Do Private Meetings with Investors Undermine Fair Disclosure? Guest Post by Ryan Mullett

One of the issues which has evolved over the past decade is that of fair disclosure. With the implementation of Regulation Fair Disclosure (Reg FD), IR professionals have had to battle with the issue of trying to remain legal throughout all of their reporting to investors. While Reg FD has tried to level the playing ground by ensuring all investors have access to the same information, a recent study undertaken by David H. Solomon from the University of Southern California and Eugene Soltes from the Harvard Business School titled; “What Are we Meeting For? The Consequences of Private Meetings with Investors” suggests that this may not be the case.

            The paper looked at records from a NYSE traded firm over a six-year period during which there were over 900 meetings in order to see whether or not the meetings were associated with the trades and whether people made more informed trades after a private meeting with the firm. The authors of the study found that funds that met in private meetings with the firm were able to get higher returns than those that did not meet. “When the trades of funds are aggregated, a one standard deviation increase in purchases by funds who met with management predicts an increase in stock returns of 3.7% over the following month” state the authors, “By contrast, the trades of funds who did not meet with management show little predictive power for future stock returns.”

            This data is quite interesting and suggests the Reg FD may not cover all the bases. While the authors do state that it is possible that some investors are simply better able to process information, however it is still very clear that private meetings provide a great benefit to investors, who according to the authors were able to trade much more successfully in the time period after a private meeting with the firm.

            As an article from irwebreport states, private meetings are often arranged through things such as bus tours with the more active trading clients. Information from these meetings is often hard to come by because many times it is not kept on record for “liability” reasons.

            Overall, I would say that there is a clear correlation between a private meeting with an investor and more successful trades, but I cannot say that it is very clear why this is. I would be hesitant to state that those investors who met privately are violating Reg FD and receiving an unfair advantage because we simply do not always know what was stated in those one on one meetings.

           

            It could be that these investors are simply better at looking into what they hear in these meetings, however it is very hard to tell without actually seeing the meeting live in order to know exactly what was discussed. I think that the best course of action moving forward would be to require any private meeting to be documented via video or audio, kept on record, and made public. This change would settle any and all claims of unfair play because if as an investor who was not at the meeting, you still have access to it you have all the same answers that the people at the meeting are providing.