Almost every career PR practitioner should know the broad lines of regulatory interest in securities. The nonprofit practitioner has a deep interest in such enterprise as earnings sources of tax free funds; of his agency's own investments and of the fortunes of potential patron enterprise. The practitioner in a corporate plant city division, or subsidiary, has several degrees of responsibility for earnings information if he is aligned at the management level. Of course, the changing ownership fact or potential of all types of concerns makes the critical difference in current financial communications practices from those of the more innocent eras.
Problems of the 70s
The 1970's changes were milestones because the investment industry was expecting them. At earlier time's added regulations were usually added burdens, more paperwork or other unwanted innovations. It should be understood that Wall Street is seldom intrinsic in the bread and butter disclosures of investment behavior and profits with which the public is concerned. In our discussion of rules, their implications may be for the professional community or for business: newcomers to financial PR should be watchful as to that dual aspect of regulations such as laid down by the SEC.
The day of strategic timing of released information to hide facts, or to attract attention, is past. PR should determine its logical and feasible day and date without regard for the type of news involved: good or bad. This may have a future tendency to alter the way companies do business with respect to sophistication in reporting. A great many managements become overnight PR specialists in the strategic release of bad news: this is a questionable benefit if it includes obfuscation. Responsibility for following regulations for reporting results rests squarely with the management of the company involved. In fact, when an apparently simple product or service development announcement is made, it is highly possible that it is in violation if the timing misdirects the public attention from related effects, good or bad.
Dealing with Government
Under current 1971 regulations, form 10-K requires more balance sheet information than at any previous time. The investor will become familiar with the changed forms and supplying them will be routine when the changes are digested. The quarterly 10-Q form, with new interpretations, must be filed within 45 days after the close of each quarter.
The changes in the standard reporting form for annual results in 1970 were the sharpest since SEC was formed in 1934. They now require disclosures of five-year total sales, income and pre-tax operating results for each of the company's lines of business. Other amplified information must include:
- Competitive climate and other facts of the industry involved.
- Report of firm orders or other volume of back log data.
- Conditions in materials suppliers' businesses.
- Unusual or pertinent facts regarding licenses, patents and other concessions in the company's possession.
- Research data and lead times for products and services the company plans for the future, including evaluations.
- Employment numbers and outlook.
- Significant event summary of five years past operations.
- Date and outlook on subsidiary or other related company properties and outlooks.
- Management remuneration facts similar to those required on proxy statements.
- Outline history of financial performances over period of two years prior to current report.
The changing regulations on original disclosures are both welcomed by business and anticipated. While advance disclosures are closely watched, so is avoidance of "prompt" disclosure. Until the current changes are fully effected these considerations concern mainly the legal departments. The area in question has been subject to various interpretations. Limitations on advance information may cause news blackouts when specific advices of SEC are followed. It is expected that SEC will clarify the dark areas between the registration gag rule and its own anti-fraud Rule l-b-5. It is obviously in the public interest that new information be issued promptly when it becomes relevant to existing company stock values.
Rules of disclosure related to "insiders" are not subject to great change. Any time information comes out in advance of formal reports, it should be reconciled in strict keeping with the long defined regulations for insider information. In general, the new regulations of 1970 may have their greatest impact in broadening the area of interest concerned with corporate disclosures. Non profit agency PR practitioners will not find it fruitless to examine the performance of their fund sources when such trend implications as five year histories are exposed.
Corporate Structure of Financial PR
In large corporations the financial PR is a part of the broad corporate relations and communications structure. In medium sized companies the interested working parties usually are the chief officer, financial officer, legal counsel and PR practitioner. In smaller companies reports most often are developed between the president and financial officer and implemented for release by PR.
Assuming that we are newcomers to PR interested in financial reporting because it is pervasive in American enterprise regardless of type, we shall discuss the general conditions of its practice from the viewpoint of management.
