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Thursday, Mar 28, 2024

Companies Cautious About Meetings in Post-Enron Era

Companies Cautious About Meetings in Post-Enron Era By SHELLY GARCIA Senior Reporter The ongoing investigation into improper accounting practices at Enron and other high-profile corporations is driving even the most unimpeachable businesses to revise their reporting procedures and their investor relations programs. Auditors report that companies are opting for greater disclosure and adopting more stringent accounting practices. Investor relations counselors say their clients are prepping to answer many more shareholder questions than they are typically asked to field at annual meetings. And even small businesses plan to devote more time to analyzing the company’s performance in upcoming discussions. “We intend to beef up our discussion of our financial results in our 10K in the management discussion and analysis area,” said Kurt Johnson, CFO at ValueClick Inc., a Westlake-Village based online advertising service. “We’ll probably be providing more information to give readers a better sense of our activities.” Current practices at firms like ValueClick would likely pass any regulatory or shareholder scrutiny, but that isn’t the point, corporate officials say. Companies like Enron or, closer to home, Homestore.com have eroded the trust and confidence of the investing public and hurt stock market valuations almost across the board, not just for those who may have something to hide. “We’re in a very skittish market right now in part because of Enron and Tyco and Global Crossing,” said Bill Powell, director of investor relations for Syncor International Corp. “This is a company that’s highly ethical and balanced, and believes in doing things the right way. Whatever we can do to provide more information and clarity, we think that’s the right way to go.” The fallout from Enron has focused attention on a heap of accounting issues from the way companies book revenues and compute earnings to the way they account for losses and the information they provide shareholders and sent many companies scrambling to remove any possible doubts, real or imagined, about their own practices. In recent weeks, General Electric Co. said that it would begin breaking out operating results for its individual operating businesses for the first time. Intel Corp. said it will phase out pro forma reporting next year. American International Group Inc., the parent company of 21st Century Insurance Group, told analysts it plans to disclose more information about its finances. Homestore.com is restating its last two years of financial results. A recent, informal poll of CBS.Marketwatch.com readers elicited a large number of responses to the question of what companies can do to win back investor trust. The responses ranged from requiring companies to report finances to shareholders as they do to the IRS to eliminating the puff in press releases and doing away with pro forma statements altogether. Some companies are bracing for a grilling when the annual shareholder meeting season begins this spring, or at least a greater level of participation from shareholders. “Shareholder meetings are historically fairly structured and scripted affairs,” said Bob Pearlman, a partner in the technology practice group at accounting and management consulting firm Grant Thornton LLP. “And you kind of know going in what’s going to happen. I think going forward there will be some additional questions, there will be some heightened curiosity and directors will be better prepared to answer questions.” Large companies, with their high profiles and complex business structures, may feel most vulnerable to the heightened scrutiny of shareholders, but even small cap firms, concerned about being tainted with the air of distrust that has spread through the investment community, are making certain they dot all the Is and cross all the Ts. “I have had some clients that have come to us and said, ‘With everything going on with Enron, do you think we should do something?'” Pearlman said. “Everybody is more concerned now about doing it by the book.” For those who have been doing it by the book, however, there is still the perception in the investment community to deal with. Companies like Syncor, which operate several different businesses, all fairly technical in nature, want to be certain that their reporting is perceived as clear and complete. “Our annual report theme this year is entitled ‘Straight Talk,'” said Powell. “Our business is somewhat difficult to understand. First, you have to start with radiopharmaceuticals, which is not something that burns in the hearts of investors, so we have to work a little harder.” Financial accounting at ValueClick, a small cap company with a single operating division, is relatively simple and straightforward. ValueClick doesn’t accept barter payments, an e-commerce strategy that led in part to the recent charges that Homestore falsified its accounting. But the company has chosen greater disclosure anyway, aware that the current environment requires greater sensitivity. “When the news is good, there typically isn’t a cause for criticism or concern. Now the environment is much different, so it’s warranted that we open up communication lines,” Johnson said. The decision to reveal more information about the inner financial workings of a company can be a complicated one, investor relations counselors say. The more transparent the company’s financial practices, the more trust the business can instill. But detailed reporting, such as a shift in marketing strategy that adds to the cost of operations, can also provide intelligence to competitors or it can make the company a target of competitive sniping. “If a company knows it plans to raise capital, but they haven’t started the process, that’s a sensitive issue,” said Douglas M. Sherk, senior managing director at Morgen-Walke Associates, an investor relations firm in San Francisco that counts Guitar Center Inc. among its clients. “If I’m a competitor, I can latch onto that and say, ‘They need to raise money; they’re in trouble.’ Even something simple like major executives selling stock. A competitor can latch onto that information and, if they’re aggressive in their sales tactics, say, ‘How can they believe in the company if they’re selling stock?'” Still, companies are increasingly listening to the advice of investor relations consultants and auditors that they open their books, where they may have argued for a different interpretation before. “We had some very heated discussions with a client about the accounting treatment for some of their transactions in which we were very insistent they do it one way even though they wanted to do it another way,” said Pearlman. “In the heat of the discussion, they implied they could go find another auditor, but I ran into them at a conference recently and the CEO pulled me aside and thanked me for keeping their feet to the fire. They were grateful now that the Enron thing has come up that we were forcing the issue.”

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