Archive for March, 2010

Disclosing ObamaCare’s impact

March 29, 2010

Now is the time (if it wasn’t weeks ago) for investor relations people to get on top of the question: What impact will President Obama’s healthcare overhaul have on our companies?

The ObamaCare question will be asked in first-quarter conference calls and one-on-one conversations, and companies ought to disclose the material impacts either before first-quarter earnings or in their normal reporting.

Already the disclosures have begun to emerge after the president’s March 23 signing of the new government framework for health insurance. For example:

  • AT&T said Friday it will take a $1 billion noncash charge  when it reports first-quarter earnings. In a brief 8-K, the phone company  said the charge reflects loss of a tax benefit for subsidizing retiree healthcare costs. AT&T also said it will review its health benefits in light of the new law and the added tax burden.
  • 3M issued a news release and filed with the SEC on Friday, saying it expects an after-tax charge of $85 to $90 million, about 12 cents a share, when it reports first-quarter results. 3M did a more thorough job of explaining: ObamaCare eliminates a tax benefit for company payments that subsidize retiree prescription drug coverage. Under the new law, the extra tax bite doesn’t hit until 2013, but the change reduces the value of a deferred tax benefit on 3M’s books, so GAAP requires a charge now.
  • Caterpillar filed an 8-K estimating its tax hit at approximately $100 million, again to be recognized in Q1. Deere & Co. estimated its charge at $150 million, AK Steel at $31 million … and we can expect many more.

These filings with the SEC are not about politics, but bookkeeping, of course. Just another development that may require an 8-K and explanation in the next 10-Q. But editorial writers were quick to seize on the announcements as an “I told you so” moment on ObamaCare (The Wall Street Journal here, Investors Business Daily here). And now Congress wants to call these evil companies on the carpet for – the horror – disclosing the cost of the new healthcare law in a timely manner.

Update: The American Benefits Council, speaking for 300 large employers, on Monday called for repeal of the tax increase related to retiree prescription benefits. White House response: Buzz off.

Without wading further into the swamps of Washington, let’s just pay attention to our own duty as investor relations people: Each of us should be asking internally – if we haven’t already – what impact the health overhaul law will have. And how we need to disclose that, either now or with our upcoming quarterly results.

In a broader way, investors will be looking to companies in the biopharma, medical equipment, hospital and other health industries to provide analysis and forward-looking perspective on how ObamaCare will help (or hurt) future results.

© 2010 Johnson Strategic Communications Inc.

I-bankers & God’s work

March 18, 2010

A little commentary tucked into today’s Wall Street Journal (p.C4) riffs on Lloyd Blankfein’s statement last fall about investment bankers “doing God’s work” – and may hold a lesson, too, for investor relations professionals and our companies.

John Terrill, who heads the Center for Integrity in Business at Seattle Pacific University, shares his thoughts on i-bankers doing good through their work:

Investment banking, if it meets its objective of capital matchmaking, can move, ought to move, capital around in ways that allow communities to flourish.

Terrill says benefiting society in business is about aligning what you do with broader purposes, realizing, “Hey, my work has a purpose beyond the paycheck.”

Asked how to measure whether investment bankers are contributing to the common good, Terrill focuses on integrity – a oneness between purpose and action. This test also applies to corporations and their messaging for investors.

Terrill says integrity consists of three layers:

The first two layers are associated with damage control – compliance with the law and acting appropriately when there is no law. But, as others have pointed out … there is a third layer that is focused on mission control. Mission control is pursuing the good, aligning the mission of the organization and the good of society.

Disclosure focusing on corporate social responsibility is a growing concern for investor relations staffs – amid regulatory pressures (such as the recent SEC guidance on  climate change disclosure) and interest from institutional investors.

Terrill’s three “layers” suggest a useful framework for reporting on corporate interactions with society:

  1. Compliance with the law,
  2. Standards of conduct that go beyond the law, and
  3. The company’s broad mission in serving customers and providing products or services to society.

Disclosure to investors would tie any specific issues in with business performance – near and longer term – which would include regulatory threats, costs of compliance and effects on customer relationships.

The Terrill essay referenced by the WSJ article, “The Moral Imperative of Investment Banking,” offers additional comments.

© 2010 Johnson Strategic Communications Inc.