When the PR head comes into his position without having had financial PR experience, his best way of getting ready for it is to set up a work project at once. Every company must report annually, many report quarterly, and some large companies report every month. The only general rule is: follow whatever period has been adopted until the agencies are notified of a change.
When the figures are calculated, they must go to the agencies and to at least one daily paper within twenty four hours. The regulations on which figures must be disclosed change, but we shall assume they now require the results shown on this example.
Detroit Supertik, Inc., a large automotive supplier based here, had earnings for fiscal 1970 ending Dec. 31 of $5,012,345, up $2.50 a share; up from $4,567,123, or §2.40 a share, for the year earlier, it announced Tuesday, February 20. Sales were $90,123,770, down from $95,024,032 for the 1969 year.
In the final quarter profits were $1,957,000, or 95^ a share, up from $987,098, a rise of 42% attributed to a non recurring real estate transaction.
Actually, companies that report quarterly give only the figures for that quarter to the agencies; for the newspaper they add the previously announced results for the first three quarters and the percentage changes.
After the overnight results are handled, work starts to get out a statement to all stockholders. They first see the results in their newspapers. PR may tell the wire services which cities have company offices or plants: the wires will alert media in those cities.
For companies using multi color brochures for annual reports the only unfinished details will be adding the final figures. That may require a month. When they are sent, the date of the annual meeting also is enclosed. It is the carrier for such required disclosures as salaries and other income of top officers, the proxy statement of information regarding present and other changes, and the names of individuals nominated for the board of directors. A ballot is enclosed announcing that the election will be at the annual meeting. Since few attend the meeting, the proxies are mailed in to be voted by the top financial officer in the meeting.
PR Stays Close to Three Sources: Top Executive, Financial and Legal
Rather than attempt to detail all types of corporate disclosures, it is suggested that the practitioner take the first opportunity to talk to the three executives whose roles are specialized in economics and law.
Starting with a meeting with the president, PR might list the public to be considered for each area. These might include: it represents those who must get figures. (A) Stockholders must get reports on each period reported, but timing may be thirty days after original disclosure to agencies.
In our specimen story only one unusual item was shown: the non recurring profit. It would be explained and pinpointed in a quarterly or annual report. Perhaps it represents the sale of a real estate plot in the city when plans to expand were dropped. Because courthouse records are available locally, the media in that city perhaps have reported on the changed plans. When any plant or division plans changes, the local PR should develop for approvals a story explaining the transaction, whether it reflects creditably on the company or not.
The chief officer may say, "We are having a good year equal to last year while the industry is off 10 per cent. We want to play that up when we announce our fourth quarter results in February." Many industries do the largest share of their business in the last quarter of the calendar year. In fields such as big store and other retailing, automotive and household appliances, the quarter ending in December is the best and most closely watched by all outsiders. In an accompanying press statement, the chief officer should comment on the results unless they are unchanged from former years. This first meeting is largely to check attitudes: does the chief officer anticipate anything out of the ordinary in the final quarter? If this informal meeting is in October figures for the first nine months are already out.
Financial Officer and Lawyer Provide Direction
The next discussion would be with the financial officer. He has two types of information: actual awareness of the business rate and knowledge of possible changes in disclosure proceedings and content. From the PR viewpoint, the public, essentially as shown in the list, must be considered, but their respective local results are not released in the actual figures. The local practitioners discuss the degree and type of information with central PR and with his local general manager and financial officer. Some companies report only one general story to all cities; others hold local manager press meetings or get out a release reflecting a local angle on results already announced.
After a briefing by the financial officer, PR may want to discuss the coming report with the legal department. When major changes in regulations are at hand, the lawyers will be familiar with the spirit as well as the letter of the new orders.
Annual Report Brochure
For concerns with widely held stock and multiple divisions there is a competitive aspect to getting out an effective and impressive annual report. Its preparation is a year 'round job in many PR and financial departments. In moderate sized companies that are members of securities exchanges, the practice is to issue a booklet giving information beyond that required by regulations. Privately owned or even closely held companies may release results, but there is no established practice. Many smaller companies with public ownership send their stockholders modest black and white twofold statements.
