Every public company should have a disclosure policy. If properly enforced, it channels a company’s investor communications into a carefully defined disclosure path, so that it consistently handles disclosure issues in the same manner. This policy should include statements about the following items (examples are noted after each item):
- The company’s commitment to the policy. “The company is committed to the provision of timely and credible information to the investment community that meets all regulatory requirements, and which results in realistic investor expectations about company performance.”
- Positions authorized to be spokespersons for the company. “The chief executive officer, chief financial officer, and investor relations officer are authorized to be the company’s spokespersons. They will represent the company in all meetings and other communications with the investment community. In order to do so effectively, they must be kept aware of all material events in the company, or affecting the company. All other employees should defer questions to these individuals.”
- Designate a disclosure committee, and its role. “The disclosure committee’s members shall include the corporate counsel, chief financial officer, and investor relations officer. This committee shall review and approve all corporate disclosures prior to their dissemination to the investment community.”
- Policy on reviewing analyst reports. “The company will only review and give feedback on the factual content or underlying assumptions of analyst reports, and will not retain any draft reports or models provided by analysts. It will not comment on the conclusions reached in analyst reports, or state the extent to which company earnings will vary from analyst estimates.”
- Policy on how to comment on market rumors. “Authorized spokespersons shall consistently respond to market rumors by stating that “It is not our policy to comment on market rumors or speculation.” If a stock exchange on which the company’s stock is listed requests a statement, then the disclosure committee shall make a recommendation to the chief executive officer.”
- Policy on the provision of guidance. “The company shall provide guidance on a quarterly basis if earnings are likely to fall outside of the range of estimates that the company previously provided to the investment community. It shall provide this information through a press release, followed by an earnings conference call. In addition, the company will observe a quiet period during the two weeks preceding each quarterly earnings announcement.” A variation on the duration of the quiet period would be, “The company will observe a quiet period prior to each quarterly earnings announcement that begins when earnings results have been finalized.” This variation tends to result in longer quiet periods.
- Policy review frequency. “The disclosure committee shall review this policy at least annually and update it as needed.”
The market rumor policy is specifically designed to impart no information to the marketplace, rather than categorically denying that there are no company events that might be causing rumors. The reason for this noncommittal language is that the company spokespersons may not be aware of significant company events that are causing a marketplace rumor. Though the disclosure policy is designed to channel material information to the spokespersons, the process does not always work as planned, so that the marketplace may obtain information before the spokespersons.
The disclosure policy is only effective if consistently applied, so the disclosure committee should actively enforce it throughout the company. Given the considerable responsibilities of the committee members, this means that a support staff may be needed to monitor disclosures on an ongoing basis, and to warn the committee members of disclosure violations.