For as long as we've worked in corporate crisis communications, there has been a rule of thumb accepted by some lawyers, some investment bankers and even some PR advisors that the "best" time to disclose bad news is after the markets close on Fridays.
The logic of this rule of thumb goes something like this:
Reporters, Wall Street analysts, and anyone else who might be interested in knowing more about the company's bad news -- short sellers or plaintiffs’ attorneys, for example -- are as eager as anyone else to begin their weekend. If bad news were ever to be "buried" by the media or overlooked by the markets, the best time to make that happen would be while Wall Street mavens were rushing to hop on the 5:23 to Greenwich (and, one imagines, reporters were knocking back their second boilermakers at their favorite pub). So, when it is bad news, the recommendation is often that it go out late on Friday.
Despite sea changes in the ubiquity and immediacy of information over the past several years, some advisors still recommend this course of action. In fact, it can be very instructive (and even an exercise in schadenfreude) to sit in front of a Bloomberg terminal late one Friday afternoon and watch the news releases and 8-K filings containing adverse news on the live news feed.
For example, on Friday, January 13, 2006, a sampling of the news issued by companies between 4:00 and 4:15 p.m. Eastern included the following:
• A Nasdaq-traded company announced that a long-time member of the board of directors -- who is head of one of the company’s early stage VC firms – resigned from the board. No replacement was named. (Not exactly a positive development.)
• A Canadian junior oil company announced that it had sold one of its previously “strategic assets,” and that, as a result, the company “is now in a position to fund its current planned activities and operations without outside funding.” (An unusual financing strategy, to say the least.)
• A small medical technologies company announced “that it had received a notification, dated January 11, 2006, from The Nasdaq Stock Market, Inc. that [the company] is not in compliance with Nasdaq's audit committee requirements, as set forth in Marketplace Rule 4350.” (Oops!)
While some companies are clearly still following the “Late Friday” rule of thumb, we believe it has always been a fallacious – even silly – communications tactic. Many experienced financial journalists, and savvy analysts and investors, have long known that some of the juiciest morsels of information cross the PR newswires and the SEC’s Edgar repository starting around 4:00 p.m. Eastern on Fridays.
Consequently, financial reporters will jump on these stories and may even use the weekend to comb their sources for quotes, speculation and any negatives they can dig up. (That’s why they love Friday evenings: They get juicy stories and may have a day or two to work on them if their editors favor content over speed.)
Investors will prepare trading strategies – long or short -- for execution electronically or in overseas markets before the markets open in the U.S. on Monday.
Members of the plaintiffs' bar will troll the announcements and watch for unusual fluctuations in share price to begin the process of preparing class action or derivative litigation.
Even peer companies or competitors will use the news to their advantage over the weekend or first thing Monday morning.
So rather than “burying” bad news, companies may actually “flag” the news for outside parties and make the consequences for the company far worse. At the very least, there is the potential for a material loss of a company’s credibility if bad news is always released late – Friday or any other day of the week.
Of course, companies cannot neglect the fact that SEC and stock exchange regulations require public companies to disclose material information in a timely manner. Holding information which could be considered material until a “better” time – be it Friday evening or any other time – is hardly a way to avoid the treacherous waters of today’s SOX and Reg. FD environment. The SEC and the U.S. stock exchanges are closely watching the timing and market impacts of announcements. Very few, if any, senior corporate executives want to be in the position of answering the questions, “Mr. CEO, when did you first learn that there may have been some irregularities in the revenue recognition practices of your Western Widget division? Can you explain to us why you and your board of directors decided to wait five days to publicly disclose this information?”
Instead of attempting any sort of fancy footwork to avoid the consequences of disclosing negative news, companies would be far better served by developing solid communications policies and plans to deal with all types of disclosures – positive or negative, routine or unplanned, in the normal course of business or in crisis mode.
Plans of this type are almost always based on a solid corporate disclosure policy, and the plans receive the endorsement of a corporate disclosure committee that operates with the board’s full backing.
A solid communications plan starts with the premise of viewing virtually all issues from the perspective of a company’s key stakeholders – investors; customers; employees; government, regulators and NGOs; vendors; communities, and the media that serve these groups.
Strategies, messages, communications vehicles and tactics (including timing of announcements) should be driven by the information needs of each of these stakeholder groups, and answering their key questions. (In our experience, stakeholder questions almost always boil down to, “What does this mean for me?”)
The best plans have the blessing and involvement of the CEO, CFO and other top officers of the company. The team that implements the plan includes communications professionals, lawyers and other internal and outside advisors who understand that management views communications with its key stakeholders as a key corporate priority.
When companies approach their communications this way, then the issue is no longer whether to release bad information on a Friday evening, but how to make sure that all of a companies’ stakeholders have the information, perspective and guidance they need to form rational impressions of the news – good or bad.
Releasing bad news on a Friday evening to avoid the negative impact is outdated, wishful thinking. Having a solid communications plan that guides a company through timely disclosure of all news is good management.
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