As Prudential has recently found to its cost, it’s generally worth while keeping shareholders in the loop. Whereas UK and European companies are generally welcoming of investor dialogue to the extent it is enshrined in national governance codes, any meaningful dialogue with US-listed companies has been fraught with difficulties. For the past decade directors and IR officers have sought protection behind Regulation FD as the reason for not engaging with shareholders on governance issues either singly or as part of a group.
Thankfully the SEC has now laid the myth of the Regulation FD barrier to rest. In a series of FAQs, the SEC’s latest interpretation of Reg FD outlines its thinking on how the regulation should work:
Question: Does Regulation FD prohibit directors from speaking privately with a shareholder or groups of shareholders?
Answer: No. Regulation FD prohibits a company or a person acting on its behalf — such as directors, executive officers and investor relations personnel — from selectively disclosing material, non-public information to a shareholder under circumstances in which it is reasonably foreseeable that the shareholder will purchase or sell the company’s securities on the basis of that information. If a company’s directors are authorized to speak on behalf of the company and plan on speaking privately with a shareholder or group of shareholders, then the company should consider implementing policies and procedures intended to help avoid Regulation FD violations, such as pre-clearing discussion topics with the shareholder or having company counsel participate in the meeting. In addition, because Regulation FD does not apply to disclosures made to a person who expressly agrees to maintain the disclosed information in confidence, a private communication between an independent director and a shareholder would not present Regulation FD issues if the shareholder provided such an express agreement. [June 4, 2010]