WHAT a week is was for Web-related investor disclosure news! I was supposed to be on an extended blogging break, but there was no way I could stay away when history was being made.
Sun Microsystems, Inc. (NASDAQ: SUNW) broke ranks by announcing that it was changing its earnings release process by posting the information on its website and on Edgar rather than relying on paid PR wire services to comply with Regulation FD.
Earlier in the week, the National Investor Relations Institute (NIRI) showed how out-of-touch it has become when, in a knee-jerk response to the Whole Foods/Yahoo! Finance debacle, it reiterated its obsolete policy that companies should not participate in online discussion forums.
SEC gives nod to forums, blogs, chat rooms for shareholder dialogue
Just how shallow NIRI’s reaction is was driven home on Friday by none other than the Securities and Exchange Commission (SEC). The agency posted proposed rules (PDF 376 KB, 96 pages) designed to remove barriers to companies setting up and participating in online discussion forums, blogs or similar tools that allow for freer communications between shareholders, boards and management.
I will write more about this at another time, but on first reading the proposals impressed me as being innovative and non-prescriptive on how forums should be run or what technologies companies and shareholders can use. Essentially, the SEC is trying to get out of the way of companies and shareholders talking to each other online, while providing clear guidance on the legal issues around such forums, which is what I was hoping for.
It’s a big deal, the kind of initiative American companies need to widen the governance gap again between themselves and the rest of the world that has been catching up, and in some cases, pulling ahead in shareholder relations. Seriously, can you imagine Japanese, or even UK companies, doing shareholder forums or blogs? I can’t.
Still, there are some restrictions on what you can say and when you can say it, depending on who you are. Looking for a metaphor, the best I can come up with is that it’s like trying to impose Royal etiquette in a brothel. There are going to be a lot of blank stares from the crowd when you try to explain the rules.
Web-based snooping on shareholders is dead, dead, dead
The SEC also dealt with another issue that NIRI and others in the IR community have never seemed to want to deal with. In the final rules requiring online proxy materials (PDF 424 KB, 72 pages) that the commission posted online Thursday, they effectively killed the website spying technologies of Shareholder.com and others.
There’s a very small loophole where companies can segregate their proxy materials or set up a separate website that does not track shareholders. But that’s a ridiculous thing for companies to do. It will make their sites harder to use if investors have to leave the company’s main website to access an annual report on another site. It’s much easier and less expensive to simply stop breaching the anonymity of investors on their websites.
And there are now signs that Shareholder.com has backed away from spying on investors while they use online annual reports and proxy statements. I’ve been railing against those misguided tracking technologies publicly for the past two years, so it’s probably no surprise to you that I’m pleased about this development.
Unless vendors now want to act like sleazy boiler-room outfits by finding a way to skirt the rules, I think tracking investors by name on your company’s website is dead because it’s simply not worth the trouble.
Usability of online reports, proxy statements reiterated
It’s also good to see that the SEC is requiring companies to post their proxy materials in usable Web formats. Starting with big companies in 2008, shareholders will have the right to receive online materials in a format or formats “convenient for both reading online and printing on paper.”
That’s a pretty vague and subjective standard, but I think it’s enough to make companies actually think about what is “convenient” for their shareholders to use online. There was some recent talk that the commission would recognize PDF for both the on-screen version and the printable version, but so far that has not happened. Cross your fingers it never does.
If anything, the commission is pushing companies to provide a printable version that is substantially identical to the printed report (most likely a PDF copy), and a separate easy-to-use online version that takes advantage of the interactivity and speed of standard web pages.
Most companies and vendors are not quite ready to do full HTML annual reports and proxy statements just yet, so those horrible image-based documents will probably persist until someone gets sued for discriminating against the disabled, companies realize too few investors are bothering to read the reports, or XBRL is mandated and investors can create their own reports on the fly. I’m betting on XBRL.
Overall, a busy week for developments on the web-based disclosure front. I’m going back to my books (unless something big happens), but I’m almost certain Broc and Dave will be writing about these developments in the coming days, so subscribe there if you haven’t already.