Caution: Heavy reading.
LAST Friday, eBay Inc. (NASDAQ: EBAY) introduced new policies governing how the company will in future use its corporate blog and Twitter stream to provide information about its quarterly earnings announcements.
The changes, explained in a highly transparent way on the company’s eBay Ink blog, ushered in a new four-part disclaimer that will in future precede live-tweeting sessions of the company’s earnings calls. I don’t have a problem with this.
However, the company’s lawyers also subjected the blog and the associated Twitter stream to eBay’s existing policy of deleting earnings calls and investor presentation records after 90 days, or one quarter.
And that’s where they are wrong. There is no regulatory reason for this practice and it makes the company look less transparent than other companies (see side bar).
|Leading tech companies’ archiving practices vary greatly|
But before I get into the details, I want to make clear that I don’t mean to malign eBay with this post. However, as a pioneer in the use of blogs and social media in investor relations, other companies will tend to follow its practices so it’s important that we discuss these issues openly.
Why deleting earnings calls got started
A key question to ask is why companies delete their earnings call and presentation information. In many cases, the practice was adopted in 2000 after earnings calls were first opened up to the public via webcasts.
Back then, nervous lawyers who lacked confidence in company managers wanted to scrub the public record of management’s unscripted responses to questions from analysts and investors on their earnings calls.
If you follow this line of thinking, deleting earnings calls ostensibly does two things to protect company executives:
- It supposedly removes potentially valuable material that could be used against a company should it be sued by shareholders; and,
- It makes it more difficult for investors to evaluate management’s accuracy in predicating future outcomes.
Of course, whoever came up with this tactic didn’t think about how easy it would be for investors to access call recordings and transcripts on other websites.
How company lawyers justify deleting disclosures
Company lawyers typically won’t readily admit that they’re trying to cover blabbermouth executives’ backsides by deleting old statements. Instead, they’ve used convenient and vaguely plausible legal explanations to justify the activity.
On Friday, for instance, eBay invoked one of the more commonly cited explanations in its new blog disclaimer. It said deleting old earnings call-related information was done for SEC compliance reasons and to “avoid confusion.”
By saying that, they seem to be invoking the widely held fallacy that companies could be deemed to be republishing or reissuing old information if investors can access it on their websites, which in turn might obligate the company to update the information.
I know, it’s the strangest concept to people who’ve actually used the web. A part of me suspects that this bizarre idea might just have been made up by lawyers to hide their real reasons for deleting management’s calls.
But it doesn’t matter what I think because the Securities and Exchange Commission (SEC) has recently said that it’s not a valid reason to remove previously posted information or statements.
What the SEC says
In response to a request from a special committee that heard concerns from investors that companies where not posting earnings call information beyond one quarter, the (SEC) last July removed any doubt about there being no requirement to delete earnings calls when it issued new interpretive guidance for company websites.
Here’s the precise wording from the SEC’s interpretive guidance where it discusses archived information:
We do not believe that companies maintaining previously posted materials or statements on their web sites are reissuing or republishing such materials or information for purposes of the antifraud provisions of the federal securities laws just because the materials or statements remain accessible to the public. Of course, the antifraud provisions would apply to statements contained in posted materials when such statements were initially made. If a company affirmatively restates or reissues a statement, the antifraud provisions would apply to such statements when the company restates or reissues the statement. This affirmative restatement or reissuance may create a duty to update the statement so that it is accurate as of the date it is restated or reissued. As a general matter, we believe that the fact that investors can access previously posted materials or statements on a company’s web site does not in itself mean that such previously posted materials or statements have been reissued or republished for purposes of the antifraud provisions of the federal securities laws, that the company has made a new statement, or that the company has created a duty to update the materials or statements.
In circumstances where it is not apparent to the reasonable person that the posted materials or statements speak as of a certain date or earlier period, then to assure that investors understand that the posted materials or statements speak as of a date or period earlier than when the investor may be accessing the posted materials or statements, we believe that previously posted materials or statements that have been put on a company’s web site should be:
- Separately identified as historical or previously posted materials or statements, including, for example, by dating the posted materials or statements; and
- Located in a separate section of the company’s web site containing previously posted materials or statements.
Clearly there is no SEC compliance reason for eBay to be concerned about a “reasonable person” being confused. Each deleted blog post and twitter message was prominently dated. The reverse chronological structure of blogs and Twitter means that old posts or messages are buried, often requiring users to click through several screens of posts or messages to find the old ones, which in effect creates an archive area on the sites.
So does eBay lack transparency?
Given that they haven’t banned blogging or tweeting about the company’s earnings calls, and seeing how transparent they have been about the change, my best guess is that eBay’s lawyers are merely enforcing by rote an outdated policy that no one has thought to question since it was instituted.
And they don’t appear to be alone in this either. The table above shows a list of leading technology companies and the number of earnings call webcasts or transcripts on their websites today. Companies like Adobe, Apple and Oracle are less transparent than eBay.
But the fact is, it doesn’t look good when some companies provide deep archives of conference call webcasts or transcripts and eBay does not.
And it doesn’t look good that eBay says its practices are about avoiding confusion when the SEC guidance is clear that no confusion is caused in situations such as this.
As much as I want to believe that eBay is NOT trying to hide something, the fact is they’ve left their motives open to question. And I doubt that was ever their intention.