Dispelling myths about Reg FD & Web Disclosure
24 October 2008
By Darrell Heaps
The other day I came across a Tweet from Tom Becktold at BusinessWire:
I’m always interested to see what IR Magazine has to say so I checked it out. I was disappointed to see the article was based on a “study” from The Equity Group that says the majority of security lawyers don’t support web-site disclosure. I dug in more and found the press release that the article was based on.
Here are a couple of key things to note…
The Equity Group was commissioned by someone to conduct this study. They spoke to 15 security lawyers and used this as their sample, which according to research experts , falls well below what would be required to represent the full population of US securities lawyers. In addition, no information was given as to the nature of the survey – which as it turns out, was actually a poll. Personally I would love to see what the actual questions in the poll are.
According to the Equity Group, an ‘overwhelming majority’ are against web disclosure. In addition to the problems associated with the sample size and the ‘survey’ itself, let’s take a look at some of the ‘problems’ the article identifies with respect to the Reg. FD web disclosure model:
Potential fraudulent web postings – fraudulent web postings are a serious issue on their own. All companies must consider this liability when dealing with their web site in general. This is not a web disclosure issue. The reality is that companies must have controls in place to ensure their web sites never contain any type of fraud.
Technical glitches disrupting access to news – is this saying that the company web site, RSS feeds, email alerts, content aggregators etc. all happen to not work simultaneously for some reason? Meaning the issuer’s site could not act as a recognized channel of disclosure? This broad non-descript fear statement, “some type of glitch may happen and the information isn’t accessible”, is irresponsible. The naysayers to web disclosure should step up and explain why companies can’t easily have web sites that are always available, when every other industry easily achieves this.
SEC guidance squaring exactly with NYSE and NASDAQ rules – this is legitimate and something that the SEC needs to address. Paving the way for new regulation is expected to require some discussion with exchanges – it certainly isn’t an insurmountable road block.
Investors have come to expect to look in central places for financial news and don’t want to visit a number of corporate websites. – Web disclosure is not about having to visit each issuer’s web site to get information! It is about allowing companies to use their web site and all available technologies (Blogs, RSS, Email, Social Networks) to distribute their information to the market.
Positioning web disclosure as the requirement to “visit every company’s web site”, is a deliberate attempt to confuse the market and it is irresponsible for The Equity Group and whoever commissioned this “poll of securities lawyers” to continue to position the option of web disclosure as such.
On this note, the rest of the world’s information now utilizes the web and all of these technologies to communicate and distribute information around the globe. This study’s description of web disclosure is based on what the web was in the late 90s, and we’ve come a long way since then.
Goldstein said, ‘We concluded that attorneys generally don’t want clients to be test cases.” So based on the 15 lawyers you spoke to and asked if they’d rather visit a web site, or get their news delivered to them, the overwhelming majority chose newswires. (I’m paraphrasing, but I’d love to see the so-called “poll” questions). So, is that like 10? or 12? And from the 12 who said they’d prefer newswires, you can draw a market conclusion that no one wants to be a test case? Again, this is an obvious research piece created to scare the market into not changing.
The bottom line is that companies should not have to pay to disclose information to the market when the Internet provides this capability for free. Corporate disclosure is what the market requires to make decisions. In order to have the healthiest, most efficient market, there must be a high level of direct transparency between a company and its stakeholders.
This is why the SEC made the changes to RegFD in the first place.
The SEC has recognized that the way public companies disclose information today is trailing way behind how the rest of the world uses the Internet. It’s that simple. The SEC has opened a doorway that allows issuers to fully leverage the accessibility, reach and immediacy of the Internet. This opens the doorway to save issuers 100’s of thousands of dollars – which makes more sense then ever in today’s tough economic climate.
If you’re a smart IRO looking for a way to save your company a lot of money (particularly in this down market), then web disclosure is what you should be most interested in for 2009. You owe it to yourself and your company to investigate this fully and get the straight goods.