Shareholder.com clients should read this

NEWS today that European Union privacy regulators are challenging giant Google Inc.’s privacy practices should be cause for alarm for companies that use Nasdaq Stock Market Inc.-owned Shareholder.com’s investor tracking tools on their websites.

The EU regulators are concerned that Google’s tracking practices violate privacy protections in Europe. However, when you compare what Google is doing to what Shareholder.com has been doing for the past year, the tracking on investor relations sections of companies’ corporate websites is much more invasive than Google’s.

As the screenshot below shows, Shareholder.com clients capture the name and private activity of investors and other users. The information is stored indefinitely and can be called up at a moment’s notice by companies typing in an investor or analyst’s name.

The tracking is typically not being disclosed by the more than 100 well-known U.S. companies that are using the software. Investors unwittingly give up their privacy when completing registration forms to access essential information like webcasts of earnings calls or RSS feeds for SEC filings.

Companies that have used the system include JPMorgan Chase & Co, Palm Inc., Verisign Inc., QUALCOMM Inc., The Western Union Co., Zimmer Holdings, Questar, Netflix inc. and Nasdaq itself.

We have repeatedly voiced our concerns about Shareholder.com’s activities. To date, the National Investor Relations Institute (NIRI), which represents almost 4,000 investor relations practitioners, has remained silent on the issue. Nasdaq is a major sponsor of NIRI activities.

Recently, the Securities and Exchange Commission (SEC) moved to introduce rules that outlaw tracking that breaches investors’ anonymity on websites hosting companies’ annual shareholder materials for firms which voluntarily take advantage of the SEC’s new e-Proxy process starting from July 1. However, companies can continue to breach the anonymity of their web users if they choose not to use the cost effective e-Proxy process.

(Update: On June 20, 2007, the SEC passed a rule making it mandatory for companies to post their proxy materials online on a website that does not breach the anonymity of people using the site. See SEC mandates online proxy materials)

And although EU regulators are unlikely to turn their attention to investor relations websites of companies with European shareholders, non-European companies using Shareholder.com and other non-anonymous web tracking services may want to take precautions against that possibility.

Blocking access to investor relations websites from EU countries or using click-thru disclaimers are two potential remedies. However, these would undermine companies’ efforts to attract new investors. Alternatively, companies should stop tracking individual users and storing their usage histories.

More coverage on the EU’s actions against Google are provided by the Financial Times, BBC, and The Independent. While reading, substitute your company’s name for Google and you’ll have a sense of the importance of this issue.

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