New SEC rules seen as tough test for small caps
Oct 20, 2000 09:34 AM ET
By Ted Hughes, localbusiness.com
NEWS ANALYSIS AUSTIN, Texas, Oct. 20 (LocalBusiness.com) -- On Monday, public companies will have to comply with sweeping changes governing the way they disclose information.
The rules, set by the Securities and Exchange Commission, were inspired by a desire to level the playing field, giving individual investors information that before had been shared only with stock analysts and big Wall Street investment managers.
Under the new rules, company managers no longer are free to share material information with the professionals unless they also (within 24 hours) disclose it to the public.
Michael Noonan, investor relations manager at Pierpont Communications, said it means company managers no longer can offer confidential "guidance" to analysts about a company's earning -- a practice known as 'walking the Street.'
"Walking the Street is out," Noonan told a group of company managers at a meeting in Austin Thursday sponsored by the Technical Business Network.
Investor relations professionals, analysts, lawyers and business managers split on who, if anyone, will benefit most from the new rules.
"The road to hell is paved with good intentions," veteran Wall Street analyst Jim Poyner told LocalBusiness.com.
Many companies, especially the smaller ones, will be reticent to share useful information under the new rules, said Poyner, who covers tech stocks for New York-based C.E. Unterberg Towbin.
Even at large companies, managers already are holding back.
In a Hewlett-Packard conference call a few days ago, Poyner said, senior managers announced they will no longer give detailed divisional sales data. They said new disclosure rules prompted their decision.
"That was in a conference call," Poyner said, one of the many public settings where the new rules specifically say a company is free to give as much detail as it wishes.
Poyner and others say that if managers clam up, it means a rule aimed at leveling the playing field might just end up making the game a whole lot less interesting in the process.
"This specious new openness means, net-net, there will be less information for everybody," Poyner said. "You simply will reduce everything to the lowest common denominator."
Bigger companies kept information pretty close to the vest under the old rules, Poyner said, so the rule change is less noticeable for them.
"In smaller companies, you've got CEOs who are used to letting their hair down a bit. Under Reg FD (as the fair disclosure rules are known), they will freeze up."
The new rules also expose them to a new set of critics.
"They will be much more subject to the whims of (online) chat rooms. Reg FD is going to make it more onerous to respond to casual rumor," Poyner said. "If they clam up, there will be more ammunition for frivolous shareholder suits. The lawyers are the ones benefiting from this."
The new rules will ultimately drive investors away from smaller companies, Jeff Dabbs, analyst at San Antonio-based Kercheville & Co., told LocalBusiness.com.
"It is the exact opposite effect of what (SEC) Chairman Levitt was trying to do."
If analysts are not able to talk with company managers and revise earnings estimates, there will be a lot more surprises, Dabbs said. And more surprises will mean more price volatility.
"Creating interest in the company might wane," said Bob Litschi, Austin area partner at Tatum CFO Partners. "It will be a real struggle for CFOs and CEOs of small companies."
But overall, Litschi said, the new rules will be good for the market and ultimately good for the companies. "To make the transition without destroying relationships with analysts will be a challenge."
The Internet is the single biggest thing driving the SEC rules change, said Rowland Cook, an Austin-based lawyer with Jenkins & Gilchrist.
Cook, who formerly worked at the SEC, said the new rules recognize that "you can get it all out at the same time and in some level of detail." |
