SUN Microsystems’ CEO Jonathan Schwartz has written to the Securities and Exchange Commission to argue that website postings should be recognized as full and fair disclosure under securities regulations.
In essence, he is arguing that by posting material information on its website, a company achieves a level of dissemination equal to or better than that of traditional distribution via a newswire service.
After initially being skeptical, I’ve given it further thought and now believe that Schwartz and Sun’s general counsel Michael Dillon are 100% right that website postings can be as effective as newswires when it comes to distributing scheduled material disclosures to investors.
Securities regulators everywhere in the world should permit all companies to use their websites to disclose important information like scheduled earnings announcements and dividend notices without having to also send the information via a newswire service or , as is the case in some places, pay for an advertisement in a newspaper.
However, to qualify to use their websites for disclosure, companies should be required to follow a defined notification process.
All scheduled disclosures should be pre-announced on company’s website
The most important condition is that all investors must have equal access to the information at the same time. This is what newswires promise. They get information out to a vast network simultaneously.
To duplicate this level of simultaneous access, Sun should preannounce the date, time and website URL of all planned material disclosures. The invitations should be made suitably in advance of the event — say two weeks ahead of time. A second reminder should be issued 48 hours in advance of the planned disclosure.
The URLs that companies use in their invites should be direct and specific. Investors should have access to the information being disclosed within one click after following the URL the company has provided. They should not have to find the information from the company’s homepage or search a blog directory or have to use the site’s main navigation to locate the information.
Instead of using newswires for the advance notices, they should be made in all of the following three ways:
- In a posting on a calendar page in the investor relations section of the company’s corporate website.
- The calendar must allow investors to subscribe to receive email alerts for all events or for specific ones that interest them. It should allow investors to request reminders via email of the event with a notice period of their choosing. This functionality is already common on many IR websites.
- The event invitation should also be made in a company RSS feed dedicated to material disclosures and other information of interest to investors. Let’s call this feed the “investor relations feed.”
The investor relations feed should be freely available to be syndicated by anyone who wants it, including finance websites like Yahoo! Finance, news networks and the SEC’s EDGAR website.
With advanced notification of scheduled disclosures distributed via RSS, email alerts and website postings, it is reasonable to expect that anyone with an interest in the information to be released will have the information they need to be able to get it at the same time as everyone else.
All they have to do is go to the designated URL at the specified time and access the information. Those who don’t want to get it the very moment it goes live, can rely on receiving it via RSS, email or on a website that has picked up the company’s investor relations feed.
If all of these steps are followed, there should be no need for newswire distribution of the invitation or of the scheduled material information being disclosed. This is especially the case if the company’s “investor relations feed” is providing the information to intermediaries such as the SEC and Yahoo! Finance.
The same model could be used for earnings call and presentation announcements. Currently, US companies issue news releases to alert investors about the dates, times and web addresses where they can access a conference call or presentation webcast.
Companies do this as insurance against the chance that their presenters will disclose material information to the limited audiences who attend these events.
However, a news release distributed via a newswire is unnecessary here, too. It does not achieve any better advance notification than can be achieved by a combination of website calendar postings, email alerts and RSS feed notices.
All conference calls and presentations should be open to all
In his blog post, Schwartz also mentions a requirement to hold a conference call and suggests that he doesn’t like it. His objection to conference calls is unclear to me, because Sun doesn’t have to do conference calls. However, if it does them, it is a good idea to let the public listen in via a webcast. But again, the company doesn’t have to webcast the call, although it is risky not to.
However, failing to webcast conference calls and presentations is not transparent disclosure or fair investor communications. All presentations by management to groups of professional investors and analysts should be open to the public via a live webcast and a replay.
Indeed, I would suggest that it should be illegal everywhere in the world for a company to speak to groups of analysts and institutional investors unless the public has been given advance notice of the event and can access a “real-time” webcast of the presentation, including any question and answer session.
While I don’t like the fact that a big investor can schedule a private meeting with a CEO and CFO, I won’t call for these to be opened up to the public. It wouldn’t hurt, though, for IR departments to keep track of questions and answers during one-on-one sessions and publish them in a suitably edited format on their websites a week or so later.
This would give less privileged investors confidence that management isn’t playing favorites and giving more useful information in these private sessions than it releases publicly.
No excuse for sloppiness and not acceptable for unscheduled events
One thing that should be discouraged absolutely is sloppy disclosure. Schwartz or any other senior officer of a public company should not be excused if he or she releases material non-public information on a blog or other company website without pre-announcing that they will do so.
If Schwartz inadvertently discloses material facts, then there should be an onus on the company to immediately contact the relevant stock exchange to discuss halting trading in its stock until a news releases has been disseminated and investors have had time to consider the information.
Trades made in the stock after the inadvertent disclosure and before the stock is halted could be reversed to ensure that no investor obtained an unfair advantage from the CEO’s mistake. A requirement this drastic would be a significant deterrent to people taking their disclosure obligations lightly.
News releases should also be required for unscheduled releases of material information, such a accidents, resignations, and major transactions that have to be kept confidential until being announced.
In summary, if suitable notice is given via its website, there should be no reason why a company cannot use its website to release material information.
The newswires and their friends will moan, but they have seen this coming for a long time. Securities regulations exist for investors’ benefit and in this case the wire services and their fees provide no added benefit.
The news release requirements for scheduled disclosures should be scrapped.
Update: Tim Bray, Sun’s director of web technologies and co-inventor of XML, has posted a very interesting technical discussion on this topic on his blog (where else!). Basically, he contemplates how companies can create their own newswire feed of sorts using Atom. It’s an important read.
If Sun can produce its own feed as Bray outlines, there shouldn’t be any need for the company to pay a newswire to distribute its information.