Lesson 4. We need to recognize
companies and IROs who "think Web"
The fact that one in 10 US public companies were
apparently oblivious to the rule for website posting
of insider reports is one more example of the lack
of attention companies are giving to their website
communications with investors. Many times over the
past two years, this site has chronicled how most
companies fail to pay even cursory attention to
what and how they post information online.
Most small- and mid-cap companies have so neglected
their websites that they are in danger of losing
their audiences. Investors today have many choices
for obtaining investment information. Sites like
Yahoo! Finance, for example, provide more information
on firms in easier to use formats than the same
companies provide on their own websites.
At the same time, statistics show that investors
are using corporate websites less often than in
the past. According to AIMR, the typical investment
professional in 2000 used a corporate website once
per quarter, down from once per month in 1998.
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Most
smaller firms have so ignored their
websites that investors are likely to
stop using them.
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If investors give up on corporate sites completely,
what does this mean for companies? For one, it means
companies will lose their ability to control the
quality and nature of the information on which investors
rely because they will get it from sources beyond
the company's influence. It also means that companies
will find it harder to move investors away from
expensive print and in-person communications to
electronic ones because there'll be little incentive
for investors to give up what they have. And it
means that as audiences dwindle, the cost per
user will rise to levels where the Web no longer
offers a significant cost advantage.
Of course, this is a difficult message to get across
when many don't realize the benefit of the Web in
the first place. What is really needed is a push
from all of the stakeholders in the capital market
system - professional bodies, stock exchanges, website
vendors and even regulators - to encourage companies
to use the Web more actively in their communications
with investors.
Companies that go the extra mile need to be recognized
and presented as a model for others. Interestingly,
the US has no national recognition program for online
investor relations. This is unlike in the United
Kingdom where the Investor Relations Society
has spearheaded an industry-wide initiative to focus
attention on the requirements for effective website
disclosure. This initiative has done an enormous
amount to improve the quality of IR websites in
the UK and, more broadly, in Europe, to the point
where standards there are generally superior to
those in North America.
Such initiatives raise awareness of the issues
unique to communicating investment information on
the Internet, but likely they will not go far enough
to encourage a critical mass of companies to improve
their practices. There needs to be other incentives,
such as allowing companies to obtain safe harbor
or excemptions if they post certain information
on their websites.
Lesson 5: Standardization
by website vendors can be a good thing (sometimes).
I have been critical of website vendors for making
decisions that are not good for their clients' audiences.
That criticism is valid, but for the first time
I have to acknowledge that companies like CCBN,
Shareholder.com and Thomson Financial have been
a godsend to their many clients when it comes to
mandatory web posting of Section 16 filings. Many
more companies would have been unprepared for the
insider ownership rules if not for these firms taking
steps to add a parsing feature to their clients'
SEC filings pages, sometimes without the client's
full knowledge it would appear.
Shareholder.com, widely regarded of the
most flexible of the three big vendors, deserves
special mention for the polish it applied to many
of its clients' websites. It was the only firm to
provide an explanation to investors for why some
companies did not have insider transactions to report.
At other vendors, and on the SEC's EDGAR site, investors
who followed links to insider filings of companies
that had not filed reports electronically were greeted
by an empty screen that in some cases looked like
an error page. As I've written before, errors and
links that are broken, or appear to be broken, shake
the confidence of users to the site and undermine
the credibility of the company behind it.
The message provided to investors by Shareholder.com
explained that companies had been filing insider
reports on paper up to the June 30, 2003 deadline
and that future filings would be made electronically
and then posted on clients' websites.
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| Shareholder.com added polish
to the sites of clients who had not yet filed
insider reports electronically and so had no
online documents to provide. |
In contrast, visitors to the sites of many CCBN
and Thomson Financial clients got no such explanation.
When visitors to CCBN-hosted sites clicked on links
to companies' Section 16 filings, they got a near-blank
screen with a single line of red text: "No
filings found." Investors getting this message
likely interpreted it as an error, and not as a
statement that there simply were no filings available.
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| Many CCBN clients returned
this error-like screen when investors clicked
to view their Section 16 filings. |
So there you have it, five lessons we can learn
from the first mandatory requirement for website
posting of disclosure documents. It wasn't a giant
stride forward and, yes, a few companies well and
truly stubbed their toes. But it's a start, a good
start on a long road towards a time when perhaps
companies and investor relations professionals will
see the Internet not as a burden, but as an opportunity
to build stronger, more open relationships with
their stakeholders at low cost. Getting there will
require bold leadership from regulators, industry
groups, the vendor community and companies themselves.
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