From Websites to Wire Services: Disclosure Wars

Pull your chairs up to your computer screens, everyone: A battle is brewing online about the correct way to disclose material, non-public corporate information to investors.

Of course, I’m all for a good cyber-space spitting contest, and the broad contours of this particular fight are worth the attention of any senior executive who deals with investor relations—because, above all, this tale reminds us that disclosure of material, non-public information is rife with shades of gray.

On one side of the battle is Dominic Jones, blogger for the IR Web Report; on the other is Gregg Castano, co-chief operating officer at Business Wire, and a few other wire services that specialize in corporate disclosure. The fight—which has grown quite vitriolic, and is worth reading next time you’re surfing around online—centers on guidance published by the Securities and Exchange Commission last summer on disclosure of information via corporate Websites.

The SEC’s guidance requires companies to evaluate three factors in judging whether their Websites are adequate means for achieving full disclosure: (1) Is the company Website a recognized channel of distribution? (2) By posting the information on the company Website only, would that constitute making it available to the securities marketplace in general? (3) Is there a reasonable waiting period for investors and the market to react to the posted information?

Obviously, the SEC is placing the burden on the company to demonstrate that it meets those three criteria. For that reason, corporate lawyers have largely advised against going down that path.

Enter PR Newswire’s Disclosure Advisory Board, which published a white paper last fall offering its own interpretation of the SEC guidance. The DAB paper argued that no single solution exists for all companies to disseminate material information. A large company might meet all three SEC criteria easily, and choose to go that route. A smaller company, however, might not have the level of market exposure to meet the criteria and need a broader means of dissemination—say, a wire service—to gain the needed visibility in the marketplace. (In full disclosure, I was a member of the PR Newswire DAB).

Jones then said in his (widely read) blog that the DAB was essentially a handmaiden of PR Newswire, and our white paper was designed to support our sponsor’s interests. I don’t believe his contention to be true, but once it was out there, the battle was on.

Jones says that the SEC made a major step forward when it issued its interpretive release in July 2008 recognizing that standalone Website and blog postings can, under certain circumstances, meet the public disclosure requirements under Regulation Fair Disclosure. But, he acknowledges “most law firms have now counseled their clients not to make any quick changes to their current Reg FD disclosure requirements.”

Doing nothing, he says, “means almost no one is complying with Reg FD”—because, he contends, disclosure via wire service is not simultaneous compared with some other means such as a corporate Website. He claims it takes one to four minutes before material news disseminated by a wire service is posted on a public Website, depending on the time of day, length of the release, and the Website used. Meanwhile, he says, professional investors with access to expensive subscription services are able to trade ahead of investors who use the public sites such as Yahoo! Finance or company Websites.

Business Wire responded with a Nov. 3, 2008, letter to the SEC saying that all investors have equal access to market-moving information via a wire service. “In laymen’s terms, professional money managers monitoring a Bloomberg terminal, and senior citizens eyeing their portfolios on Yahoo! Finance at home, have totally equivalent access to price sensitive news that may influence their investment decisions.” Business Wire then praised its proprietary “NX” technology as “capable of delivering hundreds of news releases to the investment community synchronized to the precise second.”

Those are the battle lines. So who’s right?

I’m troubled with Jones’ argument that almost nobody is complying with Reg FD when using wire services. It’s difficult to argue that the disclosure playing field is completely level when, as a practical matter, retail investors (as opposed to professional investors) are not glued to their computer screens throughout the trading hours and generally are not trading in extended hours. The important issue is making the information generally accessible to all investors on a timely basis.

I have been supportive in my Compliance Week columns of the SEC’s move toward using the Internet and the corporate Websites as means for disclosing investor information and interacting with shareholders. Each company should look at its own situation—and while examining the costs, its primary focus should be to meet the needs of shareholders and potential investors. Once that determination is made, the company can decide whether alerting shareholders to go to the company’s Website for new material information or issuing a broadly disseminated news release through a wire service meets that objective.

The original text of Reg FD (adopted in 2000) clearly says that companies can meet the “public disclosure” requirement using a Form 8-K filing, a press release distributed through a wire service, or any other “non-exclusionary method of disclosure reasonably designed to provide broad public access.” In last summer’s guidance, the SEC added the use of the company Website as a means for sole disclosure of material news, subject to meeting the three criteria enumerated earlier. The SEC was not splitting hairs over seconds or minutes with respect to when information was disseminated through the various dissemination means.

In a recent cost-saving decision, the New York Stock Exchange aligned its listed company requirements for disclosure with those of the SEC. Before, the NYSE required, for example, that companies issue a follow-up news release containing material information that was disclosed in a fully accessible Webcast conference call. NASDAQ aligned its requirements with those of the SEC several years ago.

While I’ve delineated some of the battle lines drawn among the various players involved in the corporate disclosure process, the bottom line is that we should recognize how much progress has been made since the inception of Reg FD. At the time, SEC staff members crafting the rule had to be convinced that a majority of individual investors were using the Internet to access corporate information—and look where we are eight years later! Means of information have expanded and become more sophisticated. At the same time, the differences among corporations in how they serve their investors’ informational needs continue to remain diverse. As I said, there’s no one-size-fits-all solution.

Disclosure and transparency are essential in building investor trust and confidence in companies and the markets. The relevant professional organizations representing corporations, the investment community and those involved in the dissemination process have been coming together to do what’s best for investors. And, shareholders will benefit far more from this kind of effort than divisive, behind-the-scenes turf wars.