Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Wednesday, November 26, 2008

Help at hand in what to disclose. FSA offers its thoughts.

Its one of the more difficult sections of the compliance courses I moderate for the IRS and others: identifying and handling the inside information from public companies. The regular information – corporate reporting for want of a better word – or even the disclosures around a transaction, are less troublesome than the occasional disclosure required in unusual circumstances.

So any steer from regulators is welcome. The speech from the FSA’s Mike Knight at a conference last week was helpful in setting the scene as to how the FSA is viewing companies’ disclosures in challenging financial times.

The problem that always comes up is that no two companies are the same, and a theme of ‘make your own mind up based on the information you have’ runs through the FSA rules and List! guidance.

However the FSA’s remarks were helpful in number of ways. There was an acknowledgement that the current markets have “tested the disclosure regime as never before”, and Mike’s speech highlighted the importance of continuing to recognise disclosure obligations.

However, the FSA appears to be more than usual open to discussion about whether a disclosure is appropriate. Not all IR professionals would agree that this has been the case in the past, so it is encouraging to hear that ” we will seek to understand the drivers behind that price movement and the truth or otherwise behind any rumour or speculation - this provides the basis for us to discuss whether an announcement from the company is warranted.”

Directors of public companies and those that advise them are taking advantage of this in growing numbers, arguing that that disclosure of a particular issue is not desirable as it may have an impact on share price and on confidence in the company generally. The FSA offers little sympathy for this, but ultimately will fall back on the rules. Selective disclosure is not to be allowed.

Another area in which IRO’s can expect focus from regulators is in ways in which PR colleagues seek to reassure the media about rumours. Sometimes that reassurance amounts to inside information, notes the FSA. Meanwhile, the FSA is also stepping up its post event enquiries, looking at major price movements after an announcement. The FSA notes they undertake around 200 enquiries a year, and look at how inside information has been handled and the chronology of events around the disclosure. So be prepared.

However from the companies’ point of view, deciding how to handle a specific piece of information is one thing; identifying that a situation exists is another. Which is why I was interested in some work done by KPMG’s Audit Committee Institute. According to their research, audit committees are paying particular attention to the recession-related risks that are facing their companies, and looking at their company's risk-management processes, especially in identifying risks in the first place. Tapping into that process may be helpful.


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