By Serena Ng and Anton Troianovski

Sept. 27, 2015 10:24 p.m. ET

Procter & Gamble Co. Executive A.G. Lafley speaks on just one earnings conference call a year, down from his previous practice of every quarter. The company says that helps him stay focused on pulling P&G out of a growth slump.

But Mr. Lafley still meets regularly with investors in private. In March, Mr. Lafley’s comments during a string of conversations with investors in New York gave a Wall Street analyst who was present the strong impression that he would step aside as CEO sooner than expected. That hunch was confirmed in July.

P&G says it is careful not to reveal market-sensitive information to investors and analysts who get special access to the company. For the past 15 years, selective disclosure by companies has been illegal under U.S. securities rules. Yet the same rules explicitly allow private meetings like those by P&G.

The result is a booming back channel through which facts and body language flow from public companies to handpicked recipients. Participants say they’ve detected hints about sales results and takeover leanings. More common are subtle shifts in emphasis or tone by a company.

“You can pick up clues if you are looking people in the eye,” says Jeff Matthews, who runs Ram Partners LP, a hedge fund in Naples, Fla. He says he never invests in a company without meeting its management.

A Bebe Stores window in New York City. In April, the retailer said it had made an ‘inadvertent disclosure’ while meeting with a ‘select group of investors.’ Photo: Craig Warga/Bloomberg News



Access usually is controlled by brokers and analysts at Wall Street securities firms, who lean on their relationships with companies to secure meetings with top executives. Invitations are doled out to money managers, hedge funds and other investors who steer trading business to the securities firms, which in turn provide the investors with a service called “corporate access.”

Investors pay $1.4 billion a year for face time with executives, consulting firm Greenwich Associates estimates based on its surveys of money managers. The figure represents commissions allocated by investors for corporate access when they steer trades to securities firms.

Publicly traded U.S. companies held an average of 99 one-on-one meetings with investors apiece last year, according to a survey by market-information company Ipreo.

General Electric Co. said in its annual report that it “ensured strong disclosure by holding approximately 70 analyst and investor meetings with GE leadership present” in 2014. The total was roughly 400 when including meetings with other executives, such as those in GE’s investor-relations department, a spokesman says.

Companies that use closed-door dialogues say they help executives persuade current and potential investors that the company’s stock is a worthwhile investment. But some companies avoid the practice. Morningstar Inc., a financial-research firm based in Chicago, says it holds no private meetings because all investors should have equal access to the same information.

Easy to trip

And it is easy for companies to trip over the legal line. In April, Bebe Stores Inc. told what it called a “select group of investors” that the retailer was “meeting our expectations.”

The next day, Bebe, based in Brisbane, Calif., disclosed the same comment in a securities filing, saying it had made an “inadvertent disclosure.” The company didn’t respond to requests for comment.

Communication by publicly traded companies is closely regulated and usually scripted carefully. Companies report financial results every three months in news releases, typically following up with open conference calls to discuss the results in more detail.

Between quarterly results, company executives often make presentations to investors at conferences sponsored by securities firms and have one-on-one meetings with large investors on the side. Some companies host investor meetings at their headquarters, or their executives may go on “roadshows” to meet with shareholders and potential investors.

During the stock-market boom of the 1990s, some companies leaked earnings forecasts to certain securities analysts, who then passed the information along to their clients. The details sometimes differed widely from the opinions published by the same analysts in official research notes.

After the technology bubble burst, the Securities and Exchange Commission cracked down with a rule called Regulation Fair Disclosure. Since 2000, Reg FD has penalized selective disclosure of information that might be reasonably expected to affect the price of a stock or bond.

Companies and securities firms lobbied successfully to preserve the right to hold private meetings with investors. During the rulewriting process, Lou Thompson, president of the National Investor Relations Institute at the time, says two of the trade group’s board members role-played to SEC officials a hypothetical conversation between a company executive and securities analyst to help convince regulators that executives could speak privately “without giving away the store.”

But some academic researchers have concluded that investors often can turn special access into a trading advantage and profits.

A recently published paper in the Journal of Law and Economics analyzed the trading behavior of dozens of investors who met during a 5½-year period with senior management of a company listed on the New York Stock Exchange.

J.C. Penney CEO Myron ‘Mike’ Ullman speaks at an event in Brooklyn in 2014. The company’s shares sank 15% after some investors didn't like Mr. Ullman's body language at a breakfast meeting in September 2013. Photo: Victor J. Blue/Bloomberg News

While the paper doesn’t identify the company or investors, researchers concluded that the investors who got face time with management made better trading decisions. Several large hedge funds met the company as frequently as once a quarter.

“I think firms are following the law, but clearly some investors are gaining access to preferential information,” says Eugene Soltes, a Harvard Business School professor and one of the paper’s authors.

A separate study that hasn’t been published in an academic journal examined trading data right before and after 7,668 company conference presentations. More than half of the presentations were accompanied by private meetings between investors and executives.

Brian Bushee of the University of Pennsylvania’s Wharton School and two other academic researchers concluded that trading volume picked up around the time of the private meetings. Trades made then were more likely to be profitable than trades made at other times.

Securities analysts also can get an edge from special access to company executives. Analysts who hosted executives at an investor conference made more accurate earnings forecasts and changes to their ratings during the next three months than other analysts, according to a paper by Stanimir Markov, an associate professor of accounting at Southern Methodist University, and three co-authors.

Sidoti & Co., a New York brokerage firm that earlier this year filed documents to go public, has said in securities filings that its analysts generally don’t cover companies that limit access to their senior executives.

Sidoti also offers clients access to senior management, “which our clients can use to improve their trading decisions and ultimately their investment returns,” according to the brokerage firm. Sidoti declines to comment further.

