Chapter 13: Investor Relations

Copyright © 2012 McGraw-Hill Companies. All Rights Reserved.McGraw-Hill/Irwin

Introduction to Public Relations

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GROWING INTEREST IN INVESTOR RELATIONS

Tyco Enron (with Arthur

Anderson) World Com HealthSouth Countrywide

Mortgage

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MAIN TASKS OF INVESTOR RELATIONS

Create and maintain investor confidence Build positive relationships with the financial

community Provide timely investment/corporate Information

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EVERYONE IS INFLUENCED BY THE ECONOMY

Securities ownership, once limited to the wealthy, now is common in the U.S.

Securities trading has become accessible to almost everyone via the Internet.

Securities fraud has become one of the world’s most lucrative crimes.

Most securities fraud depends on misleading investors.

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PR CONTROLS THE INFORMATION GATE

Practitioners, with regards to securities fraud, can commit two major blunders through information abuse: Jeopardize the reputation and financial stability of the

organization, its leadership or themselves. Subject their employers or themselves to criminal

prosecution.

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PROVIDING PUBLIC INFORMATION

SEC Regulations Sarbanes-Oxley Act Stock Exchange Policies Disclosure Issues

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SEC REGULATIONS

1933 Securities and Exchange Act passed to “provide full and fair disclosure of the character of securities….and to prevent frauds in the sale thereof.”

Law applies to all companies listed on one of the stock exchanges or any company with assets of $1 million and at least 500 stockholders

Rules change often and are often difficult to interpret.

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SARBANES-OXLEY ACT

Passed in 2002 Key provisions:

Reporting of stock trades by company insiders Creation of an independent accounting oversight

board, overseen by the SEC Public reporting of CEO and CFO compensation

packages Larger fines for security violations CEO’s held responsible for financial mis-

representations security leaks Auditors cannot do consulting / rotation of audit

partners

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STOCK EXCHANGE POLICIES

Policies requiring various reports differ from exchange to exchange; however, most important to public relations practitioners are the timely disclosure policies.

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TIMELY DISCLOSURE AND NO INSIDER TRADING

Primary among the SEC’s rulings:

• Any material change in any publicly owned company’s financial condition must be made public immediately.

• Anyone trading securities based on ‘insider information’ – information that has not been made public – can be fined and/or imprisoned.

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PRACTITIONERS MEET SEC REQUIREMENTS BY RELEASING INFORMATION …

To all media…

General news media

Financial media

Web / Internet / Social Media

This should be done in a timely manner with complete detail

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NEW YORK STOCK EXCHANGE DISCLOSURES

NYSE requires that members disclose events in eight major areas.

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DISCLOSURE 1

Mergers, Acquisitions and Joint Ventures

+

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DISCLOSURE 2

Stock earnings, splits, dividends, redemptions, major sales or repurchase

=

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DISCLOSURE 3

New or significant changes in contracts or products

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DISCLOSURE 4

Significant changes in control or management

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DISCLOSURE 5

Borrowing in significant amounts

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DISCLOSURE 6

Significant litigation or disputes with labor, contractors or suppliers

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DISCLOSURE 7

Purchase or sale of significant assets

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DISCLOSURE 8

Significant change in capital investment plans, including tender offers

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THE BOTTOM LINE …Any event that might influence the value of a publicly-owned corporation’s securities must be made public on a timely basis.

Anyone who trades the company’s securities based on knowledge that has not been publicly disclosed is subject to fine, imprisonment or both.

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THE SEC WILL TAKE YOU TO COURT

In this report, an Internet company is in danger of being fined up to $400,000 for giving investors untruthful information.

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TARGET AUDIENCES INCLUDE …

Individual stockholders

Financial analysts Financial press

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WAYS TO IMPLEMENT COMMUNICATION STRATEGIES

Personal meetings Financial literature (correspondence, quarterly

and annual reports, dividend enclosures) Financial news releases Annual meetings

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TYPICAL ANNUAL REPORT CONTENT …

What are the company’s major businesses and markets?

Where does the company excel? What are the company’s

weaknesses? Why has the company performed

as it has? What is being done to improve

performance? What are future plans? (those able

to be disclosed)