During this most recent earnings season, I had conversations with the in-house counsel of two different clients who reminded me not to ignore the legalese at the end of our earnings releases. It’s easy to do. No matter what your field, you hit the legal “mumbo-jumbo” in any document and disengage. Case in point, one of my favorite examples of legal excess today is the three-to-four pages of wasted paper at the back of sell-side reports.
When it comes to earnings season, most of us in the IR profession edit an earnings release five or more times each quarter as we focus on delivering clear and insightful messaging to investors. Thus, it’s human nature to give only a cursory glance at the standard cautionary statement language that ends most important IR releases.
While the SEC’s original language encouraging the use of forward-looking statements did not call for a specific duty to update, numerous courts have ruled negatively against companies when those statements had clearly fallen out of date and were no longer accurate. There have even been some courts that turned against companies whose boilerplate lacked inherent specificity.
Here’s some quick advice for the new IRO or even the seasoned veteran as a reminder:
One argument to be made against a more routine practice of reordering your risk factors is that you may end up subtly signaling impending issues to investors. However, the reality is these risk factors are big picture in nature and the need to shift one is usually fairly transparent and already understood by the Street. Therefore, the proper way to make your safe harbor “safer” and to protect your company is to make sure this language is truly reflective of the current environment.