Regulation FD and business journalists

If I had a dollar for every time I heard from a business journalist that a company declined to talk to them because of Regulation Fair Disclosure, I could retire. It’s not only wrong, it’s ignorant of the rules that govern the profession.

Recently, Todd Davenport, a former colleague of mine, sent the following. Davenport is now associate editor of American Banker. It needs to be shared with the wider business journalism community.

In fact, I would go as far as proposing that a national organization such as the Society of American Business Editors and Writers should make up cards with the following Reg FD statute and what it specifically states about the media, laminate them and distribute them to every business journalist they can find.

In Reg FD (http://www.sec.gov/rules/final/33-7881.htm), the SEC gave wide latitude for disclosure to the media, in fact exempting it entirely (see under “Revisions to Narrow the Scope of Regulation FD” this language: “Regulation FD will not apply to a variety of legitimate, ordinary-course business communications or to disclosures to the media.”)

Also: “as a whole, Rule 100(b)(1) will cover the types of persons most likely to be the recipients of improper selective disclosure, but should not cover persons who are engaged in ordinary-course business communications with the issuer, or interfere with disclosures to the media or communications to government agencies.”

The idea is that the media has a “mission of public disclosure” — the rule makes a clear distinction between reporters and analysts on that point.

You can read the rule for more info, but the general reasoning is that the media profits only by distributing the disclosed material, not by trading it. The meaning and language are quite clear; it is impossible to make “selective disclosure” to the media. (The one catch, of course, is what is media and what is not; not hard in the case of the Journal, Times, Post, even regional and community newspapers, but it probably does get a bit tricky on the Internet — especially with the blogger community, whose motives are as likely to be as diverse as the community itself.)  

In the regular jousting between business reporters and public companies (principally their flacks and PR shops), Reg FD is still occasionally raised as a justification for not answering questions. Any company that cites Reg FD in not answering the question wasn’t going to answer the question in the first place, but pointing out the safe harbor for media disclosure removes the fig leaf.

I find the same phenomenon with Sarbanes-Oxley. Many more corporate-governance initiatives — and their attendant costs — are chalked up to this law than are actually required by the law. In short, some corporations justify their behavior with law that does not exist.