James, This was taken from a post on Motley Fool. If you haven't already read it, it sure makes for interesting reading. It should be easy for anyone to understand why small investors get so frustrated with public companies in todays market. Best regards, Mike
An Investment Opinion by MF Templar
FOOL ON THE HILL: The Spirit of the Law
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[ADDENDUM: Xilinx has reconsidered its decision to bar the Motley Fool from the
conference call and will now allow us to cover it real time. We look forward to
covering the conference call tomorrow afternoon. Thank you for your support and
participation.]
The Securities Reform Act of 1934 was a good thing. The landmark piece of
legislation did more than patch up the holes left in the imperfect Securities Exchange
Act of 1933 -- it pushed into new ground, enriching the fertile soil that has nourished
generations of individual investors.
Not very knowledgeable about the Securities Exchange Act? Well, you are quite
familiar with the law's results. The legislation established the Securities Exchange
Commission (SEC) and gave it authority over the world of equities. It set up the
system of SEC filings for proxy statements as well as quarterly (10-Qs) and annual
results (10-Ks). The law finally regulated insider trading, making "insiders" and large
investors report changes in their holdings and forcing the significant investors to clearly
state their intentions in federal filings (8-Ks). The Act gave the Federal Reserve the
ability to regulate the amount of margin that investors could use to prevent any future
outbreaks of speculation like those in the years 1927 to 1932.
The most important aspect of the Securities Reform Act of 1934, the new law of the
land, was that it set disclosure requirements for companies. No longer could
publicly-traded companies hide their balance sheets from the public's knowledge or
only give large investors the straight poop on what was going on. This made imminent,
practical sense as the owners of shares in these companies were in fact owners of the
companies. To deny individual investors access to information about companies that
they owned while giving it to a professional class of investors was not only unfair --
after 1934, it became *illegal*.
The sad fact is that many public companies have forgotten what the spirit of the SEC
law was all about. Hiding behind paper-thin justifications, they make it a practice to
shut individual investors and legitimate media organizations out of news-making events.
The Act is quite clear on one subject -- all investors should have the same access to
timely information that could impact the valuation of a security. You cannot deliver
information to a select group without violating the spirit of the law.
A few cases in point. The first is the quarterly ritual of the conference call. What's a
conference call? Well, after an earnings report, some managements get together on the
phone with investors and tell them what happened during the quarter to the company
that they own. So what is wrong with this? Nothing, if done correctly. A conference
call is a perfectly legitimate practice if all investors have equal access to the information
before they can trade on it. This means that ideally conference calls should be held
after the market closes and a recording should be made that can be accessed by any
investor before the market opens the next morning. The company should take it upon
themselves to communicate to their *owners* that the call is available in the quarterly
press release that they send to shareholders and public with the media. All investors
don't *have* to be on the original call if they have access to a recording before the
market opens the next day.
The sad reality is that most companies fail to uphold this standard. Many companies
purposely limit the number of people who can attend the call, only letting sell-side
brokerage analysts and professional investors with significant positions in the stock in
on the call. These companies fail to make recordings of the call, deny legitimate media
organizations access to the call to inform the public, and sometimes even have the
audacity to hold the call during market hours, meaning that they create a de facto
privileged class of investors that can trade on information that may not have been made
public in any press release.
Two quick examples: the Bank of New York recently told analysts crucial information
about its credit card portfolio in a conference call during market hours, with the
information only hitting the wires after the market closed, leaving individual
shareholders in the dust. The SEC is currently investigating this occurrence, as it was a
clear and flagrant violation. Unfortunately, it happens all the time. A large majority of
conference calls happen during market hours and have restricted access, meaning that
people who *own* the company or who have a legitimate interest in the informing the
public about what happened in the conference call are denied the opportunity to listen
in.
The second example probably will be relevant to quite a few more Fools. Recently the
electronic component company XILINX (NASDAQ: XLNX) informed our
conference call correspondent, Debora Tidwell (MF Debit) that they had "made a
mistake" when they gave her the access information to their upcoming quarterly
conference call and "could not allow us access" to the call *or* the taped replay. Lori
Owen of Xilinx explained that it is Xilinx's policy to only allow their largest
shareholders access to the call and replay, effectively shutting out anyone who is not a
professional money manager -- regardless of the fact that they are *legal* owners of
the company even if they control just one single share of stock. Xilinx refused to even
say when they were holding the live call, although the recording was scheduled to be
available at 6:30 PM EDT.
Fortunately, Xilinx's policy is pretty rare. As many Fools know, we provide timely and
regular coverage of many conference calls, writing accurate synopses with the
single-minded intent of capturing management's message. We do this at FoolNews
because no one else does it and because it should be done to level the playing field for
individual investors. The simple facts are that not all individual investors can attend
these conference calls -- they are held during work hours, they often last one hour or
more, and most require the caller to foot the bill for the long-distance charges to dial in.
On the other side of the coin, not all companies can afford to pay for unlimited lines
into their live call. That is reasonable. But, if they are going to restrict access to the live
call, they should either provide a taped recording of the call or not have a live call in the
first place. They should also let legitimate media organizations that represent
readerships above a minimum threshold into the call, or they should be restricted from
holding the call in the first place, because it violates the law.
What can an individual investor do? Call the company you own and make sure that
you or a media organization that you trust to give you the story has access to the
quarterly conference call. It's your company -- you own it, its Board of Directors is
designed to speak for you, and the Investor Relations Department has the single,
solitary task of listening to you -- not giving you PR. If you are specifically an *owner*
of Xilinx, you can contact them by mail, by e-mail, or by phone using the following
information:
This was taken from an issue from the Motley Fool, July 1996.
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