Last June, the director of the Securities and Exchange Commission’s Division of Corporation Finance, John White, addressed the annual conference of the National Investor Relations Institute. His message: “Communications is a big theme for the SEC. Companies, more and more, are using corporate Websites to provide information that we require. We at the Commission are on board with this, and we want to encourage it.”
By opening the door for the Internet’s potential as a primary means of investor communication, the SEC is providing corporations with a significant opportunity to provide a cheaper means of disseminating vital information to their investors. Let’s take a look at each of the SEC’s initiatives to encourage use of the Internet.
In December 2007, the SEC issued its “Notice-and-Access” rule in time for the 2008 proxy season. Notice-and-access (also called E-proxy) lets companies provide proxy materials through the Internet by notifying shareholders that they can access the annual report and proxy through the company’s Website. However, the investor has the right to receive printed proxy materials through the mail if he chooses.
So how did e-proxy work in its first year? A joint NIRI and Society of Corporate Secretaries and Governance Professionals study found that 44 percent of responding companies implemented some form of notice-and-access delivery of proxy materials. The majority (68 percent) of the early adopters were small and mid-sized companies, while 28 percent were large and mega-caps. Seventy-seven percent said they saved money using notice-and-access, but the savings were modest in part because they printed more materials than was needed. The survey indicated that 5 percent or less of investors requested printed materials.
While 90 percent of the companies achieved a quorum, most noteworthy about the e-proxy rules was the resulting plunge in proxy voting. Three quarters of those that did not use notice-and-access said they wanted to wait and see what the early adopters experienced.
The next SEC initiative was to urge companies to create online shareholder forums. In November 2007, the SEC announced rule amendments that would relieve companies from legal liability that discussions in an online forum might be viewed as a proxy solicitation. As SEC Chairman Christopher Cox said at the time (Nov. 28, 2007): “Today’s action is intended to tap the potential of technology to help shareholders communicate with one another and express their concerns to companies in ways that could be more effective and less expensive.”
Online shareholder forums already exist on the Motley Fool and Yahoo Websites. Yet companies generally avoid participation in these forums, partly out of concern for violating Regulation Fair Disclosure. Most companies have not created their own electronic forums for fear that these could become “the devil’s playground.” An example of what they want to avoid: In 2007, individual investor Eric Jackson used his blog and YouTube to pull together some 100 shareholders to conduct a campaign that resulted in a 33 percent “against” vote for seven of the 10 Yahoo directors and the downfall of Yahoo’s CEO Terry Semel.
Lastly, in July of this year, the SEC issued an interpretive release to help companies provide investors with interactive content on their Websites along with summary information and links to third-party information. This was in response to one of the recommendations from the SEC’s Advisory Committee on Improvements to Financial Reporting. This also opened the opportunity for companies to issue their earnings releases on their Websites, so long as the respective corporations deemed their site as a sufficient means for full disclosure. While this would save companies the cost of issuing releases through one of the wire services, experience so far indicates that companies still value the broad distribution these services provide for a document that companies feel is one of their most important means for communicating company performance.
So with all these changes, what can companies do to enhance their investor relations Website? Following are thoughts from Rob Berick, managing director at Cleveland-based Dix & Eaton, who advises companies on IR Website content.
Given that we are functioning in a global marketplace where equities are traded around the clock, the IR Website should be viewed as a “24-hour call center” that fulfills investors’ information needs when the IR office is closed.
Make the IR site easy to find—one click away—from the company’s homepage. A surprising number of companies bury the IR page under “About the Company.”
Provide a specific IR contact person and a direct e-mail address and phone number. This sends a strong message that the company wants to be transparent.
Frame the company’s value proposition for investors both quantitatively and qualitatively, on the IR site’s “landing page.” This should not be a regurgitation of the boilerplate description of the company. It should communicate the “why invest in us” argument that should also be the bedrock of the company’s investor road show presentations.
Provide a live Webcast of all quarterly conference calls and industry conference presentations and archive these on the IR Website. Also, consider Webcasting the annual meeting and solicit questions via the Website prior to the meeting.
Stock the site with transcripts of quarterly earnings conference calls, and presentations at industry conferences.
Use the latest push technologies (e.g., Real Simple Syndication) to make it easy for investors and the financial media to stay current on the latest company developments, as well as to further ensure consistent dissemination of news and information. This is particularly important in disseminating earning releases directly to investors.
Consider using online surveys to gain insight into buy-side investor sentiment following earnings announcements or other material news developments. Similarly, an online survey of key macro- or micro-trends can help managements properly align the content of their quarterly announcements and conference call remarks.
Repurpose high-level product and market information from customer-facing portions of the site (and provide a direct link to the more granular details found elsewhere on the site) for investors. Doing so will put the products or services in context of the company’s strategy and growth objectives. And, in the case of B-to-B companies, it will help to explain sometimes-complicated products. A September survey of individual investors conducted by Dix & Eaton and Zogby International found that while earnings growth may be the primary focus of individual investors in making investment decisions, more than 70 percent said that a company’s business strategy and management’s credibility were also important considerations. This aligns with findings from a study conducted by Rivel Research (March 2005) on buy-side institutional investors.
Make better use of the Frequently Asked Questions page of the site by addressing real investor concerns. Going beyond “Who is the transfer agent?” type questions will further help the company to differentiate itself and market its strategy.
Say goodbye to the PDF annual report. They are to online annuals what typewriters are to word processing. They’re difficult to navigate and offer no ability to link the report to content elsewhere on the site. Instead, use an HTML format.
Given the diminishing role of sell-side research, the Internet is an effective and efficient way for companies to communicate their story directly to both institutional and individual investors. Once companies file their financial reports to the SEC using XBRL, investors will be able to access tagged financial information directly from the source instead of getting third-party repackaged information that can be distorted.
And perhaps the greatest benefit the Internet affords is transparency. As companies deal with challenges stemming from the difficult and turbulent financial crisis, they will find that investors will insist on greater transparency as a way of assessing management’s credibility.
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