Dealing With Securities Analysts
| Publication year | 1995 |
| Pages | 1781 |
1995, August, Pg. 1781. Dealing with Securities Analysts
Communicating with securities analysts is currently one of the most confusing areas of securities regulation for executives of publicly held companies. This is particularly the case for small publicly held companies that cannot afford to retain, on a regular basis, experienced securities law advisers. Executives are wary of such communications because they are uncertain about what they can legally say to securities analysts. This article offers insights on and guidelines for communications with securities analysts.
Although some public companies adopt a policy of not speaking to securities analysts, their silence exacts a price. The absence of securities analyst coverage may result in lower stock prices, lack of institutional investor interest and reduced liquidity for the company's stock. Further, the U.S. Supreme Court has recognized the importance to public companies of dealing with securities analysts, stating that "analysts are necessary to the preservation of a healthy market."(fn1) In addition, the New York Stock Exchange, the American Stock Exchange and NASDAQ all recommend that companies observe an "open-door" policy in dealing with securities analysts.(fn2)
Nevertheless, those companies that decide to speak to analysts or actively provide them with information run the risk that such communication, evaluated in hindsight, may violate the securities laws. Recognizing the uncomfortable position in which executives are placed, one court analogized communications with securities analysts to a fencing match conducted on a tightrope; [the executive] is compelled to parry often incisive questioning while teetering on the fine line between data properly conveyed and material inside information that may not be revealed. . . .(fn3)
Most executives will communicate with securities analysts because they believe it is in the best interests of their shareholders. However, there are three basic problem areas that must be kept in mind when communicating with securities analysts. They are as follows:
1) no matter how confident the company is at the time, estimates of future performance publicly disclosed by an analyst in hindsight may look so far off as to appear to be false and misleading;
2) having disclosed through an analyst some future...
To continue reading
Request your trial