There are two significant elements that should concern the PR practitioner who is handling his company's report for the first time: 1) required lead time; and 2) awareness of how the company handled its reports in former years. Proper lead time for companies issuing four color brochures is at least six months. While it is not good practice for companies to permit results to control timing or distribution of results, when indications are that profits will be disappointing that should be considered in planning the report booklet.
Even when companies change their goals, themes and general identification as the result of an acquisition or merger, the surviving corporation's image and other attributes concerning the public should be adhered to in the visible aspects of the new report. Very often the new corporation will launch an updated image or identification plan when the new combination is announced. Since these are invariably planned and executed by outside counselors, these agencies usually suggest techniques to make the transitions in the production of reporting materials.
Consistency is a Factor
Governmental agencies and exchanges publish regulations specifying minimum media exposure for results, usually at least one nearby daily or a dominant regional newspaper that has direct linkage with major wire services. Very few companies that are publicly owned actually confine their reports to the minimum media required. The significance of paying heed to the media (which may include broadcast as well as print) is that it should be consistent from year to year.
When a company puts its quarterly results, properly certified with signatures, etc., into the U.S. mail addressed
to SEC, its major securities exchange and any other agency that may be stipulated, it has fulfilled the current law. That may change at any time.
Whatever practice is followed, if it is to be changed, note should be made of that modification, when the distribution concerns the initial disclosure. For example: in addition to the required media, PR may enlist a private publicity wire service that guarantees to transmit the copy, as given to it, to various cities or to all larger city newspapers and broadcast stations. It is unlikely that such promotion would be started for the release of disappointing results. Caution must be exercised by PR that euphemisms do not obscure the company's financial situation.
The key companies in most industries are often treated extensively in the trade publications. These releases usually are prepared after the results are officially reported. That reduces the disclosed material to the nature of a commentary, rather than a prime source. There is no limitation on the distribution of financial results when, or after, basic requirements are met. They should be used to work for the company reputation and for more specific objectives.
The basic risk in using financial information for promotional needs, such as to attract acquisitions, new executives for management programs, or for product/service exploitation, may arise if the company gets into court on a related matter. With government agencies and other legal bodies, information released in company publicity, especially that quoting officers, may have more impact than it had in the media that printed it.
The once common PR practice of revealing expected gains from research or exploratory ventures has been frowned on, or outlawed as legitimate disclosure, in recent years. Even when the new asset is sure to materialize, the risk of being called in for some SEC questions is not often worth the expected gain. PR must bear in mind that all financial information affecting the price of the stock is the concern of the governmental and exchange agencies. As for stockholders, if such announcements hurt them they may sue management and the board. And they do.
PR in Acquisition/Merger Situations
The PR director or counselor of companies engaging in acquisition/merger actions should try to be present in the first meeting of principals. These may include a corporate development specialist, president and financial and legal officers. Such a preliminary meeting may be held to evaluate a potential acquisition, or an offer of an acquiring company. PR should not expect to participate actively. Its interest might be to learn the identity and all possible characteristics of the proposed partner.
PR expertise (on both sides) should be applied to evaluation of the partner's image identification factors before any contract or intent is signed. After it has facts, PR should be ready for management review meetings related to reputations. It might include: our company's gain or loss of: Stature, Recognition, Acceptance, esteem in the industry, Public acceptance.
PR should be concerned with: Would two lines complement each other? Is there a product/service conflict? Are the respective industries compatible? Would it appear that joining would reduce competition? Company's joining that reduces competition is illegal. Government may order divestiture two or more years later. The PR image of respective industry positions can be highly influential with government and with stockholders who must be won over. Also, PR can establish a base to win customers, business, and suppliers.
