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Comments of
Louis M. Thompson, Jr.
May 6, 2011
The Fifth Analyst Call
By now, we know that two members of Occidental Petroleum’s
board met with a select group of large investors in a so-called Fifth
Analyst Call less than two days before the company reported its Q1 20ll
earnings. Referring to it as an “analyst call” is a misnomer because it
didn’t involve analysts at all but instead a small group of institutional
investors representing combined assets of $2.2 trillion.
The group, organized by representatives of F&C Asset Management, T. Rowe
Price and Railpen along with the advocacy group UN Principles for
Responsible Investment, came up with the concept of holding a conference
call between representatives of a major company’s board the investor group
to discuss corporate governance issues raised in the company’s proxy
statement such as executive pay and board structure. The concept was
predicated on the notion that the discussion would deal only with issues
raised in the proxy statement being a publicly released document.
Almost immediately, companies and law firms raised the concern that having
a discussion with a select group of investors was an invitation to
potential violations of Regulation Fair Disclosure. Yet, the group reached
back to a speech by SEC Chairman Mary Schapiro before the National
Association of Corporate Directors in which she said, “It is vital that
shareholders and board members move beyond the minimum required
communications and become truly engaged in the pursuit of high-quality
governance. For boards and their companies, engagement means more than
just disclosure. It means clear conversations with investors about how the
company is governed – and why and how decisions are made.”
Chairman Shapiro’s comments gave little comfort to companies and their
lawyers. Most feared that board members typically don’t know the company’s
complete disclosure record of what’s been publicly released and what has
not and they could easily slip into discussing new material information
that has not been fully disclosed. For this reason alone, most companies
spurned the idea of participating in a Fifth Analyst call. While the
concept has merit, Reg FD became the barrier for all except OXY that
decided to take the plunge.
To me, the solution to the Reg FD concerns would be to Webcast the call so
that all who are interested can at least “listen in” to the discussion. As
President & CEO of the National Investor Relations Institute at the time,
I worked closely with the SEC staff to create a regulation that we could
all live with – companyies, analysts, investors and the public – and I got
the staff to consider a fully accessible Webcast or teleconference with
proper notice to serve as a means for full and fair disclosure.
(Initially, I faced resistance from members of the staff who said only
half of adults in the U.S. had Internet access. I found a study that
demonstrated that some 85 percent of individual investors had internet
access and the corporate Web site was a primary means used in making their
investment decisions.)
By Webcasting the Fifth Analyst Call or any similar type discussion
between companies and selected investors would take a potential Reg FD
violation out of the equation. It would also allow for a more rich
discussion about governance issues going beyond what is published in the
proxy statement that could benefit all investors, particularly those who
vote their proxies. It also takes away the image that the company is
communicating about governance with an exclusive club of major
shareholders.
Clearly, companies need to go beyond the proxy as a means for
communicating information about their governance processes and procedures.
Many are doing this on their Web sites. Shareholders would also benefit if
companies did a better job of discussing the board’s role in governance
matters in the proxy itself. A fully accessible Webcast of a discussion
between major investors pursuing board governance would be one more means
in which participants and those listening in would gain a better
understanding of issues important to all – and not only to a select group
of participants.
Lou
Thompson
Founder and principal
Thompson Value Creation & Governance Strategies
Orange, Virginia
540-672-1136
lthompsonvcgs@aol.com
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