Mark Hynes - thoughts on corporate disclosure

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

Thursday, September 17, 2009

Rumours can seriously damage your reputation.

Type the word “rumour” into today and you get 10356 hits. The vast majority have a company name in the headline, and represent a headache/ task for the IR team. The potential for share price volatility is great. And how to handle rumours in a disclosure context is a theme that always attracts discussion among delegates on compliance courses I run for the Investor Relations Society.

And yet regulators struggle to define – never mind create rules around – rumours. The Australian Securities and Investment Commission is the latest to have a go, in its newly released consultation. For example, in the US, FINRA proposed rule 2030 defines “rumor” as “A false or misleading statement or a statement without a reasonable basis”, while in the UK we have the FSA’s Market Watch 30 offering “Information that is circulated purporting to be fact but which has not yet been verified”. Clearly a different interpretation, each requiring a very different approach.

Confidence in the integrity of the markets and efficient price formation may be undermined if the market believes security prices are improperly influenced by rumours that there is information affecting price that is not in the public domain. Today’s crop of rumours for example discuss share sales, takeover bid speculation, management changes and product recalls.

Rumours therefore have the potential to damage carefully guarded and built reputations. Next week I am looking forward to speaking at Communicate magazine’s latest conference “Rebuilding Reputation” and focuses on the financial services sector. One year on from Lehman’s collapse, and some banks are still struggling to win respect from stakeholders.

In my bit, I aim to discuss how failings in governance can impact valuations and some ideas for enhancing the understanding of how the board works. Only one example of reputation management, but a crucial one nonetheless.


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