AT A MEETING tomorrow, the US Securities and Exchange Commission (SEC) is expected to approve new rules that will allow companies to only mail annual meeting materials to shareholders who specifically ask for them.
If it does so, I think the SEC will be giving away the best bargaining chip it has to encourage companies to start filing their financial reports in XBRL.
As you might know, I don’t think the SEC’s so-called e-proxy rule is a good one (view our comment letter PDF 67 kB/6 pages). That’s simply because it doesn’t do enough to define what constitutes a usable online proxy statement or annual report.
As a result, I expect that we are simply going to replace one form of underutilized disclosure with another. We’re going to go from printed reports that almost no one reads to electronic versions that almost no one bothers to visit, open or view.
Why? Because the vast majority of companies today post their proxy statements and annual reports in formats that are unattractive and very hard to use, such as PDF blobs, image-based reports — like the ones Nasdaq wants all its issuers to use — and raw SEC filings.
None of these formats do anything to encourage shareholders to become engaged in the annual meeting process or make an effort to understand their investments. They’re less attractive even than their printed counterparts.
What we need, and several other commentators to the SEC support me on this, is better online reports. We need online documents that engage and encourage people to use them.
I’m thinking annual reports and proxy statements for the YouTube generation!
Now achieving usable and engaging online shareholder documents like those above requires a certain level of sophistication and a strong commitment to effective web communications.
So I think that before a company should be allowed to use the SEC’s “e-proxy” process, it should have to pass a readiness test to see if it’s up to the challenge.
And I think it’s pretty obvious what that test should be. If a company is filing its financial statements in XBRL, then it is probably sophisticated and committed enough to be trusted to provide a usable and engaging online annual report and proxy statement.
No XBRL, no right to use the e-proxy process.
To get companies to start using XBRL, the SEC can use the stick of regulation or a carrot. Its current carrot, expedited reviews of company filings, is more like broccoli.
But offering companies the right to use the highly economical e-proxy process if they first file their financial statements in XBRL is a juicy, multi-billion dollar carrot if ever there was one.
It’s probably the only one the SEC has. And tomorrow it could very likely be given away…