The attached article from the Harvard Business School brings me back to my MBA studies around the stock market being “efficient.” Academics can always make a compelling theoretical case for how things are supposed to work, but for those in the real world, we often know better.
I took away two points from this paper. The author asserts that public company executives spend far too much time on the road, meeting with large shareholders. Further, the paper tends to imply that these 1-on-1 meetings may be a violation of “the spirit” of Reg. FD. While I may agree conceptually with the first, I disagree with the second point as I think Reg. FD had a more meaningful “spirit” than the author understands.
The paper concludes that the average manager spends 17 to 26 days per year at conferences, roadshows, etc. That’s about right in my opinion. I advise most of my smaller clients to spend a minimum of 1 – 1.5 days a month (on average) supporting sell-side analysts or the non-deal roadshows we arrange. And it’s hard to argue that any CEO/CFO time away from running a business is ideal. But the reality is, publicly-traded companies are in daily competition for capital. Those companies that choose to not play this game, are punished with low float and lagging valuations. And those lagging valuations can greatly impede future strategic choices for that company. The only companies that can get away with opting out of IR are those with iconic CEOs, which grow very consistently every quarter, for years and years. (A few years ago I’d say see Berkshire Hathaway as an example, but not today.)
So in my experience, there is no choice but to play the game and remain as visible as possible to large and influential shareholders (many of whom have written policies that they must meet the CEO in person in order to purchase the stock). The key is, if you spend a little extra time and effort with a firm like ours (shameless plug), you can influence the game and focus on only those investors and events that are good uses of time away from the business.
As to the second assertion around the concept that a 1-on-1 meeting with a shareholder is violating the spirit of Reg. FD, I disagree. Reg. FD was certainly about making the playing field fairer. But its implementation was what really elevated the role of the IR function in my opinion. So to me the spirit of Reg. FD, was about elevating the level of communication for all public companies. Conference calls have more depth today since FD. Investor presentations are posted to the corporate website along with loads of other self-help tools for investors. And IROs have an office next to the CEO and CFO finally. If companies are communicating at a higher level, and being thoughtful with their communication, they should never be in a position in a 1-on-1 meeting to divulge a material fact to any investor. What they are doing is competing effectively for capital and maximizing their shareholder value.