Despite the dire predictions that accompanied the introduction of Reg FD eight years ago, face time apparently hasn't lost its value. Institutional investors say that a broker's ability to provide access to a company's senior management greatly affects decisions about which brokerage house to use when placing trades. Research firm Greenwich Associates recently calculated that such access, whether through one-on-one meetings or conferences (see "Your Move"), has an aggregate value of about $1.8 billion per year, far outpacing the value of analyst research. "There's a lot of body language and hidden messages that go beyond the bar charts and bullet points" of printed reports, says Greenwich Associates consultant Bill Bruno.
Therefore, Bruno says, a company's investor-relations team should be conceived as "a very sophisticated marketing vehicle" charged with choosing carefully among the meetings a management team might pursue and accept. Some companies, including Genzyme, go so far as to grade their sell-side firms on how well they set up such tête-à-têtes. Based on feedback from top executives, the IR department completes formal assessments after each day of meetings, answering questions about how organized the sell-side sales representative was and whether they would travel with him again, says Sally Curley, vice president of investor relations for the $3.2 billion biotech firm. The IR department then translates that feedback into a one-to-five rating and uses the information to shape future trips.
Despite its whiff of exclusivity, parsing out face time is well within the bounds of Reg FD (which seeks to ensure that information is fairly disclosed to all investors), say lawyers, provided executives publicize any new information they disclose within 24 hours. But firms may be disappointed if they expect more-favorable research reports as a result. "It doesn't happen," says Elizabeth Saunders, founder and partner of IR consulting firm Ashton Partners. In fact, in her experience ratings risk turning more negative "because analysts hear the [company] story challenged more often as investors ask questions about it."