The Securities and Exchange Commission’s latest guidance on how companies can best use corporate Websites to distribute information is welcome and helpful, securities experts say, but nobody should expect a revolution in online disclosure and investor relations any time soon.
The 47-page interpretive release, released Aug. 1, updates SEC guidance last published in 2000. Since then, developments in technology “have increased both the markets’ and investors’ demand for more timely company disclosure on the Web,” the SEC says, and consequently raised new issues in securities law for public companies. The guidance took effect Aug. 7.
Richard Price, a partner with the law firm Shearman & Sterling, says companies are generally comfortable with disseminating information via Website, but they do have lingering fears about Regulation Fair Disclosure and liability for some antifraud disclosures. “The SEC is trying to allay some of those concerns,” he says.
The interpretive release “will go some way to address the concerns companies might have,” Price says. “But will it radically change practices? I don’t think so.”
Lane
That’s largely because an interpretive release doesn’t give the same level of comfort—or provide the bright lines—that a formal SEC rule does. Brian Lane, a partner in the law firm Gibson, Dunn & Crutcher and former director of the SEC’s Division of Corporation Finance, described the guidance by saying it’s “like there’s a mosaic on the wall, and they’ve added a few more tiles so people can see the picture a little more clearly.”
The SEC staff says the lack of bright lines is deliberate. At a July 30 SEC meeting to approve the guidance, Corporation Finance Director John White said the Commission made a conscious effort to be “much more principles-based” and avoid bright-line tests so that the guidance would be flexible enough to accommodate future advances in technology.
The SEC also indicated that it will update the guidance sometime in the future, although the agency didn’t say precisely when it might do that. The interpretive release seeks written comment by Nov. 5 on “any other approaches or issues involved in facilitating the use of electronic media, including as a result of technological developments, to further the disclosure purposes of the federal securities laws.”
The interpretive release addresses four main topics:
When information posted on a company Website is “public” for purposes of Regulation Fair Disclosure;
Liability for information on company Websites, including previously posted information, third-party hyperlinks, summary information, and the content of interactive Websites;
The types of controls and procedures best-suited to handle such information; and
The format of information presented on company Websites, with a focus on readability rather than printability.
Schacht
Kurt Schacht, managing director of the CFA Institute Centre for Financial Market Integrity, believes the new guidance “will make the entire process of Regulation FD-type disclosures more efficient and effective.”
“The hope is that this will actually lead to more and better company information,” Schacht says. “Handled properly, posting it on the Web can eliminate complicated and expensive discussions and process now in place for releasing information; posting it on the Web can essentially inoculate any FD concerns and, hopefully, short-cut the process of disclosure and expand access to information.”
EVALUATE YOUR SITE
The following excerpt from the SEC’s guidance on company Websites lists several factors for companies to consider in evaluating whether their site is a recognized channel of distribution.
Whether and how companies let investors and the markets know that the
company has a Website and that they should look at the company’s Website
for information. For example, does the company include disclosure in its
periodic reports (and in its press releases) of its Website address and that it
routinely posts important information on its Website?
Whether the company has made investors and the markets aware that it will
post important information on its Website and whether it has a pattern or
practice of posting such information on its Website;
Whether the company’s Website is designed to lead investors and the market
efficiently to information about the company, including information
specifically addressed to investors, whether the information is prominently
disclosed on the Website in the location known and routinely used for such
disclosures, and whether the information is presented in a format readily
accessible to the general public;
The extent to which information posted on the Website is regularly picked up
by the market and readily available media, and reported in, such media or the
extent to which the company has advised newswires or the media about such
information and the size and market following of the company involved. For
example, in evaluating accessibility to the posted information, companies that
are well-followed by the market and the media may know that the market and
the media will pick up and further distribute the disclosures they make on
their Websites. On the other hand, companies with less of a market following,
which may include many companies with smaller market capitalizations, may
need to take more affirmative steps so that investors and others know that
information is or has been posted on the company’s Website and that they
should look at the company Website for current information about the
company;
The steps the company has taken to make its Website and the information
accessible, including the use of “push” technology, such as RSS feeds, or
releases through other distribution channels either to widely distribute such
information or advise the market of its availability. We do not believe,
however, that it is necessary that push technology be used in order for the
information to be disseminated, although that may be one factor to consider in
evaluating the accessibility to the information;
Whether the company keeps its Website current and accurate;
Whether the company uses other methods in addition to its Website posting to
disseminate the information and whether and to what extent those other
methods are the predominant methods the company uses to disseminate
information; and
The nature of the information.
