FOCUS REPORT

What We Can Learn

from

Real Marketplace-Tested Practices

Conference calls for analysts covering quarterly earnings reports, which have evolved over the past decade after the enactment of Reg. FD in an atmosphere that emphasized fairness, have become a well-tested communications process from which there is much to be learned for the conduct of annual meetings.

Both quarterly calls and annual meetings have a lot in common. In both, management provides decision makers with pertinent investment information. In both, investors have an opportunity to ask questions and observe management's responses. And both commonly use a similar format of a presentation followed by a Q-and-A session.

Because of the large volume of conference calls – they are held by thousands of companies four times a year – they have become a well-tested form of the processes for providing fair access to investment information. Importantly, for our purposes, the testing has emphasized fairness. “The current practices of open analyst conference calls were developed deliberately to avoid the disclosure abuses that contributed to the corruption of securities markets we saw in the dot-com era ten years ago, and are now widely accepted as fair to everyone concerned,” says Peter Brennan, managing partner of Damel Investors LLC, whose actions helped establish marketplace reforms and Reg FD.

So what can conference calls teach us about what works, which practices are commonly used, and which cutting-edge technologies are emerging on the investor communications horizon?

Widely accepted practices

First, let us identify the main elements that most calls include and which have become common enough to be considered conventional for quarterly calls:

►      The scheduling and access information for the open conference call is publicly announced, usually on the company’s web site as well as by press release. Timing is typically less than an hour after the planned reporting of financial results for the completed quarterly period, but some companies have been scheduling up to a day between reporting and the call to allow more thorough investor consideration of the reports and preparation of questions.

►      Telephone and/or internet access is open to all, allowing all investors and analysts to observe, usually with audio, with or without slides, and in some cases with video.

►      Nearly all calls start with recitations of legal statements, followed by scripted management presentations about performance in the recently completed period.

►      A Q-and-A session that provides for investor and analyst questions, usually through a limited number of call-in lines. Variations include submission via internet, with varying visibility of submissions.

►      Archived calls that are available for replay for defined periods. Companies store their archived calls either with a service provider or on their own site.

Tools companies use

For providing open access, the dominant technology is webcasting, which means the event is broadcast over the internet, enabling anyone throughout the world to observe the meeting. Both audio and video presentations can be webcast, with audio alone being less expensive and prevalent in the US market.

To add a visual element, companies can accompany audio webcasts with slides, which participants can watch by clicking using a mouse. A more advanced visual presentation involves encoded slides, which enable the presenter to control the order in which the slides are shown. Newer technologies allow companies to insert pre-recorded segments into a live presentation, or webcast a pre-recorded presentation as part of the conference call.

The next level of communication involves various forms of video streaming, which, like plain audio, can be webcast for participants to view in real time or in archived form by clicking a play button. With the cost of videostreaming having steadily decreased in recent years, more and more companies are using the technology. Depending on the configuration, costs of video can now run as little as a couple of thousand dollars more than an audio webcast. More advanced levels of videostreaming include high definition video or video transmitted via satellite. Video may well become standard practice in coming years. Use of video has soared by 75% in Thomson Reuters’ webcasting business from 2008 to 2009, the company says, and Shareholder.com, another conference call service provider, expects companies that are trying to set themselves apart to start using webcasts for all their events.

Both in audio and video webcasts, companies can incorporate additional technologies required for Q-and-A sessions, as well as for other two-way communications such as surveys and polling. They can also use an expanding array of tools to collect and analyze data on access activity.

Q-and-A sessions are considered by far the most important element of conference calls, as they enable participants to ask management questions and observe its responses. Most webcast conference calls provide a public one-way communication accessible in listen-only or view-only mode to all online observers. The questions are usually communicated separately through phone lines, with the sound plugged into the webcast, requiring a number of phone lines to accommodate the anticipated volume of calls. Costs can be significant for a large number of open phone lines. Internet alternatives to phone lines for voice communication are possible, but not in common use. Written submissions by internet are becoming more practical, and some companies testing of processes to present submissions on live chat sections of webcast screens.

With regulations and investor interests encouraging companies to archive their presentations, most companies store their webcasts or arrange for the webcast service provider to make archived replays available. There is a growing appreciation of the value of allowing continuing investor replays. “They elongate the life of the event,” says Michael Cotter, global head of corporate communications at Thomson Reuters. For every visitor on the live event, two or three visit the archived presentation, he says.

Emerging Trends

According to several leading service providers, more and more companies are experimenting with interactive capabilities such as opening discussion boards before a meeting, or including polling during or after the call.

And as technology continues to advance, some are entering social webcasting in full force, something that ON24, a service provider that emphasizes leading edge virtual event technologies, and Thomson Reuters have begun offering. In addition, companies are paying more attention to accessibility through mobile devices such as smart phones and tablets that are increasingly popular with the investors and professionals they need to reach. And of course, at a time that use of technology is an important part of a corporate image, there is always a need to keep up with rivals.