SEC urged to issue new IR website guidelines

A COMMITTEE created to advise the SEC on improving corporate reporting has urged the agency to update its eight-year-old guidelines for the use of corporate websites for investor disclosure.

The Advisory Committee on Improvements to Financial Reporting says there are “continuing concerns about the treatment of website disclosures under the federal securities laws that some have argued may be impeding greater use of corporate websites.”

In a draft report (PDF 3.08 MB, 110 pages) issued on Friday, the committee calls on the SEC to issue a new comprehensive interpretive release on the use of corporate websites for disclosures. It says the guidance should address such issues as:

• Companies’ liability for information presented in a summary format;
• Treatment of hyperlinked information “from within or outside” a company’s website;
• And “clarification of the public availability of information disclosed on a reporting company website.”

The last comprehensive interpretive release on using corporate websites for disclosure was provided in 2000. That guidance has been overtaken by both new technologies and investors’ experience using the Web.

Hyperlinking rules ripe for review

The issue of hyperlinking and third-party content are particularly important. I believe the status quo is now hurting rather than helping investors. As it stands, companies almost uniformly do not provide or link to valuable information and opinion from independent third-parties that would be useful to investors, particularly retail investors.

Companies I’ve spoken to fear that if they provide access to outside information — even something as innocuous as a magazine interview with their CEO — they are exposing themselves to potential liability and regulatory sanction. Consequently, investors are being denied the opportunity to learn valuable information from independent sources.

More recently in the era of social networking and blogs, where hyperlinking to multiple sources and viewpoints is the norm, the current rules around hyperlinks and third-party content put investor relations departments at a significant disadvantage.

Websites for disclosure under Reg. FD

One other issue mentioned by the committee — the “public availability of information” on a company website — appears to me to be an oblique way of recommending that the SEC revisit its requirements for information distribution under Regulation FD.

Currently, postings on company websites by themselves are not recognized as meeting the regulation’s requirements for “broad, non-exclusionary distribution” of information to the public.

You will recall that SEC chairman Chris Cox has said already that the SEC is looking into the issue following a request from Sun Microsystems.

Leaving “best practices” to industry

One aspect of the committee’s recommendation strikes me as unlikely to lead to much change or improvement. The committee recommends that “industry participants” rather than the SEC “coordinate among themselves to develop uniform best practices on uses of corporate websites for delivering corporate information to investors and the market.”

Unfortunately, leaving it to the industry to develop best practices is exactly what has led to the poor state of investor relations websites in the U.S. The vast majority of investor relations websites today are hosted by two or three companies. As such, uniform practices already largely exist, but there is no incentive for the dominant vendors to improve their products.

The investor relations profession itself, in the form of the National Investor Relations Institute (NIRI), has shown little inclination to encourage better online disclosure practices. In part, this may be a result of the investor relations website suppliers wielding enormous influence over the IR community.

The SEC and other regulators could make a major contribution to improve the quality and accessibility of online corporate reporting by issuing a single, simple requirement that all online disclosures conform to the website accessibility standards of the World Wide Web Consortium (W3C), the recognized standards setting body for the Internet.

That would immediately point companies and their vendors to the standards they are expected to meet and remove the regulators from having to formulate standards in an area where they have little domain expertise.

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