Studying the Image
After such a first meeting, over all company PR should arrange to visit partner PR to review image factors listed above. Often the legal department applies to government for tax ruling concurrent to PR organizing projection study of image factors. For example, even between diversified corporation and small company, "complementary" is a term that should fit the respective attributes of partners.
If gossip circulates that a merger is in the wind, PR should seek approval for a brief statement: "Exploratory talks are underway between Giant Industries, Inc. and Supertik, Inc., automotive supply producer. John Smith, corporate development vice president of Giant, said that talks are highly tentative and subject to board action should develop. . . ." Publicity rarely helps such transactions before they are ready to be submitted to stockholders or directors.
Acquisition Responsibilities
Usually larger acquiring entities need only director approvals. Smaller acquired companies may need stockholders' approval also. The best PR selling terms for acquired owners include: Resources of big company; advanced research; strong management and diversification and "complementary lines. . . ." For the bigger acquiring company it is "Give Giant a position in the automotive supplier. . . ."
Rather than attempt more than one shot in media publicity, PR should prepare for stockholders a brochure spelling out the strengths of the acquiring company. "Continuation of all present Supertik management and employee rolls is specified as a condition. . . ." Smaller companies and owners want to protect employees.
PR in companies with potentials for acquisitions should establish continuous studies of company, product, and service images. In financial PR, acquisitions possibilities are ever present. Still, they are a part of the over all procedural patterns. Returning to the broad financial PR pattern, we will summarize the basic practices of the PR function.
Suggested Media Procedures for Financial PR
Assuming that Supertik, Inc. wants to favorably impress the financial community, but a union contract and possible government sensitivity loom, it must fashion its voluntary disclosure plan carefully. Here are tactics they may use:
" Schedule annual meeting for plant city or division not vulnerable to union sensitivity.
" Schedule invitation luncheons in headquarters city, plant and division cities to key bankers and stockbrokers for informal review of results and outlook.
Prepare a special booklet on company and industry outlook for mailing to analysts, bankers and other financial lists. Go to all plant cities with "community" report meeting that ties local situation to corporate resources, etc.
Publicity in local media is usually good for any story that is favorable. It can be deadly in communities where employees are militant on economics or conditions. Business media publications are almost invariably highly accredited in the financial community, and surprisingly practical in reaching any other public outside their own vocational followers.
Analyzing the Various "Publics"
The related interest public for financial PR starts with the investor interests: banks, analysts and almost any business entity. The face to face meetings (analysts have scheduled corporation presentation meetings in a dozen or more strategic cities) is easiest to manage, and often totally effective. PR may form its own such meeting in any city, or appear before the analysts' meeting.
To many companies the employees are their most important "public," come what may. As PR fulfills its potential in any company or plant area, the community program will be the basic communications vehicle for employees. If the company does not have a formal local communications formula, it should use the occasion of communicating operations results as a reason for starting a program of letters to employees.
The first element in a community program is a mailing list of community factors: public office holders, association entities for industry, commerce, education, health and all types of civic and service ventures. In the process of becoming accepted among these, the company should be soft on solicitation mail until it becomes fully acquainted. Actually, financial results do not tie in directly with community events. Generally the company supports the other fellow's project, and in turn he tells the other fellow about his. A lively account of economic objectives and goals is good speech material for civic or service lunch clubs. A letter to civic leaders and employees is the best way of telling your neighbors about yourself.
Sharp changes in governmental regulations in 1970 require more clarity, full disclosures and early release of financial information by companies. PR must watch for more changes and clarifications. Newcomer should learn company financial procedure, media used, time of information release, pattern for stockholder reports, and follow this exactly. If there is a change, the media should be informed of this before information is given out. Financial officer and lawyer are PR guides. Never use financial information for promotional needs.
PR should be in at the start of merger/acquisition talks, not as participant but to know what's going on. Study with merger/partner to review image factors. Spell it out for stockholders, media, plant cities and employees.
QUESTIONS
What are some of the key changes in the reporting techniques of the 1970's?
What are the key sources of corporate information and what kind of information do they provide?
