Sun Microsystems’ decision in July to publish disclosure data on its website a few minutes before using traditional distribution techniques touched a nerve with the newswire industry. Sun CEO Jonathan Schwartz said the action was a ‘sea change’ and wondered aloud whether it was the end of the earnings press release, though some say the move appears less dramatic.
Schwartz, a leader among CEOs in trying out direct communications with investors on the internet, said on his much-read blog that Sun would publish its quarterly earnings results on its corporate website. At the same time, those using the firm’s really simple syndication (RSS) feed would find the information flowing automatically to their computers.
Departing from custom, Schwartz added, distribution via third parties would be 10 minutes later. Sun also filed with the SEC using form 8K at the market’s close on July 30. Automated systems at the SEC ensured the filing wound up a minute later on Yahoo! Finance, among other places. Posting on Sun’s site and via the RSS feed occurred at the same time, with distribution to newswires a few minutes later. This break from traditional communications ignited a blast of disapproval from the newswire services. They said the web by its nature prevented the breadth of distribution their networks offer.
It was also alleged that Sun’s activity was unfair and, in one commentator’s opinion, simply a publicity stunt. ‘Unless someone is on Sun’s website at the moment the news is posted, has proactively signed up for its RSS feed or just happens to be browsing 8K filings, that person’s access to this information was delayed,’ maintains PR Newswire chief operating officer Dave Armon. He points out that newswires push information to users rather than requiring investors to actively seek the information from a website or RSS feed.
Business Wire president and CEO Cathy Baron Tamraz said on her company’s blog: ‘In our view, this isn’t what the SEC had in mind when it implemented Regulation FD in 2000 to ‘level the playing field’. We think these results fall far short of the investing public’s desire for full, fair and simultaneous disclosure.’
Sun did not respond to specific critics, but said it had received no feedback on the move from institutions or other shareholders. ‘It occurred without any noticeable commentary,’ reports Paul Ziots, director of IR at Sun. ‘There didn’t seem to be any inflow of comments, positive or negative.’
Playing fair
Reg FD is not specific about procedure, but rather lists a series of acceptable ways to disseminate news – including web publishing – adding that each company must figure out the best way or combination of ways to ensure fair disclosure. NIRI acting CEO Linda Kelleher says Sun satisfied the disclosure requirements of Reg FD and NASDAQ by simultaneously announcing its results via the web and in its Form 8K. Ex-SEC division of corporation finance chief counsel Dave Lynn, who now writes for TheCorporateCounsel.net, blogged that it remains to be seen whether web release alone satisfies Reg FD.
The SEC is officially unconcerned with Sun’s act; spokesman John Heine said there would be ‘no comment’. He points out that filing an 8K constitutes public disclosure under Reg FD. Anyone tuned to the SEC website or subscribing to its databases would have seen the release instantaneously, he adds. Yahoo! Finance posted the information via its link to the SEC within a minute, at 4.01 pm.
The newswires also raised some technical points. A high number of attempts to access a website can cause some inquirers to get a response more slowly than others. And RSS must, like all web communications, work its way across a wide network, sometimes incurring slowdowns. In either case, the recipient must initiate action to get the update.
All of this leaves aside the value wire distribution services add to marketing a company’s name or products, or simply raising visibility. ‘Ultimately, there will probably always be a need for services like the newswires,’ says Dominic Jones, principal of Clarity! Communications and founder of IR Web Report. ‘Whether or not this actually becomes a standard practice remains to be seen. But there seems to be a lot of interest in new technology opening the doors to direct distribution of information by the company itself, bypassing the intermediaries.’
Sun never said web publishing and RSS distribution would stand the FD test. It simply put the filing and website posting ahead of other actions, which would appear well within the SEC’s disclosure envelope. Will it do it again? ‘We’ll have to evaluate that,’ Ziots says.
‘But it is quite possible, yes.’ As to the larger IR community, NIRI says that, having discussed the Sun move with legal experts, the SEC and NASDAQ, it will adjust its best practice recommendation. ‘NIRI must be at the forefront of advocating change in current disclosure practices that improve compliance and transparency,’ Kelleher says. ‘For that reason we will undertake a review of NIRI standards of practice and [we are] aiming to issue a revision in early 2008. Where the use of the web and other technologies is starting to be accepted, we would want to reflect that.’
