Keys to an Effective Communications Program
No aspect of public company life has evolved more rapidly over the past decade than communications. Before the 2000 adoption of Regulation FD, public communications were quaintly simplistic. Companies dutifully filed their periodic reports, which included a significantly streamlined (by today’s standards) proxy statement and relatively infrequent Form 8-Ks. Heads of investor relations, who often were also the CFO or General Counsel, stayed in regular telephone contact with market analysts and principal stockholders, answering their questions and providing color with only a modest nod toward concerns like selective disclosure and tipping.
Regulation FD, of course, changed all of that. What no one knew at the time was that it would be the first drop in what would become a deluge of communication requirements and alternatives. Sarbanes-Oxley formalized the concept of disclosure controls and procedures in 2002, giving birth to disclosure committees, disclosure policies, sub-certifications and the like. Form 8-K was significantly expanded in 2004 to increase its number of mandatory real-time triggers. In 2010, Dodd-Frank strengthened the SEC’s enforcement powers and encouraged heightened scrutiny of inconsistent and inadequate disclosures.
But nothing has changed the communications landscape more than the emergence of technology as the primary means by which companies and individuals communicate with their universe of stakeholders:
- Audio and video earnings, analyst, investor and industry conferences (for a recent development in this area, see Video Earnings Calls—A New Twist on an Old Practice)
- News media saturation
- The next big thing
Companies have scrambled to catch up, not always successfully. The challenge has been, and remains, balancing transparency and marketing creativity with effective disclosure controls.
A coordinated, consistent, enterprise-wide communications program sounds like something that’s nice to have, but not really necessary. Unfortunately, nothing could be further from the truth. Remember, disclosure is disclosure, no matter what form it takes. Exacting standards of accuracy and completeness, and the serious consequences of failure to meet those standards, apply no matter whether a company (or its executives, directors or affiliates) is making an SEC filing or Tweeting. (For an example of the problems that can occur, see Social Media and Reg FD: What Just Happened and What Didn’t.)
Furthermore, a communications stumble calls into question the effectiveness of a company’s disclosure controls and procedures. And in case you haven’t read the Sarbanes-Oxley CEO/CFO certifications (and by extension the key employee sub-certifications) lately, here are some relevant provisions:
That used to be a relatively easy certification to give. Now, with the proliferation of social media and the understandable propensity of companies to tap all reasonable means of communication with their stakeholders, it is decidedly less so.
Three Keys to Effective Communication
All communications must be consistent, accurate and complete. The story must be fundamentally the same, no matter who is doing the communicating or the context of the message. You may have a problem, for example, if:
- The company’s MD&A ignores or minimizes a new development (maybe new technology or a fledgling market) because it is “immaterial,” while the CEO highlights it when he meets with analysts or in a media profile.
- The marketing department blitzes the media with information touting a new opportunity or branding initiative that does not dovetail with the business description in the SEC filings.
- The web site fails to keep up with the company’s latest strategic change in direction.
- A key employee becomes overly chatty about the company on his or her Facebook page or Twitter account.
All communications must be controlled and coordinated. All company personnel must understand the importance of restricting their public communications to those necessary to perform their specific job responsibilities. Employee manuals should clearly address this issue, with specific references to the various social media that might come into play. This also highlights the need for a comprehensive communications policy that has been updated to reflect the latest technology developments, as well as changes in company structure or lines of reporting, for example.
Company-wide communication training, particularly among senior personnel, is now more critical than ever. Training should be targeted to the latest communications developments and frequent enough so that it remains current.
Finally, persons with defined communications responsibilities must continuously ask themselves what other bases must be touched before a communication is released. Proper vetting and coordination is imperative, no matter the context.
All companies must develop and maintain a culture of disclosure compliance. Fundamentally, no communications policy or program will be effective absent a tone-at-the-top culture of disclosure compliance. A company must include proper compliance as a cornerstone of its corporate values and then conduct itself as though it means it. All responsible personnel (most importantly the executives and directors) must prioritize accurate, complete, coordinated and transparent disclosure. (See Lessons from the SEC’s New Tone at the Top.)
When it comes to creating a culture of compliance, actions speak far louder than any words in a mission statement or in a communications policy.