation FD places us, and through us the public, squarely on a level playing field with analysts, institutional investors and large shareholders.

--William E. Barnhart, president, the Society of American Business Editors and Writers, 312-222-3599; bbarnhart@tribune.com