Wall Street analyst Mike Mayo thought his question for Goldman Sachs Chief Financial Officer Harvey Schwartz was both straightforward and important: What percentage of the firm's trading is handled electronically?
Schwartz, who was hosting Goldman's (GS - Get Report) third-quarter conference call on Oct. 15, said he didn't want to guess. So he promised to call Mayo later with the details. The call never came, says Mayo, who works for the brokerage firm CLSA in New York: "I'm still waiting by the phone."
It was the classic CFO dodge, and just one of at least a dozen such exchanges that happen every quarter on the public conference calls that U.S. companies hold to brief analysts on their results, based on an informal analysis. Often, executives don't want to give out inaccurate information in a forum where they're so easily scrutinized by securities regulators; sometimes, they just don't want to answer the question.
In Mayo's case, the CFO dodge turned out to be a CFO blow-off -- rude, perhaps, but not accompanied by any additional disclosures from the New York-based bank. In other cases, a follow-up call is actually placed, and information supplied. Whatever transpires, the mere instance of a CFO promising to call an analyst privately leaves everyone else wondering if they're missing a valuable nugget, turning what's supposed to be an exercise in transparency into a reminder of the benefits of privileged access on Wall Street.
"It just breeds distrust in our capital markets," says James Cox, a securities law professor at Duke University in Durham, N.C. Companies aren't supposed to be "playing favorites and making selective disclosures to market professionals or large investors."
Goldman Sachs declined to comment on the interaction with Mayo.
The key threshold for securities regulators is whether "material" information is disclosed on a one-on-one basis; it's perfectly legal for companies to dish out fresh details selectively as long as the information isn't considered material.
The tricky part, of course, is where to draw the line. A spokeswoman for the U.S. Securities and Exchange Commission declined to comment.
Executives with the banks JPMorgan Chase (JPM - Get Report) , HSBC and UBS have all promised follow-ups to analysts this year, according to transcripts. So have American Airlines, railroad operator Kansas City Southern (KSU - Get Report) and the Ohio utility FirstEnergy.
On Kansas City Southern's Oct. 16 conference call, Raymond James analyst Tyler Brown asked what percentage of the company's business moves by boxcar. David Starling, the chief executive officer, responded, "We'll have to get back to you."
According to Brian Steadman, a Kansas City Southern investor relations official, the company contacted Brown afterward to give him the answer: about 15%. That number isn't disclosed in the company's financial statements, according to Steadman.
"The reason it wasn't answered on the earnings call was that they didn't know the percentage specifically at that moment," Steadman wrote in an e-mail. "I don't view it as material. I think Tyler was asking about it because there are indications that the boxcar fleet in the U.S. is shrinking."
Brown didn't return calls for comment.
The rules governing such exchanges come from Regulation Fair Disclosure, or Reg FD, which took effect in 2000 and followed a series of reports of companies going so far as to give early earnings warnings to favored analysts on a selective basis. Under Reg FD, companies must disclose any material information publicly whenever it's given to an analyst or investor.
The SEC's goal was to limit the risk that "a privileged few gain an informational edge -- and the ability to use that edge to profit -- from their superior access to corporate insiders, rather than from their skill, acumen, or diligence," according to an executive summary on the agency's website.
However, the agency expressly permits companies to disclose "seemingly inconsequential data which, pieced together with public information by a skilled analyst with knowledge of the issuer and the industry, helps form a mosaic that reveals material non-public information."
Sometimes analysts might just be too lazy or pressed for time to dig up information that is already published in securities filings, says Adam Pritchard, a securities law professor at the University of Michigan.
"Let's say the CEO just doesn't have it in his head," Pritchard says. "In those cases, it's perfectly OK for investor relations professionals to follow up and say, in the most non-controversial incarnation of this thing, `Here's the answer to your question on page 25.'"
It's also perfectly legal for executives to promise a call-back with zero intention of actually doing so, says John Coffee, a securities law professor at Columbia University.
"If the CEO is blowing off an analyst that's asking annoying questions, that's not material," Coffee says. "What's material is misrepresenting the earnings or whether a lawsuit's been filed."
On JPMorgan Chase's conference call on Oct. 14, RBC analyst Gerard Cassidy asked how many customers were banking through mobile devices -- known as the penetration rate. The bank's CFO, Marianne Lake, replied, "I'm, off the top of my head, not able to tell you the penetration rate, but we can get back to you," according to a transcript.
Andrew Gray, a JPMorgan spokesman, declined to describe any interactions with Cassidy following the call, other than to say that the bank followed its own policies.
Under those policies, according to Gray, a senior member of the bank's investor relations team is assigned to every major analyst covering the firm, and it's that member's job to track any questions and follow up afterward.
"If the inquiry is public and non-material, they will find the information and direct the analyst to the relevant citation," Gray wrote in an e-mail. "If the inquiry is material, they follow up with the analyst to fully understand the inquiry and communicate that we would look for the next opportunity to disclose the information within regulatory mandated requirements."
Cassidy didn't return calls for comment.
Executives have ample motivation to help analysts, says Coffee, the Columbia professor.
"Analysts can really, if they get mad at you, put out something that can affect the stock negatively," he said. "They'll do anything to stroke those people."