At P&G, Mr. Lafley’s approach has changed since he returned as chief executive in 2013. As CEO from 2000 to 2009, he more than doubled the company’s revenue and market value. He came back after his successor left amid shareholder discontent over a downturn in the company’s performance.

Mr. Lafley turned down requests for media interviews and kept a low public profile. He cut back his appearances on earnings calls, while continuing to make occasional presentations at investor conferences and meeting one-on-one with large P&G shareholders and potential investors.

In February 2014, a group of analysts and investors flew to Cincinnati to hear presentations by Mr. Lafley and other top P&G executives, including two who were candidates to become the company’s next CEO.

The executives explained how they were making productivity gains and cost cuts a priority, and they discussed P&G products ranging from household cleaners to shampoos.

At one point during the half-day meeting, a P&G executive in charge of investor relations mentioned that foreign-currency exchange rates had shifted in recent weeks, according to two people who were present. The company had issued a financial forecast two weeks earlier with its quarterly results.

A few days after the meeting, the three analysts who attended published reports summarizing their visits to P&G. Each said P&G might reduce its earnings forecast because of bigger-than-expected foreign-exchange headwinds.

P&G soon announced that it was revising its sales and earnings estimates to account for the foreign-exchange moves. Its shares fell 1.7% the next day.

Company spokesman Paul Fox says executives didn’t disclose any new information during the meeting. He says the company had said before that its financial forecast was based on prevailing currency exchange rates.

Since then, Venezuela, a major market for P&G, had undergone a widely known devaluation of its bolivar, as the company noted in a securities filing before the meeting.

Ever since Mr. Lafley returned to P&G, analysts and investors have wanted to know how long he might stay as CEO. Mr. Lafley and other executives said publicly that he would stick around for as long as the board of directors wanted him.

In early 2015, several analysts who hosted meetings with top P&G executives reported that the executives discussed how the company could benefit from having Mr. Lafley remain chairman for a year or two after a successor was chosen.

Wendy Nicholson of Citigroup Inc.’s Citigroup Research, concluded from Mr. Lafley’s comments in meetings her firm arranged that Mr. Lafley would likely relinquish the CEO job later this year, or earlier than expected.

In July, P&G’s board announced that company veteran David Taylor will take over as CEO on Nov. 1, with Mr. Lafley shifting to executive chairman.

Mr. Fox, the P&G spokesman, says the company didn’t actively discuss succession plans at any investor meeting. Our response [was] always the same” when asked about the eventual CEO shift, he says.

P&G shares didn’t move much around the time of the meetings but are down 9.4% since the CEO change was announced and P&G reported weaker-than-expected results.

Watching for clues

Investors who attend private meetings with company executives say they watch carefully for clues in much the same way as good poker players do.

In 2013, representatives from 10 investment firms sat down for dinner in Boston with Regions Financial Corp.’s finance chief and other executives of the Birmingham, Ala., bank holding company.

The invitation-only event happened a few days before the Federal Reserve was due to release results of its annual “stress tests” for large banks, which would determine if Regions could return more capital to shareholders.

At the dinner, Regions executives appeared “very confident” that the company would be able to boost dividends or stock buybacks, according to a note from Kevin Fitzsimmons, a banking analyst who organized the event for clients while working at Sandler O’Neill + Partners LP.

Mr. Fitzsimmons upgraded his rating on Regions shares to a “buy,” citing the company’s “upbeat tone.” The shares edged higher, and Regions won approval from the Fed a few days later to raise its dividend.

A Regions spokeswoman says management had no insight into the Fed’s decision ahead of time. She says the analyst’s conclusions were consistent with broad public statements that the bank had made for some time.

Mr. Fitzsimmons, who now does banking research at Hovde Group LLC, says meetings with companies “can have value even if management isn’t saying anything new, because investors can gauge their tone and confidence level.”

Securities regulators have little or no way to monitor what goes in the thousands of private meetings with analysts and investors that take place each year at publicly held companies.

A few years ago, the SEC sought information from multiple securities firms about meetings they set up between companies and investors, according to people familiar with the matter.

Regulators wanted to know how the meetings were conducted and what was being done to ensure compliance with Reg FD, these people said. No action was taken after the inquiry, the people added.

An SEC spokesman wouldn’t say if the agency has sought similar information more recently or is considering doing so now.

Arthur Levitt, who led the SEC when Reg FD was passed, says the agency “should conduct examinations of meetings and come down hard on people who are violating FD either accidentally or intentionally.”

In the past 15 years, the SEC has brought 14 enforcement actions under Reg FD, according to Joseph Grundfest, a former SEC commissioner who now is a professor at Stanford University.

Most of the cases related to selective disclosure of earnings guidance, financial performance or business activity levels, he says. Regulators also found examples of private statements by executives that differed from public comments. Most of the firms consented to cease-and-desist orders, and some paid small civil penalties to settle the allegations.

Regulators usually look for telltale signs, such as a large stock-price move, that market-moving information might have been leaked. Even then, though, it can be hard for the SEC to make a case.

In September 2013, J.C. Penney Co. Chief Executive Myron “Mike” Ullman sat down for breakfast with about 30 investors in New York to add context to the retailer’s financial results released the previous month.

The Plano, Texas, company was trying to reverse a deep sales slump, and speculation was rife that its finances were rapidly weakening.

At the meeting, one person pressed Mr. Ullman for an update on Penney’s cash position and asked if the company needed to raise capital, according to people who were there. Mr. Ullman referred to numbers Penney had disclosed earlier and said he couldn’t share more information.

Some investors didn’t like Mr. Ullman’s body language, and Penney shares sank 15% after the meeting. The stock sank again after Penney announced a large share sale the next day. The SEC launched an inquiry into the stock offering but shortly after closed the probe.

Write to Serena Ng at and Anton Troianovski at


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