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In my own mind's process, I think it's most important to look that management team in the eyes and to hear what they have to say, to see whether they actually believe that they can do what they say they are going to do. And then you can watch those results happen, of course. It's about believing management. How do you get access to that if you are an individual investor? It's very difficult unless these types of activities start occurring.
TMF: Could you tell us a little bit about how your company-wide effort against selective disclosure came about?
Molthrop: We feel strongly that there are a lot of issues about a complicated company and a complicated story like ours that investors need to know about. If sophisticated investors have difficulty understanding, then you know that our individual investors are having difficulty understanding it. So, we've really put the onus on us to shed light on these issues -- not just for sophisticated investors, but for our individual investors as well. It's completely and clearly in the spirit of the SEC regulations. If we have an Investor Day, we're going through so much information that will be helpful to people.
We just said, look, it's the year 2000. It's clear that individual investors have a voice now that they didn't have before. It's very important that everyone gets the same information at the same time. And it's also self-serving for me because I can't answer the volume of phone calls that come in about these same issues. It's something that we know everyone is going to have to eventually move to. And because we are a future-thinking company, we felt that we'd like to be the first company to really open up the doors like this.
It's clear that individual investors have a voice now that they didn't have before. It's very important that everyone gets the same information at the same time.
TMF: What's going to be discussed at the Investor Day? Will it be the same information that is regularly relayed to sell-side and buy-side analysts?
Molthrop: As you well know, the ways companies communicate to Wall Street are: you do your own group meetings and invite institutional investors to them or you go to sell-side conferences and their clients are there. But, rarely do individual investors have the insight into those types of presentations.
Now, we put our slide shows up on our website so people can see them, but you don't hear the intonation, you don't hear the question and answer period, and that type of thing. For our Investor Day, we are going to have all of our senior management give more full explanations of the products and services we sell and distribute, so people have a really clear understanding of how we do what we do. So, it will be more in-depth even than the types of presentations we give during sell-side conferences. And it will be live on the website; it won't just be for the day. It will reside on our website so people can access information they are interested in.
TMF: The push for more open disclosure, did that originate from inside management or was it something shareholders talked to the company about?
Molthrop: It originated from inside management. We went public in December. And one of the reasons I was brought on from the investor relations perspective was because I have a very forward-looking vision about investors. You just listen to any of Arthur Levitt's speeches and he's basically telling companies that they better start opening up to individual investors or they will be penalized, ultimately. And he's absolutely right that the voice of individual investors cannot be ignored these days.
We had to either make a decision to do this in the future or just go ahead and do it now. This management team is very open to new ideas, otherwise we wouldn't be doing the kinds of things we do on a products and services level. I've just taken that same attitude to our shareholder relations.
TMF: One time we most commonly see instances of selective disclosure is during a company's quarterly earnings conference calls. What's Infonet's position on opening up conference calls for shareholders? And do you personally think that companies should do conference calls to begin with?
Molthrop: We broadcast our conference calls live through our website to avoid just that type of incident. In fact, there are two areas where people get into trouble when they're speaking to analysts or investors, and that's usually on these conference calls or on these site visits. If you remember, I believe it was at Compaq (NYSE: CPQ) a year and a half ago where one of their managers basically made a comment about sales that sent the stock down. Then it was found out later that the comment was made during one of these investor visits.
So, yes, I believe companies need to have conference calls. But, with the convergence of media, there's no excuse now not to have these things open to everybody on a real-time basis. There should be, ultimately, a forum in which investors are able to ask questions during these conference calls as well. Now, I would go ahead and give preference to larger, sophisticated investors to ask their questions first. But, ultimately, there's no reason why individual investors shouldn't be piping in via e-mail questions that the CEO might take another 30 minutes at the end of the call to answer as well.
TMF: You mentioned what Arthur Levitt has been saying about selective disclosure. What's your view on the efforts made by the SEC? Do think the regulations are tough enough or do we need more?
Molthrop: To the extent that companies self-regulate or begin to react or take steps to open up their communications, I don't see the need for expanded regulation. I think they are doing a good job of explaining the types of incidents that give them pause. But, I think companies will start doing the types of things like open webcasting, and broadcasting their day-long events, and that type of thing. I'm not a big [fan] of having more regulations, just generally. I'm not necessarily an advocate of that. I'm an advocate of a good, healthy, self-regulatory environment.
TMF: As an investor, what are some of the attributes you look for personally when you look at companies and take into your thought process their disclosure policies?
Molthrop: I know one of the things that is most important to me is my feeling about management's credibility. And, I think this type of activity, watching management give their presentations and basically talk about how they are going to bring a company from Point A to Point B, is so important in the investment-making decision. Again, that's why we're doing this.
Companies need to have conference calls. But, with the convergence of media, there's no excuse now not to have these things open to everybody on a real-time basis.
TMF: It's interesting to hear a complex company like Infonet take this stand. One of the instances of selective disclosure we experienced here at the Fool was when we talked with the IR department at Coca-Cola (NYSE: KO) about an analyst conference call they held and didn't let anyone else in on. They basically told us that individual investors weren't smart enough to understand Coke's business, which is obviously far less complicated than Infonet's business of networking and communications.
Molthrop: That's a very traditional viewpoint, like "Kids, don't try this at home." That paternalistic attitude is giving way. And the real reason it's giving way is because of the Internet. You just can't ignore it anymore. And you can't say that it's too expensive for us to communicate to all of our shareholders, just trust us, and listen to the sell-side analysts. For analysts, their whole domain is eroding every day.
TMF: Can you give us a rough estimate of how much it costs your company to open up the conference call or make the call available through a webcast?
Molthrop: For us, the webcast vendor is the same vendor that does our website. So, it's a portion of that. But, I wouldn't say that it's more than $4,000 a call. That's good money spent to comply with the spirit of the regulations.
TMF: What percentage of your overall IR budget would that be?
Molthrop: You'd have to add in the production costs of this Investor Day, which is going to be an extra, say, $30,000 for me to make it a webcast. That sounds substantial, but as a portion of the overall budget it's relatively small.
TMF: To sum up a little, what do you think is the major roadblock preventing other companies from going down the same route as Infonet?
Molthrop: Things happen so fast. If we were going to have this conversation in a year, you'd see that there will be 15 companies that followed after us. But, the major roadblock? It's the lawyers. Like anything else, they don't want us to say something and have to put out an immediate press release because it's material.
The truth of the matter is the SEC hasn't recognized the Internet as a form of full disclosure yet. So, they still say that no matter what you say, if it's material you're going to have to put out a press release. So, [the lawyers] don't want us to say anything that we have to put out a release at the same time we are trying to, for example, finish up a presentation.
We're trying to figure out a system so that if anything is said that is "considered material" that was unexpected, that we will be able to get it out in still the traditional form of disclosure. It's kind of silly, if you think about it. You open it up to everyone in the world and you still have to put a press release out if you say something. Like someone is going to read the press release rather than watching the webcast.
TMF: Well, we certainly applaud your moves here and commend you for standing up for shareholders. We hope more companies follow in your footsteps.
Molthrop: Thank you. I've always appreciated what you guys have been doing from the very beginning. It's because of you guys and your voice that this thing is going to ultimately happen.
TMF: We sure hope so. Thank you for taking the time.
Molthrop: Thank you.
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