National Policy 51-201 Disclosure Standards

Part VI Best Disclosure Practices

(1) There are some practical measures that companies can adopt to help ensure good disclosure practices. The consistent application of “best practices” in the disclosure of material information will enhance a company’s credibility with analysts and investors, contribute to the fairness and efficiency of the capital markets and investor confidence in those markets, and minimize the risk of non-compliance with securities legislation.

(2) The measures recommended in this policy statement are not intended to be prescriptive. We recognize that many large listed companies have specialist investor relations staff and devote considerable resources to disclosure, while in smaller companies this is often just one of the many roles of senior officers. We encourage companies to adopt the measures suggested in this policy statement, but they should be implemented flexibly and sensibly to fit the situation of each individual company.

(1) Establish a written corporate disclosure policy. A disclosure policy gives you a process for disclosure and promotes an understanding of legal requirements among your directors, officers and employees. The process of creating it is itself a benefit, because it forces a critical examination of your current disclosure practices.

(2) You should design a policy that is practical to implement. Your policy should be reviewed and approved by your board of directors and widely distributed to your officers and employees. Directors, officers and those employees who are, or may be, involved in making disclosure decisions should also be trained so that they understand and can apply the disclosure policy. Your policy should be periodically reviewed and updated, as necessary, and responsibility for these functions (i.e., review and update of the policy and education of appropriate employees and company officials) should be clearly assigned within your company.

(3) The focus of your disclosure policy should be on promoting consistent disclosure practices aimed at informative, timely and broadly disseminated disclosure of material information to the market. Every disclosure policy should generally include the following:

(a) how to decide what information is material;

(b) policy on reviewing analyst reports;

(c) how to release earnings announcements and conduct related analyst calls and meetings;

(d) how to conduct meetings with investors and the media;

(e) what to say or not to say at industry conferences;

(f) how to use electronic media and the corporate Web site;

(g) policy on the use of forecasts and other forward-looking information (including a policy regarding issuing updates);

(h) procedures for reviewing briefings and discussions with analysts, institutional investors and other market professionals;

(i) how to deal with unintentional selective disclosures;

(j) how to respond to market rumours;

(k) policy on trading restrictions; and

(l) policy on “quiet periods”.

Establish a committee of company personnel or assign a senior officer to be responsible for:

(a) developing and implementing your disclosure policy;

(b) monitoring the effectiveness of and compliance with your disclosure policy;

(c) educating your directors, officers and certain employees about disclosure issues and your disclosure policy;

(d) reviewing and authorizing disclosure (including electronic, written and oral disclosure) in advance of its public release; and

(e) monitoring your Web site.

(1) Have your board of directors or audit committee review the following disclosures in advance of their public release by the company:

• financial outlooks and FOFI, as defined in National Instrument 51-102 Continuous Disclosure Obligations; and
• news releases containing financial information based on a company’s financial statements prior to the release of such statements.[FN 38]

You should also indicate at the time such information is publicly released whether your board or audit committee has reviewed the disclosure. Having your board or audit committee review such disclosure in advance of its public release acts as a good discipline on management and helps to increase the quality, credibility and objectivity of such disclosures. This review process also helps to force a critical examination of all issues related to the disclosure and reduces the risk of having to make subsequent adjustments or amendments to the information it contains.

(2) Where feasible, issue your earnings news release [FN 39] concurrently with the filing of your quarterly or annual financial statements. This will help to ensure that a complete financial picture is available to analysts and investors at the time the earnings release is provided. Coordinating the release of a company’s earnings information with the filing of its quarterly or annual financial statements will also facilitate review of these disclosures by the board or audit committee of the company. [FN 40]

FN 38 Some provinces require that annual financial statements be reviewed by a company’s audit committee (if the company has an audit committee) before board approval. A board of directors must also review interim financial statements before they are filed and distributed. In the case of interim financial statements, boards are permitted to delegate this review function to the audit committee (see for example, OSC Rule 52-501 Financial Statements). Where such a requirement exists at law, we believe that extracting information from financial statements that have not been reviewed by the board or audit committee and releasing that information to the marketplace in a news release is inconsistent with the prior review requirement.

FN 39 Companies often issue news releases announcing corporate earnings which highlight major items and may include pro forma results.

FN 40 Certain jurisdictions impose a requirement to concurrently deliver to shareholders financial statements that are filed. This may militate against the early filing of annual financial statements to avoid the cost of mailing them twice, once at the time of early filing and subsequently as part of the company’s annual report. The CSA is considering eliminating this concurrent delivery obligation in the context of harmonizing continuous disclosure requirements across the country.

Limit the number of people who are authorized to speak on behalf of your company to analysts, the media and investors. Ideally, your spokesperson should be a member(s) of senior management. Spokespersons should be knowledgeable about your disclosure record and aware of analysts’ reports relating to your company. Everyone in your company should know who the company spokespersons are and refer all inquiries from analysts, investors and the media to them. Having a limited number of company spokespersons helps to reduce the risk of:

(a) unauthorized disclosures;

(b) inconsistent statements by different people in the company; and

(c) statements that are inconsistent with the public disclosure record of the company.[FN 41]

FN 41 In some circumstances a company’s designated spokesperson will not be informed of developing mergers and acquisitions until necessary, to avoid leakage of the information.

