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Quality of Corporate Information

Getting back to the idea of "access" discussed in the introduction, it's important to remember that even if you don't manage your own hedge fund -- and if you don't, by golly, why not? -- all is not lost. The Internet and a trend toward improved stockholder accountability has made many corporate managers more "accessible" to all, even if not directly.

More and more companies, for one, are now broadcasting their quarterly earnings conference calls over the Internet. (BestCalls is one place to go for these.) This can be great stuff: While much of the calls amounts to regurgitation of the press release, there is generally a question-and-answer session in which analysts and money managers -- and, sometimes, media and even individual investors -- can ask questions.

It's the unscripted moments in these calls that investors should look out for. Do your company's managers handle unexpected or difficult questions well, or do they flounder? Do they give straight answers, or dodge?

Quarterly calls are not the only times a company's management can show up on the proverbial airwaves for this kind of examination. Many companies now broadcast or summarize their investment bank road shows and investment conference presentations online. Websites such as Yahoo!'s FinanceVision and ON24 regularly feature corporate executives on their programs, as do radio programs such as The Motley Fool Radio Show. The preponderance of financial television programs provides additional opportunities to see the brass in action. And of course there are published interviews like our now-defunct StockTalk feature (check out the archives).

Investors should also be quick to check out a company's website or, failing that, the responsiveness of its investor relations department. (Some, unfortunately, amount to little more than PR teams targeting Wall Street analysts. With other companies -- especially smaller ones -- you stand a pretty good chance of suddenly ending up with the CFO on the line!) Is information easy to find? Are press release archives and contact numbers up-to-date?

Another, more subjective, area, is the way a company presents the information it does make available. While a company should be expected to put its best face forward when possible, that's not an excuse to obscure important facts with circuitous information. Signs of this include the inconsistent use of such factors as currency effects and investments in operating income, an insistence on so-called "pro forma" earnings figures, or an unwillingness to include balance sheet and cash flow statements in quarterly earnings releases.

Finally, it goes without saying that if a company is deficient in stockholder communications -- not broadcasting conference calls, maintaining poor websites, assembling an unresponsive investor relations department, or playing fast and loose with Reg. FD -- you can be pretty sure it's a reflection of management's priorities. That may be reason enough to pass on the company as an investment, or rethink a current one, as such behavior might be considered contempt for part owners. Who needs it?

Next: Corporate Governance »

Dave Marino-Nachison's (TMF Braden) stock holdings can be viewed online. The Motley Fool has a full disclosure policy.

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