Source
SEC Interpretive Release on Web Guidance (Aug. 1, 2008).
Regulation FD, enacted in 2000, prohibits a company from disclosing material information about the business selectively. When such disclosure happens accidentally, the company must immediately issue a press release so that offending information is available to all.
The guidance says a company must consider three factors to determine whether information posted to its Website is “public” for Regulation FD purposes: Is the company Website a recognized channel of distribution; is the information posted on the Website in such a way to make it available to the securities marketplace in general; and has there been a reasonable waiting period for investors and the market to react to the posted information?
The release also specifies that, “for some companies in certain circumstances, posting of the information on the company’s Website, in and of itself, may be a sufficient method of public disclosure under Rule 101(e) of Regulation FD.”
Richman
The Regulation FD provisions should ease companies’ frustrations over ambiguity about whether Website postings alone can satisfy Reg FD’s expectations, says Laura Richman, counsel in the law firm Mayer Brown. “Companies are now being told they can analyze their situation and decide whether that’s true for them.”
The guidance goes on to list several more factors companies should consider in making that determination, such as whether the company discloses its Website address in its press releases and periodic reports, and whether the site includes information specifically addressed to investors that is prominently disclosed and presented in a format accessible to the general public.
Price advises companies to review those factors and consider following them to improve or enhance the visibility of their Websites. “There’s also helpful guidance in terms of antifraud liability for Website postings, which, while it won’t radically change practices, could lead people to tinker with them,” he says.
Also helpful, Lane says, is a statement reminding people that while posting information on the Website in a location and format readily accessible to the general public would not be selective disclosure, the information also may not be “public” for the purposes of determining whether a subsequent selective disclosure violates Regulation FD.
“The SEC is saying by posting information on the Website alone, a company wouldn’t violate the law, but it also may not be public,” Lane says. “That’s an important nuance.”
One thing the guidance does not do: specify how long information must be posted on the Web to be deemed public for purposes of insider trading. Rather, that’s a “facts and circumstances” determination that companies will have to make on their own.
At the July 30 SEC meeting, White noted that the guidance could potentially cut down on the number of Form 8-K filings related to Regulation FD worries; others say that’s unlikely. To satisfy their disclosure obligations and avoid Regulation FD headaches, companies can either file a press release or file a Form 8-K, but Lane and others say most companies do both “out of an abundance of caution.”
“That’s not likely to change,” he says.
At the very least, companies should review their disclosure policy and Website practices “to ensure that they gain the full benefit of this new guidance,” Price says.
As part of that review, companies should check for inaccurate information—such as information on lines of business they no longer operate or outdated management and director information—and ensure that older information is clearly identified as historical, Richman says.
“You may not need to date every page, but the more details you provide, the more important it is to have a date,” she says.
Companies planning to rely on Website posting as the sole means of dissemination for any information should also ensure that their site can withstand heavy amounts of traffic without crashing, she says.
Among other things, companies should review their use of hyperlinks and consider including explanations of the context for any links, along with “exit screens” that tell users they are leaving the company’s site, Richman says.
Finally, the release clarifies that the antifraud provisions apply to statements made in blogs and electronic shareholder forums by the company or a person acting on the company’s behalf. Richman say that’s “an important reminder” for companies that should train employees to understand that whatever they post on electronic shareholder forums or company-sponsored blogs are company statements subject to securities law.
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