THE US Securities and Exchange Commission’s (SEC) new guidance for company websites gives investor relations departments an opportunity to cut their disclosure costs and boost traffic to their websites by using “notice-and-access” news releases for Regulation FD.
Although the SEC’s guidance goes so far as to say that “some companies” may not need to use wire services at all, most companies will continue using paid PR wire services in the near term because their investor relations websites fail to meet the standards the SEC has outlined for websites to serve as standalone sources of investor information.
However, with its latest guidance the SEC is giving companies the option to stop sending full-text news releases and instead use paid PR wires to advise investors that new information is available on companies’ websites and provide direct links to the information. These notice-only releases are treated as being equivalent to full-text releases when evaluating if disclosures on company websites meet the requirements of Reg. FD.
A major benefit of notice-only releases is that they can start conditioning investors to access company websites for disclosure information, which in turn can help companies achieve the “recognized channel” status needed for their sites to function as standalone disclosure sources.
We have been advocating for companies to adopt notice-only releases, which can be used for earnings and other material non-public information, since 2006. We revisited the idea last October, then again in June in a post by TheCorporateCounsel.net editor Broc Romanek. Still, relatively few companies are currently using the approach, but that likely will change in light of the SEC giving it the nod in its latest guidance.
Company says to save up to $30,000 annually
Using “notice-and-access” releases can shave thousands off of the average company’s annual disclosure costs while continuing to ensure that investors receive simultaneous delivery of information via the wire services’ established networks.
One small-cap company recently cut its wire service earnings release from more than 10,000 words to less than 200 words using the notice-and-access approach. The company estimates it will save $25,000 to $30,000 annually.
Prevailing practice at most companies, which harkens back to a pre-Internet era, is to issue news releases containing the actual text of the company’s information. Consequently, some earnings releases distributed via wire services can exceed 15,000 words.
And since wire service rates are typically based on a word count, some companies are paying tens of thousands annually to PR wire services, even though almost everyone accessing the releases does so online and can easily click on a link to access the information on a company’s website.
A good middle-ground for all companies
Until now, the SEC’s position on notice-and-access releases was unclear. Companies that used it risked running afoul of the rules, even if their legal counsel felt the risks were low.
However, in its 47-page interpretive release on the use of company websites for disclosure, the SEC has now explicitly said that notices distributed via news wires that advise investors about the availability of information on a company’s website are one of the non-exclusive factors companies can consider in evaluating if their disclosure practices meet the requirements of Reg. FD.
On page 21 of the release, the SEC says that companies that are well followed and can show that the market uses their websites to access information may not need to file 8-Ks or issue their news via a wire service. However, smaller companies may need to take “more affirmative steps so that investors and others know that information is or has been posted on the company’s web site and that they should look at the company web site for current information about the company.”
In the next point on the same page, the release says another factor companies can consider to evaluate if their disclosure practices meet the requirements of Reg. FD includes (emphasis added):
The steps the company has taken to make its web site and the information accessible, including the use of “push” technology, such as RSS feeds, or releases through other distribution channels either to widely distribute such information or advise the market of its availability. We do not believe, however, that it is necessary that push technology be used in order for the information to be disseminated, although that may be one factor to consider in evaluating the accessibility to the information;
Further in the release, when discussing factors companies can use to determine a suitable “waiting period,” the release says one factor to consider is “whether the company has taken steps to actively disseminate the information or the availability of the information posted on the web site, including using other channels of distribution of information.” (emphasis added)
Since the prevailing practice is to issue full-text releases, and since the SEC has said postings on company websites by themselves can in certain circumstances meet the Reg. FD requirements, we believe the “notice-and-access” approach is a good middle-ground for all companies.
Pros and cons of notice-and-access releases
There are many benefits to companies that will flow from using the notice-and-access approach for disclosure releases, not least of which is that it will help to condition investors to use company websites to access information. That in turn will help companies gain comfort that their sites are a “recognized channel” for investors under the SEC’s Reg. FD guidance.
Another benefit is the reduced time required to deal with wire services that typically occurs when distributing full-text releases, including converting documents, proofreading, and making changes through the wire service. Not having to do that can easily free up 15 to 20 hours per quarter, according to one company I consulted.
For investors, a major benefit is that they can access information in a readable format since companies have greater control over the presentation of information that appears on their websites. Wire service releases accessed on third-party websites most often lack any type of formatting. Headlines are not bolded and financial tables are poorly formatted and cannot be easily extracted to a spreadsheet. There is only one exception we are aware of.
Of course, companies must be sure that their current website infrastructure can handle the increased traffic that will result from investors accessing their information on their websites rather than from a variety of sites and systems distributed across the Internet.
Currently, companies have no idea how much interest their news generates because investors access the information on many different sites and servers. However, we believe that very few companies are in a position where inc
reased traffic will present problems, especially since about 90% are hosting their sites on servers provided by the likes of Thomson Reuters and Shareholder.com, which have built-in redundancies.
In addition, companies can include a backup location in their releases for investors to access the information should the company’s main website fail. This might be a link to the company’s main filings page on the SEC’s Edgar website, or to a back-up document on one of many free file hosting services available on the web.
Wire services themselves may want to support companies by providing the option to host a backup PDF of the company’s information on their servers. This PDF-hosting option, which is available in the US from Marketwire, has been offered by the NYSE-Euronext’s wire service Hugin for several years in Europe, where company websites have long been used as the primary distribution channel for disclosures.
There are also some points to remember when writing the notice-only releases. Take a look at the model release we prepared using Merck’s Q3 2007 earnings announcement for ideas. The Berkshire Hathaway and Progressive Corporation summary releases are another option.
Finally, I would be remiss if I did not mention that a notice-only release does not suit one segment of the investor population. Hedge funds that use sophisticated software to analyze wire service copy for sentiment indicators and then quickly short or buy the company stock to profit from short-term price movements generally will be stymied by notice-only releases because the releases do not contain any tradable information.
Where the PR wire services stand
When I asked Business Wire’s senior vice president Tom Becktold in April on Twitter why his company refused to distribute notices containing links to full information on companies’ websites, he said: “We encourage external links in releases, but some systems strip them. Critical data should be in the release copy.”
When I asked for examples of systems that strip URLs out of releases, Becktold promised to provide them. To date he has not provided any examples.
While I am aware that some antiquated systems do not recognize so-called “anchor text” or linked text, I have yet to see a system that alters the text of releases by stripping out URLs.
In my view, Business Wire’s opposition to notice-and-access releases has very little to do with the best interests of investors or its clients. It is mostly just trying to protect its own business.
IROs now have more choices
What should be clear is that the SEC’s new guidance gives companies greater flexibility to meet the requirements of the disclosure rules, whereas before they had limited options and often were compelled to buy services at exorbitant per-word rates from wire services that knew they had a captive market.
Now that companies have other options, that should change the dynamic between companies and their wire services. It puts IR departments in a position to demand better services and better pricing.
It is up to companies to take advantage of this new flexibility. I hope that the National Investor Relations Institute (NIRI) will take the lead to help its members explore their options unfettered by the influence of the wire services and other vendors, which hold senior posts in the organization and are big sponsors of its activities.
As always, we are available to help you if you have any questions or would like us to evaluate how your current online IR practices measure up to those of leading companies.