April 6, 2012 | Blog

Don’t Forget to Update Those Forward Looking Statements Occasionally

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duty to update, numerous courts have ruled negatively against companies when those statements had clearly fallen out of date and were no longer accurate.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:

  1. It’s best practice to review your safe harbor language, and more specifically the laundry list of risk factors therein, each quarter. For companies in more dynamic industries, the relative importance of those risk factors might change on a regular basis.  What you once listed as the fourth most important risk factor might have suddenly become the most important risk factor today as a result of new strategic/industry developments.  When this happens, the order of the risk factors needs to be adjusted to address the most relevant up front.

 

  1. Schedule an annual sit-down with your corporate counsel to review the breadth and depth of your safe harbor and forward-looking statements language in all investor materials.  These should include your earnings materials, investor presentation, factsheets, and the IR portion of your corporate website.

 

  1. Lastly, never forget to reference your company’s safe harbor when giving oral presentations or when meeting directly with shareholders. It’s cumbersome, but it’s not worth the risk to save 30 seconds.

 

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.

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