Do You Have a Realistic Quiet Period Policy?
For publicly traded companies, there are two types of “quiet periods”: First, there’s the heavily regulated, post-IPO period when a company cannot talk about its aims and earnings. Second, there’s the quiet period at the end of each quarter when companies stop communicating with Wall Street once they begin to get a handle on the quarterly results. While this second type isn’t regulated, it is still important to have a defined policy governing this quiet period to both guide your external communications practices (especially with analysts and investors) and to remain in compliance with Reg FD.
Quiet periods have no standardized length. These quarterly periods end, of course, with the earnings conference call and/or press release; but it’s up to each particular company to determine when they begin. Constructing the optimal quiet period will vary, depending on how quickly earnings are determined, as well as how experienced executives are with analyst and investor interactions. Following are some suggestions to help guide your company’s activities as they relate to quiet periods.
Quiet period “don’ts”
- Don’t make exceptions. Quarterly quiet periods received more attention after the enactment of Regulation FD, which prohibits companies from appearing to favor one analyst or investor over another. Once the policy is set, do not make exceptions for anyone. The most important strategy is to make sure you communicate with all audiences consistently and share the same information.
- Don’t make a quiet period too long. You can find yourself operating in silence up to six weeks out of every quarter if, for example, you stop talking for two weeks before the quarter’s end, but don’t release earnings for another month after that. Shaving time before or after the quarter avoids the risk of shutting down all communications between your company and the people who are providing you with much-needed capital.
What can you do?
- Pre-announce. You can pre-announce earnings if you know that you’re going to miss (or have a surprisingly positive quarter). A basic press release gets this information out fairly and efficiently.
- Allow some Street interaction. If your policy allows it, you can also talk about strictly factual information, as long as this information is publicly available. Some policies allow management teams to have dialogue with analysts and investors. This requires a well-trained team with experience interacting with the Street. Also, depending on the policy, presentations at conferences are a possibility as well.
The penalties for violating Reg FD can be severe. For example, the pharmaceutical company Schering Plough was fined $1 million several years ago for disclosing a drop in earnings before public disclosure because of a series of one-on-one meetings with analysts that convinced investor firms to sell the company’s stock. This is the scenario your quiet period is designed to avoid.
The team at Westwicke and Partners can help make sure companies have a strong understanding of Reg FD and an accompanying “quiet period” policy that fits (based on the experience of your finance and management teams). We can also help train executives to stick to the policy. Please contact us for more strategic information that can help with your IR decision making and sign up for our newsletter to learn more about this and other IR-related topics.
John Woolford is a Managing Director on Westwicke's life sciences team. He has extensive experience in investor relations, as well as IPOs, capital raises, M&A, and other business development activities. He has a BS in microbiology from the University of Maryland at College Park and an MBA from the R.H. Smith School of Business.
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