WITH just a few lines in the 110-page final e-proxy rule posted on its website, the U.S. Securities and Exchange Commission has given a big boost to those who have long complained about the poor usability of online investor disclosure documents.
The final rule, posted here, requires companies that wish to take advantage of the cost-saving e-proxy process to publish their online proxy statements and annual reports in formats suitable for both on-screen reading and for printing. The adopting release specifically references HTML as a suitable format for on-screen reading.
If you are not familiar with the current online publishing practices of companies, you may not recognize the significance of these admittedly humble provisions. Currently, the vast majority of companies we track post their annual reports and proxy statements in formats that are uninviting and hard to use.
The most common practice by companies is to post their annual reports in bulky PDF files or clunky image-based documents, while proxy statements are either provided as drab SEC filings or single PDF documents.
None of these formats is attractive for retail investors and even many investment professionals. Poor usability has been magnified in recent years as new regulations have swelled the size of companies’ reports, leading to bigger PDF files, SEC filings and image-based documents.
Encouraging shareholder engagement
Now to be realistic, the SEC has left the door slightly ajar for sleazy vendors and lawyers to find loopholes so they can continue to post online information in ways that make it hard to find and consume.
However, I don’t think there is any doubt about the SEC’s intentions. The objective is clearly to push companies to provide their documents in HTML to encourage ordinary investors to use them. Here is an extract I highlighted from the final rule notice:
The final rules require the electronically posted proxy materials to be presented on the Internet Web site in a format, or formats, convenient for both printing and viewing online. Under technology commonly in use today, this may require posting the materials in two different formats. First, the materials should be posted in a format that provides a version of those materials, including all charts, tables, graphics, and similarly formatted information, that is substantially identical to the paper version of the materials.
In addition, to take better advantage of the capabilities of the Internet, the materials also must be presented in a readily searchable format, such as HTML. This type of format would make the proxy materials easier to read on a computer screen. In addition, such a version may incorporate additional user-friendly features such as hyperlinks from a table of contents to enable shareholders to quickly and easily navigate through the document. Many Internet Web sites today provide documents in dual formats such as this. We believe this requirement will impose minimal burden on issuers.
My reading of the above is that shareholders will have access to a PDF version of the printed report and an easy to navigate HTML version (not an image-based version) for them to read on their monitors. While I asked the SEC in my comment letter on the proposal last year to provide specific quality standards for the HTML version (WCAG or Section 508), I’m more than happy they went as far as they did.
Big change, could soon be mandatory
This marks a big change over current practice where companies just dump everything in big PDFs, image-based documents and regulatory filings because the SEC’s rules were largely silent on what was acceptable. Well, no more. Shareholders deserve better, they always have, and now finally the SEC is telegraphing to issuers that it thinks usability of online disclosure documents is important.
The ideal here, and the fundamental reason I do what I do, is to enable ordinary citizens to educate and inform themselves so that they can make better decisions about where to invest their money.
By making online annual reports and proxy statements easier to use, regulators support their investor protection objectives while also enabling companies to stimulate interest in their securities. What’s not to love about it?
The e-proxy rule is voluntary and market participants cannot take advantage of it until after July 1, 2007. That means shareholders may have to put up with unusable documents for some time to come.
However, the SEC has also posted a proposed rule to make the e-proxy process mandatory for all issuers. I say bring it on.
Related items on this topic:
Is Shareholder.com client breaching SEC privacy rules? (July 10, 2007)
AMERCO’s shareholder forum, e-proxy (July 11, 2007)
My bad experience with first e-proxy notice (July 04, 2007)
SEC to go back on e-proxy usability? (June 15, 2007)
E-proxy: do it for love, not money (June 14, 2007)