Electronic disclosure has always been a fuzzy area for IR professionals. Until a few months ago, a lack of current regulations over use of the internet divided IR departments into two camps: the daring and innovative versus the restrained and obedient. Recently, the US Securities and Exchange Commission has taken broad steps to update its regulations. In May, the SEC issued a release entitled “Use of electronic media” and in August, it approved Regulation FD. Under Reg FD, public companies are now encouraged to use the internet to dispense material information to all audiences simultaneously.
On August 30, a group of experts participated in a virtual summit on electronic disclosure guidelines. The event was part of a CyberSeminar series hosted by Investor Relations magazine and WorldCom, and featured Brian Lane, partner at legal firm Gibson Dunn & Crutcher and former SEC director of corporation finance; Rob Adler, president, of CCBN.com; and Larry Bridge, COO and head of IR consulting at the Carson Group.
Marshall McCluhan’s famous phrase “the medium is the message” rang true as guests dialed up and logged on to hear what this panel had to say about electronic disclosure. Moderating the summit was Investor Relations’ North American editor, Anthony Parish. Here are some highlights.
Nuts and bolts
Lane: The idea behind Regulation FD is not to totally chill one-on-one conversations. You can have a discussion and disclose information but the assumption now is that any new information will be made known to the wider public immediately. The SEC also added an exemption (from Regulation FD) for registered offerings. For example, with roadshows, shareholders are often privy to material information such as projections that may not otherwise be included in the prospectus or be made public. For private offerings, companies must have a non-disclosure agreement from shareholders. This is another exemption (from Regulation FD). The idea is you do not have to make something public when you are telling someone something in confidence. Thirdly, in order to comply with Regulation FD, companies must send out a traditional press release. In other words, a web posting is not sufficient. So if you have a material, non-public piece of information you are going to tell analysts, you need to write a press release.
Heads-up
So, posting news on a web site is not enough. However, a live webcast or a conference call, which is open to the public, is sufficient when coupled with a press release. The press release should announce that you are having this webcast or conference call as well as provide information about how the public, including individual as well as professional investors, can participate in the event.
The last point is that guidance to shareholders or analysts is risky. Most IR professionals dance on a tightrope everyday talking to analysts and giving guidance. IROs should be aware that signaling analysts that results could beat or fall short of expectations is basically prohibited. There is some language in the regulation that suggests that even confirming companies are on track with previously disclosed projections is dangerous.
Communicating through the net
Adler: The internet is a wonderful immunizer against the threat of selective disclosure. Webcasting is strongly advocated within the text of Regulation FD as a means of meeting disclosure. Rather than just being used for earnings announcements, I predict webcasting will be used for everything considered material including product announcements, annual meetings, analyst meetings, and investor presentations.
One key component which goes along with a multimedia presentations is push technology and advance notification. There are already thousands of companies including e-mail alerts to notify shareholders of news updates. This form of push technology is a big part of why the SEC is comfortable with the internet as a vehicle for disclosure.
Also, major portals, like Yahoo or AOL, would like to get as much information about companies on their web sites as possible. To me, sending out news on these portals comes very close to the spirit of what Arthur Levitt and the SEC are trying to accomplish. It’s a marriage of compliance and opportunity in terms of companies getting their message out to a broad audience. The conference call of the future will be not only a teleconference call. The presenter will take full advantage of the web by incorporating visual slides. Also, conference calls will be more interactive, allowing audiences to ask questions of company management and receive feedback in real time.
IR and electronic disclosure
Bridge: As an IRO, you need to be aware that electronic disclosure is also being adopted by traditional media. So, when you are talking to the New York Times, for instance, you need to be thinking about how this medium uses electronic disclosure through its own web site. An IR person needs to look at this second level of disclosure because it’s not only what you drive through the net but what is being driven by other companies.
Another thing to be aware of is the creation of black holes of information. In the Wall Street Journal today there was a story about a fraudulent press release which was picked up on Internet Wire and then distributed through traditional media, like Bloomberg. This was an erroneous release that came out of nowhere and spread quickly through electronic disclosure. So, be aware that rapid distribution of information, through electronic disclosure, gives these fabricated stories more validity than in the past.
Raising consciousness
Also, IROs need to be conscious of the timing of disclosures. Make sure that at the same time you are talking to the press, you are releasing information on your web site. Remember, electronic disclosure is instant but it’s also archival. Once you put information out there it stays unless you do something proactively to remove it. So monitoring web sites, which you either share information with or that carry information on your company, is very important. Also, care needs to be given to the way you say things. The key words or catchwords that you would normally use in conversation with more educated investors need to be carefully thought through as you put out information.
