The Wall Street Journal recently had two separate articles that discussed how large, public firms regularly meet in private with security analysts who make recommendations to the public to buy or sell their stock. The articles point out how this practice may be technically at odds with the concept of fair and equal disclosure that is part of the Security and Exchange Commission (SEC) regulations.

One article was titled “Google Tries Opening Up to Analysts”. The story is that Google had always gone their own way in not meeting with or disclosing things such as financial forecasts with security analysts.  With a new CFO who came from the banker firm of Morgan Stanley, Google is now doing “briefings” with the analyst community. The objective is to make Google more transparent and help analysts build their financial models to predict its future stock price. And Google’s stock is up recently versus other tech firms.

The other WSJ article was called “Investors Price Face Time with Bosses”. It spoke about how firms such as Proctor & Gamble and GE meet regularly with security analysts. One meeting led an analyst to conclude that P&G’s current Chairman may retire, a fact that was not officially announced until months later. The article further stated that, last year, GE had 70 such analyst meetings with GE senior management present and about 400 meetings in total. Again the hope of the companies is to have the security analysts favorably recommend their stock to the public.

This all sounds great, like a win-win situation. Well, as a retired CFO myself, I can offer a few thoughts and maybe raise a few concerns.

Early in my CFO career, it was very common for public firms to travel to New York and have private meetings with the security analysts who “followed” or recommended your stock to the public. Then the Security Exchange Commission (SEC) published Regulation FD. This is called the “fair disclosure” rule that public companies must disclose material information to all investors at the same time. The idea was to prevent large bankers from trading on the basis of the information they obtained in private meetings to the disadvantage of the rest of the stock-buying public. Overnight most private meetings were gone. Even industry conferences were made available instantly on webcast or by downloading the presentations. Now doesn’t that sound logical and “fair” based on the SEC’s goal with Reg FD that everyone gets the same information at the same time?

Apparently, per these articles, many companies are back to the old private, one-on-one briefings with their favorite analysts. Now the articles were quick to point out that these meetings “tiptoe around the security laws” and that companies can avoid problems by just repeating what is already in the public domain or by just adding “new, nonmaterial information.”

Having sat in on Too many of these security analyst meetings, I can tell you what some of the issues are:

1. What is important or material new information and what is not? A very fine line.

2. Few of us can remember and repeat exactly the wording in our several hundred page quarterly SEC reports that are in the public domain. And exact words and inferences are critical at times for fair and full disclosure.

3. The worst problem is having your Chairman or CEO at these meetings. Some Chairmen/CEOs love talking and will expound at length to any security analyst’s question. Or, they will basically tell their CFO or Investor Relation person to provide whatever information the analyst is seeking. A slippery slope. And as one article points out, it is “easy to trip” and give out new information to a small, non public audience.

4. Finally, some security analysts are true professionals and treat information as confidential only to be used in working on their financial model or in their next report that becomes public information. But some analysts, like some other self-proclaimed wizards of the banking world, have no concept of confidentiality or how to manage the many conflicts of interests that can arise daily in their work. I once had a large bank security analyst who “followed” my public company and a major competitor suggest that our two firms merge and that he would be glad to organize a meeting!

Like a lot of business people, I believe we have too many government regulations in too many different aspects of our lives. Regulation FD at least made sense to me, but only if everyone is playing by the same rules as to what financial disclosures can be made, to whom and when.

We create rules to respond to each new financial crisis we encounter. But like a pendulum swings, we tend to ignore or try to avoid following them after awhile. At least until the next financial crisis!