VideoIn theory, it is possible for managers at a public company to ignore the Internet and still comply with the Securities and Exchange Commission's (www.sec.gov) new standards for disclosing corporate information. It's also possible that Bob Denver will be named patron saint of Uzbekistan, but it's not likely.
Regulation Fair Disclosure, which took effect in October, works like this: Companies are forbidden to selectively disclose material nonpublic information to investment professionals or to shareholders who might reasonably be expected to trade on that information. Reg FD makes it illegal, for instance, for companies to give an individual analyst guidance on earnings estimates or to share sales trends with institutional shareholders in a closed quarterly conference call.
Certainly, the idea behind Reg FD is noble: Encourage an open airing of corporate information, and thereby reduce the influence analysts and portfolio managers exert on share prices. But a funny thing's happened on the way to the forum. Reg FD has so spooked some corporate officers that they've shied away from practically any informal contact with analysts.
Says George Zouvelos, managing principal of the New York office of media, marketing, and branding specialist The Weiser Group (www.weisergroup.com): "Reg FD has made it impossible for a company to have a meaningful private conversation with an analyst or institutional investor about matters that have not previously been disclosed publicly."
Indeed, managers at more than half the companies polled in a recent survey indicated they're now funneling less information to buy- and sell- side analysts or being more cautious in their dealings with those analysts. Moreover, a number of the respondents in the study, which was conducted by Thomson Financial/Carson Global Consulting (www.thomsonfinancialcarson .com) said they would decline to participate in analyst conferences if they weren't allowed to beam the proceedings over the Internet.
They're not alone. With the coming of Reg FD, Webcasting is fast becoming SOP at many corporations. Thomson Financial/Carson Global reports that more than one-third of the 81 publicly traded corporations it surveyed began broadcasting their earnings conference calls over the Net following the adoption of the SEC's new disclosure requirement. More than 30 percent of the companies have also implemented live Webcasting of their presentations at investment banking conferences.
Here's the kicker. This increasing IR reliance on IP technology worries some IT experts. The Internet is a wonderful medium, they grant, but conducting investor relations in cyberspace can be nettlesome. Posting corporate information on a home page, for example, may help satisfy certain requirements of Reg FD, but it also makes for a whole lot of editing, updating, and reviewing of content. The more material information that goes up on a site, the tougher the task becomes. Even veteran operators of online news sites — sites that specialize in managing content, mind you — admit the difficulties of keeping Web data current and consistent.
The cold truth is that venturing into space in the name of better corporate disclosure opens up businesses to a whole new world of risk. A simple hyperlink on a home page can extend a company's liability clear across cyberspace. Says Bill Paulson, vice president of strategic consulting at Trigent Software Inc. (www.trigent.com), a Web-site content management specialist: "The SEC indicates that — depending on the content of the link — the risk of investor confusion and the presentation of the hyperlinked information is in your [company's] jurisdiction."
Gun Jumpers
Ironically, in their final ruling on Reg FD, officials at the SEC made it crystal clear that posting investor information on a company Web site is not in itself an acceptable method of public disclosure. Instead, the commission included Webcasting as one option in a three-step model for complying with the new standard.
The model calls for a company to first issue a press release disclosing material information. Then the company must provide notice, either by press release or Net posting, that management will hold a traditional conference call to discuss the announcement. When the call is actually held, investors must be invited to listen in, either by telephone or through simultaneous Webcast.
Given this time line, securities lawyers are advising corporate clients to post breaking news on their Web sites only after disseminating the information by other SEC-approved methods, which includes filing Form 8- K with the commission or issuing a widely disseminated, nonexclusionary press release.
Frank Forward, CFO at BJ's Wholesale Club Inc. (www.bjswholesale.com), an operator of membership warehouse clubs, says the company began Webcasting its quarterly conference calls well before Reg FD was rolled out. But Forward notes that with the implementation of the new standard, BJ's management decided to ratchet up the publicizing of its conference calls.
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