THE CFA Institute, the global professional association representing almost 100,000 financial analysts, portfolio managers, and other investment professionals in 133 countries and territories, has complained to the Securities and Exchange Commission (SEC) about companies that are slow to post earnings releases on their websites.
In a December 1 comment letter (PDF 281KB, 7 pages) on the SEC’s interpretive guidance for corporate websites, the institute expresses support for the position we have taken that companies are not living up to the spirit of their disclosure obligations when they post earnings releases and other information on their websites several minutes after the information is distributed to select audiences who have direct access to PR wire service feeds.
Says the letter: “We strongly recommend that companies be required to post earnings releases on their web sites simultaneously with dissemination of the release through any other means.”
Elaborating on this topic, the letters states:
“Most importantly, posting of earnings releases should be simultaneous with any dissemination of the release through other means. Ideally, the posting of earnings releases should be coincident with the posting of other critical information, as well as the filing of financial statements and notes. In keeping with the tenor of the SEC’s proposed guidance, a company’s web site will only become a “public” information vehicle when it provides information at the same time that it is accessible elsewhere. However, many companies currently post their earnings on their web site only after the information has been disseminated through Business Wire or similar services. Such an approach only undermines the use of web sites as a primary source, and should be discouraged.”
To remedy the situation, the CFA Institute says companies should be encouraged to announce ahead of time when earnings will be released and then ensure that they post the information on their websites at the very instant it is released via other channels.
And the institute throws support behind the “notice-and-access” model we have been recommending for earnings releases when it says: “To ensure that investors have access to important information in an even manner, we strongly encourage requiring companies to use an additional method, such as a press release, to simultaneously direct the public to the company web site.”
Furthermore, the institute expresses concern that when companies do actually selectively disclose material, non-public information that they should not be permitted to rely solely on website postings to remedy the Reg. FD violation. Instead, it says companies should be required to file an 8-K in such circumstances.
This is the same position we took in our most recent members’ newsletter when we stated:
“The SEC now says that web postings alone might be sufficient to disclose information in these circumstances [to remedy a Reg. FD violation]. However, our view is that if management becomes aware of a selective disclosure, the best course of action is to publicize the information in a full-text news release, an 8-K filing, and a website posting that is pushed out to the company’s subscriber list. The point is that the company has screwed up, disadvantaged its investors who were not included in the selective disclosure, and so should do everything it can to make amends as quickly as possible, irrespective of there being no legal requirement to do so.”
Not in favor of subjective tests
The CFA Institute says it does not support the SEC’s use of a “facts and circumstances” approach instead of bright-line tests for companies to use when determining if their website disclosure practices comply with Reg. FD. It also says that it believes that “posting information on a company’s web site alone is not sufficient to qualify as ‘public’ information” under Reg. FD.
“A company’s web site is an increasingly important tool for disclosing information to the public. However, we do not support an approach that weighs the adequacy of disclosure for purposes of Regulation FD on a range of subjective tests. Given the importance of providing all investors with information at the same time, we urge the development of guidance that provides more certainty,” says the letter.
While I understand why the institute and many others feel this way, I believe the SEC’s guidance provides an excellent framework against which companies can judge the adequacy of their disclosure practices. Having worked through the guidance in great detail, I honestly cannot see how it can be improved by bright-line tests that likely will be obsolete in the near future.
However, I am speaking from a position of understanding how technology and the SEC’s guidance connect. For example, when the guidance refers to a “format readily accessible to the general public,” I know intuitively that it means WAI WCAG-compliant content. Of course, most lawyers, IROs and even some IR website vendors have no idea what “WAI WCAG” means. That lack of knowledge rather than the guidance itself is the real problem in my view.
From a technology perspective, few if any companies are currently in a position where they can reasonably argue that standalone website postings, absent other efforts to notify investors, would meet the SEC’s guidance. That’s simply because the SEC has set the bar for standalone postings extremely high.
However, there is a huge amount of flexibility provided in the guidance for companies that want to use their websites in conjunction with notice-only news releases, calendar alerts, Atom feeds and email alerts to ensure that investors know where and when information will be disclosed and how they can access it.
On a personal level, it is gratifying to know that IR Web Report’s steadfast focus on investor-centric disclosure practices has meant that our advice to companies has been independently supported by the CFA Institute. I have no idea if they have read anything we’ve written on this topic and no one here has had any contact with anyone at the institute on this subject.
But I think it just goes to show that if you put the interests of investors first in your investor relations and disclosure practices, you will very rarely go wrong.
Now where is the National Investor Relations Institute (NIRI) and the “industry bible” IR Magazine on this issue?