(1) You should consider using the following disclosure model when making a planned disclosure of material corporate information, such as a scheduled earnings release:

(a) issue a news release containing the information (for example, your quarterly financial results) through a widely circulated news or wire service;

(b) provide advance public notice by news release of the date and time of a conference call to discuss the information, the subject matter of the call and the means for accessing it;

(c) hold the conference call in an open manner, permitting investors and others to listen either by telephone or through Internet webcasting; and

(d) provide dial-in and/or web replay or make transcripts of the call available for a reasonable period of time after the analyst conference call. [FN 42]

(2) The combination of news release disclosure of the material information and an open and accessible conference call to subsequently discuss the information should help to ensure that the information is disseminated in a manner calculated to effectively reach the marketplace and minimize the risk of an inadvertent selective disclosure during the follow-up call.

FN 42 This model disclosure policy was recommended by the SEC in the adopting release to Regulation FD.

(1) Hold analyst conference calls and industry conferences in an open manner, allowing any interested party to listen either by telephone and/or through a webcast. This helps to reduce the risk of selective disclosure.

(2) Company officials should meet before an analyst conference call, private analyst meeting or industry conference. Where practical, statements and responses to anticipated questions should be scripted in advance and reviewed by the appropriate people within your company. Scripting will help to identify any material corporate information that may need to be publicly disclosed through a news release.

(3) Keep detailed records and/or transcripts of any conference call, meeting or industry conference. These should be reviewed to determine whether any unintentional selective disclosure has occurred. If so, you should take immediate steps to ensure that a full public announcement is made, including contacting the relevant stock exchange and asking that trading be halted pending the issuance of a news release.

Establish a policy for reviewing analyst reports. As noted in section 5.2 of the Policy, there is a serious risk of violating the tipping prohibition if you express comfort with or provide guidance on an analyst’s report, earnings model or earnings estimates. There is also a risk of selectively disclosing material non-financial information in the course of reviewing an analyst’s report. If your policy allows for the review of analyst reports, your review should be limited to identifying publicly disclosed factual information that may affect an analyst’s model or to pointing out inaccuracies or omissions with reference to publicly available information about your company.

Observe a quarterly quiet period, during which no earnings guidance or comments with respect to the current quarter’s operations or expected results will be provided to analysts, investors or other market professionals. The quiet period should run between the end of the quarter and the release of a quarterly earnings announcement although, in practice, quiet periods vary by company. [FN 43] Companies need not stop all communications with analysts or investors during the quiet period. However, communications should be limited to responding to inquiries concerning publicly available or non-material information.

FN 43 Some companies adopt a quiet period beginning at the start of the third month of the quarter, and ending upon issuance of the earnings release. Other companies wait until two weeks before the end of the quarter or even the first day of the month following the end of the quarter to start the quiet period.

(1) Establish a team responsible for creating and maintaining the company Web site. The Web site should be up to date and accurate. You should date all material information when it is posted or modified. You should also move outdated information to an archive. Archiving allows the public to continue accessing information that may have historical or other value even though it is no longer current. You should establish minimum retention periods for information that is posted to and archived on your Web site. Retention periods may vary depending on the kind of information posted. [FN 44] You should also explain how your Web site is set up and maintained. You should remember that posting material information on your Web site is not acceptable as the sole means of satisfying legal requirements to “generally disclose” information.

(2) Use current technology to improve investor access to your information. You should concurrently post to your Web site, if you have one, all documents that you file on SEDAR. You should also post on the investor relations part of your Web site all supplemental information that you give to analysts, institutional investors and other market professionals. This would include data books, fact sheets, slides of investor presentations and other materials distributed at analyst or industry presentations.[FN 45] When you make a presentation at an industry sponsored conference try to have your presentation and “question and answer” session webcast.

FN 44 See the TSX’s Electronic Communications Disclosure Guidelines.

FN 45 This recommendation is based on the recommendations contained in The Toronto Stock Exchange Committee on Corporate Disclosure’s final report issued in March 1997 and in the TSX’s Electronic Communications Disclosure Guidelines. See also the guidance note “Better Disclosure for Investors” issued by the Australian Securities & Investments Commission (http://www.asic.gov.au).

Do not participate in, host or link to chat rooms or bulletin boards. Your disclosure policy should prohibit your employees from discussing corporate matters in these forums. This will help to protect your company from the liability that could arise from the well-intentioned, but sporadic, efforts of employees to correct rumours or defend the company. You should consider requiring employees to report to a designated company official any discussion pertaining to your company which they find on the Internet. If your Web site allows viewers to send you e-mail messages, remember the risk of selective disclosure when responding.

Adopt a “no comment” policy with respect to market rumours and make sure that the policy is applied consistently. [FN 46] Otherwise, an inconsistent response may be interpreted as “tipping”. You may be required by your exchange to make a clarifying statement where trading in your company’s securities appears to be heavily influenced by rumours. If material information has been leaked and appears to be affecting trading activity in your company’s securities, you should take immediate steps to ensure that a full public announcement is made. This includes contacting your exchange and asking that trading be halted pending the issuance of a news release.[FN 47]

FN 46 A “no comment” policy means that you respond with a statement to the effect that “it is our policy not to comment on market rumours or speculation”.

FN 47 If the rumour relates to a material change in the company’s affairs that has, in fact, occurred, you have a legal obligation to make timely disclosure of the change.