SEC to rule soon on websites for Reg. FD

THE US Securities and Exchange Commission (SEC) is expected to address within the next three months whether companies can meet their obligations under Regulation FD by posting information on their corporate websites and in RSS feeds, according SEC Chairman Chris Cox.

The issue is among three areas that the SEC’s  Advisory Committee on Improvements to Financial Reporting (CIFiR) has recommended the SEC consider in an update of its 2000 interpretive guidance for disclosures on corporate websites.

In a speech to an audience of investors and analysts at a recent Chartered Financial Analysts Institute conference, the SEC chairman said he expected that the agency would address the CIFiR proposal “this summer.”

Paid press release distributors like PR Newswire and Business Wire strongly oppose the move to recognize website postings under Regulation FD. The issue was brought to the fore in October 2006 when Sun Microsystems asked the SEC to update its Reg. FD guidance to recognize disclosures on corporate websites, web feeds and blogs.

I have explained at length why corporate websites that use web feeds and email alerts should be recognized and why the arguments from the PR wire services don’t hold water.

Some issues just not that pressing

As Broc Romanek at the CorporateCounsel.net discussed in detail yesterday, there are a number of other areas where revised SEC guidance could lead to significant improvements for both companies and their investors.

One is for the SEC to give an official OK to a “notice-and-access” model for news releases, which is important to do because at least one newswire service refuses to carry such releases, while many companies are nervous to try it without an official nod.

Notice-only releases are a good compromise between giving full recognition to corporate website postings and enabling companies to voluntarily cut their disclosure costs by shortening their earnings and other releases. In the case of news releases to announce upcoming presentations and conference calls, the requirements should be waived if companies maintain calendars on their websites that list upcoming events with a sufficient lead time.

The other two areas CIFiR has recommended the SEC revisit include liability around summary information and liability for links to third-party content, where I agree wholeheartedly with Broc’s comments yesterday that scaring companies away from providing multiple sources of information is bad for investor protection.

However, these two issues are not major problems that need urgent attention. Although I’m in favor of the SEC encouraging companies to provide more information to their shareholders so long as it is not intended to mislead them, investors who want third-party information are smart enough to know how to find it. Google works quite well, apparently .

And liability for summaries? Where are these summaries people are talking about? I don’t see them and I’m looking at IR websites every day.

No, I think there are more pressing web-related problems the SEC’s staff need to be addressing.

What about addressing the e-Proxy problems?

Take the recent e-proxy rules, for example. Due to one ambiguous sentence in the adopting release by someone who didn’t know that not all cookies infringe on web users’ anonymity, companies using the voluntary notice and access process have been persuaded that they cannot host annual reports and proxy statements on their own websites if their sites use cookies of any kind — even anonymous ones that improve the user’s experience.

Consequently, we have seen ridiculous situations such as that at Xerox Corp., where the company’s own website contained a full HTML annual report, but investors receiving the notice of Internet availability were directed to a second set of materials in less usable formats hosted on a service provider’s website. This was done because the company’s legal counsel was made to believe that the SEC does not permit any cookies to be used on websites hosting proxy materials. Ironically, the service provider’s website uses cookies.

Yeah, it’s stupid, but that’s what happens time and again when the SEC says anything about the web. Lawyers who know nothing about web technology leap to conclusions based on misconceptions.

And this has serious repercussions for investor protection. Part of the reason for the near 75% drop in the number or retail shareholder accounts voting at annual meetings where notice-and-access has been used is likely due to investors not being able to use the online materials vendors have been providing.

It would also be helpful if the SEC came out with a ruling on image-based documents. Is it okay, as most companies are doing, to provide your annual report and proxy statement in a document whose text cannot be copied and pasted, and which is part of a fuzzy image?

Companies are saving tens of thousands of dollars using notice-and-access, yet they are putting back next to nothing to provide usable online documents.

Dominic Jones

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