Why aren’t journalists allowed to ask questions on earnings calls?

The quarterly earnings call is much more than a casual conversation among a company’s executives, analysts, investors and the media — it’s a carefully scripted dialogue that is practiced well in advance of a call.

The planning and preparation that goes into an earnings call allow little room for journalists to fire questions that may throw an executive off message or make them appear ignorant about a topic in front of a large audience that has the power to push a company’s stock price upward or send it plummeting.

In fact, many publicly traded companies ban business journalists from asking questions during the call at all, and direct them to a specific public relations contact following the call for any follow-up questions. However, oftentimes analysts are permitted to ask questions on the live call.

So, then, why are business journalists prevented from asking executives questions during the call? And why are analysts allowed? Is this a smart tactic?

An Exclusive Club

Prior to 2000, quarterly conference calls were primarily reserved for large investors and analysts, and journalists, along with small investors, were often not even permitted to join in the earnings call. Many companies participated in selective disclosure during these calls, giving some investors an advantage over others.

However, in 2000, the U.S. Securities and Exchange Commission (SEC) mandated through Regulation Fair Disclosure (FD) that publicly traded companies must disclose material information to everyone at the same time. Therefore, publicly traded companies were forced to open their earnings calls to everyone, including journalists.

Even though others are now allowed to dial in and listen to these calls, there is still a sense of exclusivity, and the companies frequently cater to a select group of listeners.

The company earnings calls are held for the benefit of institutional investors and analysts covering the company for investment banks, Sapna Maheshwari, a business reporter at BuzzFeed said in an email on Thursday. The analysts, she said, who ask questions on the calls typically represent this cohort of people, which is why they are provided with greater access.

The Difference

“Analysts often ask a lot of softball questions and offer many congratulations before saying anything on the calls,” Maheshwari said. “They are often scared of losing access.”

Investor relations practitioners anticipate the type of Q&A from analysts, and rehearse the questions with executives in advance. Further, some companies screen analysts in advance for the questions that they may ask through one-on-one emails and phone calls, according to an article from Inside Investor Relations. The investor relations team then often prepares a documented and suggested answers for possible questions that may come up during the Q&A portion of the call.

It’s possible that companies are better able to anticipate the questions analysts may ask, and that they allow them greater access for this reason. This isn’t to say that analysts won’t fire pointed questions; many have on occasion.

Lois Boynton, a professor at UNC-Chapel Hill’s School of Journalism and Mass Communication and former public relations professional, offers additional reasons for why companies provide analysts access to top executives during earnings calls while barring business journalists.

“One argument is that they just don’t want to answer the business journalists’ questions,” Boynton said in an email on Thursday.

“The reputation journalists have for being adversarial probably doesn’t endear them with companies. My guess is that the argument would be couched as their desire to use the limited time they have to talk with those who make decisions [analysts] and who they may feel are better informed.”

Adversarial topics are ones that public relations professionals take painstaking measures to avoid during conference calls that are being closely monitored by those who have the ability to influence the market, and why so much preparation goes into calls. One slip-up could have a significantly negative effect for a company.

Boynton also provided an alternative explanation, and said that companies may also not want journalists asking questions because they don’t want analysts to hear their questions and be influenced by them.

“What is the journalist asks something that could call the company’s reputation into question,” Boynton said. “Would that affect what the analysts do?”

Many companies justify the practice of not allowing journalists to ask questions during the earnings call because they defer them to the public relations department following the conference call, Boynton said.

Working at Bloomberg News last summer, I found this often to be the case. Some companies, Yum! Brands Inc. in particular, were excellent at fielding questions from reporters immediately following an earnings call, while it was nearly impossible to get in touch with others.

“There’s a misconception that is reinforced when the company shuttles the reporter to the PR person – the message is that the public relations person’s role is to keep journalists away from those sources who can answer their questions,” Boynton said. “Although there are PR practitioners who have that role, most see their role as opening doors to the exec level.”

One of the only companies that allow reporters to ask questions during the actual call is News Corp., hosting separate sessions for analysts and journalists to ask question.

“I haven’t run across companies that allow journalists to ask questions on what I cover [retail],” Maheshwari said. “In fact, there is only a handful of companies that are good about putting me in touch with executives.”

Should more companies open up earnings calls to journalists and be more transparent, like News Corp. or is it smart to limit questions to analysts during these sessions?