On July 30, 2008, the SEC (U.S. Securities & Exchange Commission) staff recommended that the commission issue an interpretative release to provide additional guidance to companies wishing to use their websites as vehicles to provide information to investors. Companies want to be sure they are in compliance with Regulation FD (Fair Disclosure). Four main areas in need of clarification include the following:
- When information posted on a website would be considered "public"
- What company liability would be for information on company websites (including older information, third-party hyperlinks, summary information, and interactive content)
- What types of controls and procedures should be implemented
- Formatting, with a focus on readability rather than printability
These recommendations, released as "Commission Guidance on the Use of Company Web Sites," were accepted by the SEC as of Aug. 1, 2008 (www.sec.gov/rules/interp/2008/34-58288.pdf), and published in the Federal Register on Aug. 8. Comments are open until Nov. 5. If adopted, the result will be to effectively legitimize corporate websites and blogs as official communication avenues for transmitting financial information. It may also end the corporate news release as an information source for business researchers. It will certainly mean that information professionals looking for corporate financial news must include visits to corporate websites and blogs as part of their research routine.
Sun Shone the First Light
Many people trace the lineage of SEC’s guidance recommendations to an Oct. 2, 2006, blog post by Sun Microsystems CEO, Jonathan Schwartz (http://blogs.sun.com/jonathan/entry/one_small_step_for_the), in which he complained that, "I couldn’t use my blog to announce our quarterly performance, or disclose a material transaction. I had to use a press release, or a conference call (with a telephone operator, no less!)." He also deplored the "anachronistic telephonic conference call" and the equally "anachronistic press release." He and Sun’s general counsel sent a formal request to the SEC requesting clarification. It took close to 2 years, but he got the answer he wanted.
Christopher Cox, SEC Chairman, observed that the SEC’s last foray into guidance regarding corporate websites was in 2000, well before the concept of social networking had any traction. "Ongoing developments in technology have increased both the markets’ and investors’ demand for more timely company disclosure on the Web, and in turn, raised new securities law issues for public companies to consider."
An excellent analysis of the practical implications for public companies was published by law firm White & Case LLP as part of its Securities Update series (www.whitecase.com/alert_cmsecurities_080808). It states that, "As a technical matter, the Release clarifies how information posted on a company’s website may implicate certain provisions of the Securities Exchange Act of 1934. …" More important is the policy level analysis, which White & Case interprets as encouraging companies "to make broader use of their websites as the sole means of disseminating material information to investors."
In its Update, White & Case provides an excellent chart of factors the SEC thinks a company should consider about whether information on a website or blog can be considered public disclosure and the advisable steps a company should take to "maximize website recognition and effectiveness of dissemination." For example, one factor would be whether the company keeps its website current and accurate. It should come as no surprise that the desired outcome is to keep the website up-to-date. The archiving of press releases is recommended so that the website has an uncluttered look to it.
Information Provider Reactions
Newstex (www.newstex.com), according to its president, Larry Schwartz, seeks to sign up high quality corporate blogs that would show up on LexisNexis and other client sites. Sun’s blogs, in fact, are included in Newstex. As for the clarification to Regulation FD, he said, "I don’t see this transition happening overnight, but for smaller public companies this will help lower costs and utilize a method of distributing information that they already utilize."
Business Wire’s response to the SEC’s recommendations, both via a press release and in its blog (www.businesswired.wordpress.com), was less than enthusiastic. It began, "simply posting material news on a corporate web site or using blogs does not meet the spirit and intent of Regulation FD because it is neither simultaneous, nor full and fair."
It then continued, "the use of web sites as an ancillary means of news dissemination is, in our view, a best practice. However, web posting or blogs alone are not a substitute for secure and simultaneous push delivery of material news to the disclosure media, financial markets, online web portals, aggregators, and the global investing public. Neither does it accomplish the requirements of the major stock exchanges."
If websites and blogs replace SEC filings, particularly Form 6-K and Form 8-K, which is a scenario White & Case foresee, then databases maintained by 10KWizard, EDGAR Online, and the SEC’s own website would be incomplete from a researcher’s perspective.
Financial Research Implications
There are potential ramifications for information providers and researchers. Companies such as Business Wire and PR Newswire, which make their money from companies issuing press releases, are likely to see a drop in the number of companies using their distribution services. This would also lessen the number of releases carried by the third-party distributors of newswire data, both free and fee-based, such as Google, Yahoo!, Factiva, LexisNexis, and Dialog. The attractiveness of aggregated financial information could pall a bit were companies to eschew press releases in favor of blog posts.
This would, however, have an impact primarily on current awareness research, where you want to be first to know what the financial results or other material events a company is announcing. When it comes to historical research—and in this context, historical could be an hour ago, yesterday, last week, or 10 years ago—it’s not likely to substantially change the search behaviors of information professionals. Even if news releases disappear, an opportunity opens up to add website data and blog postings to traditional databases. This is particularly true as more companies add RSS feeds. I am confident that someone in the information industry will find a way (and gain any necessary licensing rights) to combine feeds and releases that fall under Regulation FD compliance guidelines, add them to a structured database, and offer them to information professionals.