Beware the Buzzy Press Release
In the world of corporate communications, press releases play a pivotal role in disseminating news. However, a recent study shows that companies are also using press releases strategically in an effort to shape public perception.
The study conducted by researchers at the University of Notre Dame determined some issuers put out press releases simply as distractions – think of it as a PR sleight of hand. Basically, when these companies have bad news to disclose, they stick it in an 8-K filing for the Securities and Exchange Commission. Then they blast out a press release on an unrelated issue.
The difference is like reading an instruction manual versus looking at a billboard. While 8-K filings make for dry reading and are ill-suited for mass consumption, press releases are written to catch the attention of readers and build buzz.
“We also find that managers more commonly issue concurrent unrelated press releases when they have stronger incentives to divert investors’ attention away from 8-Ks disclosing negative news, including when they have an upcoming stock sale,” said Jessica Watkins, an accounting professor at Notre Dame.
Not surprisingly, the analysis, which covered 50,000 filings between 2005 and 2018 with news releases from the company on the same day, showed that companies tend to file 8-Ks during periods when fewer investors are paying attention. (They’re called “Friday news dumps” for a reason.)
On the flip side, the research also indicates that some companies are using press releases to glam up information for the public, rather than saving it for an 8-K. The tactic has special potency for ESG issues, which have become flashpoints among investors, activists and members of the financial press.
But is this really that big of a deal? After all, companies are fulfilling their legal responsibilities by making their required filings with the SEC. Influencing public perception and engaging in damage control certainly fall within the purview of corporate management teams.
All true, but the practice still presents significant ethical and reputational risks. For starters, the stakes are lower when using press releases to convey information. Inaccuracies and inconsistencies in regulatory filings generally face harsher legal consequences for companies than they do in these press releases, which are essentially marketing materials. Choosing that path for communication doesn’t exactly imply trustworthiness.
More importantly, using tactics designed to distract from bad news demonstrates a lack of good faith and accountability on the part of managers. Companies should also be mindful that such strategies produce diminished returns as the public becomes savvier about PR tactics. Even the Friday news dump is showing its age.
While distractions might offer short-term reprieves from the effects of bad news, companies still must face reality at some point. Better to be upfront than to risk your credibility.
The Intelligize blog is on hiatus for the Memorial Day holiday and will return on Thursday, June 1, 2023
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