UNDER certain circumstances, companies can rely on their websites and blogs to meet the public disclosure requirements under Regulation FD, according to new guidance unanimously approved by the US Securities and Exchange Commission today.
The move is significant as it could cut disclosure costs for many companies that today use paid PR wire services to distribute their disclosures. It could also encourage companies to make investments to improve their investor relations websites and facilitate the use of blogs for communications with investors.
Previously, the SEC held that corporate websites could only be used as part of the disclosure process, but with the new guidance corporate websites or blogs can now be the sole means of disclosure. The SEC began studying the issue in late 2006 after Sun Microsystems CEO Jonathan Schwartz called the news release requirements an “anachronism.”
Is it a big step, or little step forward?
According to the staff’s statement, the guidance “addresses circumstances in which, for certain companies under certain circumstances, posting non-public material information on a company’s web site, in and of itself, may be a sufficient method of “public disclosure” for purposes of satisfying the alternative public disclosure provision of Regulation FD.”
Companies will need to consider “whether the company web site is a recognized channel of distribution and whether the information is ‘posted and accessible’ and, therefore, ‘disseminated.’ As part of that evaluation, companies also would need to consider their web sites’ capability to meet the simultaneous or prompt timing requirements for public disclosure under Regulation FD.”
Until we have the full interpretive release — expected within the next week or so — it remains unclear to me what specific conditions a company will have to meet to rely on website or blog postings. It also seems that there may be requirements for advanced notice to be provided when companies plan to use their websites or blogs for scheduled disclosures such as earnings releases.
Commissioner Paul Atkins, attending his last meeting on the commission, said company managers would still be taking some risks using their websites or blogs under Reg. FD. He characterized the guidance as “a step forward.”
However, Chairman Chris Cox called the new guidance “a big step forward for investors.”
Liability for blogs, no duty to correct others’ comments, and linking outside
The new guidance also addresses several topics that I wrote about in my preview of today’s meeting. There is further guidance on links to third-party information; guidance for summary information and archives; and clarification of companies’ liability for third-party information and comments on company blogs and discussion forums.
Importantly, while the new guidance says that companies and their employees are liable for information they post on blogs and discussion forums (not really news), they have no duty to correct inaccurate information posted in comments on their sites by third-parties.
In terms of links to third-party information, the new guidance “suggests, among other things, that companies explain the context for the hyperlink to make clear why the hyperlink is being provided, be aware that selective choices to hyperlink to specific third-party information may indicate that the company has a positive view or opinion about that information, and consider using other methods to denote that the hyperlink is to third-party information.”
In addition, the guidance clarifies that information posted on company websites is not generally subject to rules under the Sarbanes Oxley Act relating to a company’s disclosure controls and procedures, except where the SEC’s rules specifically require information to be posted on company websites, such as waivers to companies’ codes of ethics or insider transaction disclosures.
Unless required, online documents need not mirror printed ones
Finally, and what I believe may be the most significant part of the release, is new guidance that says web-based disclosure documents do not have to be in “a format comparable to paper-based information, unless the Commission’s rules explicitly require it.”
That is a welcome clarification and could encourage companies to be more innovative and creative in how they present their disclosures online rather than merely dumping documents in PDF or image-based documents that mirror the printed documents.
John White, director of the SEC’s division of corporation finance, said the new guidance was intended to promote “more innovation, more creativity, more use of interactive technology on company websites and that they become more user-friendly for investors.“
MySpace, LinkedIn, Facebook, Blogs, RSS roll off Cox’s tongue
If you are in any doubt about what the commission is seeking to achieve with the new guidance, I thought Chairman Cox’s opening remarks were particularly interesting. This must be the first time an SEC chairman has used the words blogs, Atom, RSS, Facebook, YouTube, LinkedIn and MySpace all in a single breath. Here’s my transcript of part of his opening statement from today’s webcast:
Ongoing technological advances in electronic communications have increased both the market’s and investors’ demand for more timely company disclosure and the ability for companies to capture, process and disseminate this information to market participants.
Indeed, one of the key benefits of the Internet is that companies can make information available to investors quickly and in a cost-effective manner. The use of electronic media is arguably superior to providing company information the old way. It’s a better way to provide information to most investors since today it can be presented in interactive format that allows each individual to click through or drill down to the level of detail that’s appropriate to him or her.
The Internet has changed a lot since 2000 which was the last time the commission provided comprehensive guidance on this topic; the use of the Internet and electronic media. Back then the idea of the web as a social network was still being developed and websites such as MySpace, YouTube, LinkedIn and Facebook didn’t even exist. The idea of creating a social network where shareholders could meet and exchange views was barely imaginable. Blogs hadn’t really entered the public lexicon. And syndication technologies such as Atom and RSS were still in development.
But as each of these technological developments has taken hold in the marketplace, that in turn has raised new securities law issues for companies to consider. Technological advances and the reduced costs associated with the implementation of technologies over time, now allow the inclusion of more interactive and current information on company websites than was the case previously. That’s moved websites beyond being just electronic filing cabinets for electronic documents. Today, company websites are being shaped by the market’s desire for highly current and interactive information.
We recognize that allowing companies to present data in formats different from those dictated by our forms or more technologically advanced than Edgar can be a significant help to investors.
As an aside, you may also be interested to see that the SEC now is using Twitter to dis
tribute its news releases.
Once the full release is available, I will spend some time to go through it and assess what the practical implications are for IR website managers. Check back or subscribe to our RSS feed or email alerts. Oh, and we’re on Twitter here http://twitter.com/IRwebreport
Our prior coverage on this topic:
- SEC’s new guidelines for websites imminent (July 28, 2008)
- SEC seeks to “blow up” forms-based system (June 25, 2008)
- Earnings releases — the Warren Buffett way (February 24, 2008)
- NYSE’s antiquated Timely Alert Policy (January 20, 2008)
- SEC urged to provide new IR website guidelines (January 13, 2008 )
- The truth about Sun’s Web-first earnings release (August 1, 2007)
- Sun dumps PR wires for Reg. FD (July 25, 2007)
- We don’t need PR wires for Reg. FD (March 27, 2007)
- SEC assessing blogs for disclosure, says Cox (January 10, 2007)
- Websites and blogs should be approved for scheduled disclosures (October 5, 2006)