You're on a tight timeline to issue a press release. You finish your draft and 'cut & paste' your standard "forward-looking information" cautionary statement from your last press release into the new one. If this sounds familiar, you're more than just deficient in fulfilling your requirements under securities regulations; you've also missed an excellent investor relations opportunity.
With information available around the clock and at the click of a button, investors and analysts are increasingly looking for meaningful and coherent information. Forward-looking information, when used properly, can enhance an investor's understanding of your business and operations; when not, however, it can lead to confusion and unanswered questions. Unfortunately, it is often not used properly. National Instrument 51-102: Continuous Disclosure Obligations (each province that has adopted this instrument publishes its own version on its securities commission website; we've used the Nova Scotia Securities Commission's posting for "NI-51-102 Consolidated as of June 30, 2015" here) governs the use of forward-looking information. However, the Ontario Securities Commission (OSC) concluded that many issuers are missing the mark in their use of forward-looking information based on the results of its review of forward-looking information use in various documents(see its June 2013 Staff Notice 51-721); the Canadian Securities Administrators echoed this conclusion in its more recent continuous disclosure review for the year ended March 31, 2015 (see CSA Staff Notice 51-344).
Here are three tips to ensure your press releases comply with securities regulations and effectively communicate with investors.
1. Meet the disclosure requirements if you choose to include material forward-looking information in a press release.
If you choose to include material forward-looking information in a press release, you must:
- Specifically identify the information as forward-looking information.
- Caution the reader that actual results may vary and identify the material risk factors that could cause actual results to differ materially from the forward-looking information.
- Identify the material factors or assumptions used to develop the forward-looking information.
- If you have procedures in addition to those required under securities regulations (see Tip 3 below), describe your policy for updating forward-looking information.
These requirements also apply to public disclosure documents such as Management's Discussion and Analysis (MD&A), annual information forms, marketing materials and publications posted to a website, including transcriptions of analyst conference calls. However, financial outlooks and future-oriented financial information are special forms of forward-looking information and are subject to additional requirements:
- They must be limited to a reasonable period.
- They must use the same accounting policies that you will use in preparing your financial statements.
- You must explain their purpose and caution the reader that the information may not be appropriate for other purposes in addition to the disclosure requirements applicable for all forward-looking information.
2. Don't use boilerplate cautionary language.
Issuers frequently – and mistakenly – use boilerplate cautionary language in attempting to comply with the disclosure requirements for forward-looking information. The key to good disclosure: resist the urge to 'cut & paste' cautionary statements from other issuers' press releases or from your own, and instead be entity and situation specific. For example, if you are in the mining industry then you will likely have different risk factors than another issuer in the financial industry; similarly, if one of your press releases deals with financial forecasts then the risk factors will be different than in a press release announcing an acquisition. For examples of boilerplate cautionary language commonly used by issuers and examples of good forward-looking information disclosure, see OSC Staff Notice 51-721. There are various approaches to the presentation of forward-looking information in press releases, including:
- A cautionary statement at the beginning or the end of the press release identifying each forward-looking information statement and its associated risk factors and assumptions (you can use point form to do this).
- The identification of the forward-looking information and discussion of its associated risk factors and assumptions as it is used throughout the press release.
- The use of a table or chart.
Inclusion of a cautionary statement is the most common approach; however, it's a good idea to look at the examples in OSC Staff Notice 51-721 (to see the examples, you might have to select the PDF version on the OSC's website, found in the top right-hand corner of the page) and choose a style that works best for you. If you do decide to use a cautionary statement, remember that you must identify the specific forward-looking information and its material assumptions and material risk factors; it's not enough to simply identify forward-looking information as those "statements using words like 'may', 'believes', 'likely', 'plans' or similar words" or to simply say that it's "any disclosure relating to the future".
3. Update the forward-looking information.
If you properly update forward-looking information, investors are better able to assess your performance and progress – and this leads to a better understanding of your business and operations, all while complying with your obligations under securities regulations. If you choose to include forward-looking information in a press release, then you are obligated to later:
- Discuss the occurrence of events or circumstances that are reasonably likely to cause actual results to differ materially from the forward-looking information contained in the press release.
- Disclose the expected differences.
You must include this disclosure in your MD&A (or in a press release issued before the MD&A and then refer to it in your MD&A) as well as a comparison of actual results to a previously-disclosed financial outlook or future-oriented financial information if the actual amounts differ materially from those disclosed. For examples of good forward-looking information updating disclosure, see OSC Staff Notice 51-721 (to see the examples, you might have to select the PDF version on the OSC's website, found in the top right-hand corner of the page).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.