MONITORING

Increased use of social media by the investment community has underscored the need for public companies to be cognizant of the potential conversations that are taking place online about their organization.

Regulators including the Financial Industry Regulatory Authority (FINRA) and the SEC have both addressed the importance of monitoring conversations that may be happening via social networks – particularly communications between broker-dealers and their clients.  Which has brought to light the need ‘for IR professionals to know precisely how social media content may be affecting corporate reputation at any given moment.’

They go on to emphasize the importance of being where the conversations are happening.  That way any erroneous or misleading information can be corrected from the source using the same channel in which the information is being circulated.

MESSAGING and DIALOGUE

Before social media emerged as a way for companies to share information, traditional one-way communications tools such as email, blogs and RSS feeds enabled companies to keep investors apprised of material events.  Now, companies are using social media to disseminate and share information (that has already been disclosed adhering to SEC requirements).

As IR programs seek to create venues for this meaningful and ongoing dialogue, they ought not to overlook the opportunities presented by social media–which, by definition, facilitate the two-way communication that compliance with the spirit of Dodd-Frank is really all about.

In addition to sharing information on social networks by posting links to press releases and in general any information that has already been disclosed properly to the public, it is important now than ever to gauge stakeholder sentiment and engage directly with investors.  Facebook and Twitter are two social networks that companies can use to interact with investors and answer any questions in real-time.

Conversations are happening all the time on social networks and have the potential to go viral very quickly.  As such, companies need to monitor what is being said, take control of the conversations by using the same social channels as their stakeholders and subsequently engage in conversations to address any incorrect information when necessary and in general be available to be the company’s voice to answer any questions.

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Google intends to make future announcements regarding its financial performance exclusively through its investor relations website.

Google is able to do this based on the SEC guidance from Aug 2008 regarding the use of websites for disclosure. This guidance states that under certain circumstances, companies can rely on their websites and blogs to meet public disclosure requirements under Reg FD.

As we all remember all too well, shortly after this regulatory change the market collapsed and this new channel quickly faded into the background, while most companies fought to survive the worst recession many of us have ever seen.

However, with 2009 behind us and the recovery underway, the first quarter of 2010 has seen the most activity on the web disclosure front yet, with a number of companies testing out new tactics. Let’s take a look at some examples.

BGC Partners (Nasdaq: BGCP)

BGC Partners, Inc. (BGCP 6.51, 0.00, 0.00%) , a leading global intermediary to the wholesale financial markets, today announced that it plans to issue an advisory release after the close of market on Wednesday, May 5, 2010, notifying the public that a complete and full-text financial results press release has become accessible at the “Investor Relations” section of http://www.bgcpartners.com.

Expedia (Nasdaq:EXPE)

Expedia, Inc. (Nasdaq: EXPE) today announced fourth quarter and full year 2009 results through a press release that is available now at http://www.expediainc.com/ir.

From Q4 Earnings Call – Seeking Alpha Transcript “You may also have noticed we have changed the way we are distributing our earnings release. Rather than put the release out over the newswire, we are pointing people to our IR site where they can pull down the PDF version. You should expect us to continue this practice going forward.”

Google (Nasdaq:GOOG)

MOUNTAIN VIEW, CA–(Marketwire – April 15, 2010) -   Google Inc. (NASDAQ: GOOG) has released its first quarter 2010 financial results. Please visit Google’s investor relations website at http://investor.google.com to view the earnings release. Google intends to make future announcements regarding its financial performance exclusively through its investor relations website.

Marathon Oil (NYSE: MRO)

HOUSTON, April 6, 2010 – Marathon Oil Corporation (NYSE: MRO) announced that the Company will begin issuing advisory news releases notifying investors and other interested parties when new and material information is available on its website, in compliance with the U.S. Securities and Exchange Commission’s guidance regarding “notice-and-access” news releases. With this change the issuance of full-text financial news releases via a wire service will be discontinued.

Reis (Nasdaq: REIS)

Reis, Inc. (Nasdaq:REIS), a leading provider of commercial real estate market information and analytical tools, announced that it plans to issue an advisory release before the opening of The Nasdaq Stock Market on Monday, March 15, 2010, notifying the public that a complete and full-text financial results press release has become accessible at the Investor Relations portion of Reis’s website (http://www.reis.com).

Tellabs (Nasdaq: TLAB)

NAPERVILLE, Ill., Jan. 26 /PRNewswire-FirstCall/ — Tellabs is announcing its fourth-quarter and year-end 2009 results and new quarterly dividend. A complete version of the news release is available at http://www.tellabs.com/news/2010/4q09.pdf.

We are certainly still in the early stages of web disclosure, however it is interesting to note that only Google has announced the intention to use its website exclusively and to no longer use advisory releases (aka “notice and access” press releases) . For the rest, each has moved to a shorter release with a link to their IR website for the details.

As expected we have heard from both sides of this debate, pro web disclosure and pro wire disclosure. Here are two of the popular posts:

Google moves to web disclosure for Reg. FD
http://www.irwebreport.com/daily/2010/04/16/google-moves-to-web-disclosure-for-reg-fd/

Is Google’s Latest Move Evil?
http://www.fool.com/investing/high-growth/2010/04/19/is-googles-latest-move-evil.aspx

In addition to the above posts I’ve been a part of two great discussions on the topic on LinkedIn. Both in the NIRI group (you have to be a member of NIRI to view) and also in the IR 2.0 group.  Each provides a good balance of opinion on the pros and cons of web disclosure.

In general, I think that only large companies with a significant following are a good fit for web disclosure. Companies like Google and other well known brands, have the ability to use their websites as a recognized channel of disclosure and can instruct the market to use their site and all available alert options (email, RSS, social) to keep abreast of news.

For most companies, either continuing to use a full-text press release alongside with posting it on their website or using an advisory/notice and access release are the two remaining options.

I am not against using press releases. In fact here at Q4, we use press releases when announcing big news.  I can easily say it is not a silver bullet, but used in conjunction with web and social channels, press releases can help increase awareness about your company.

Having said that, I think that the hybrid approach of continuing to use the wire to publish advisory releases that link to the IR website for detail(s) is where the market is headed.  The examples previously mentioned are an early indication that this approach may be the one most widely adopted going forward.

Using advisory releases gives companies the additional reach that a newswire can offer, while keeping costs down, and directing investors to the website for the details.  Linking to the website provides many search engine benefits for the company and gives them an opportunity to build direct relationships through subscription options like email, RSS and social channels.

It’s important to note, if you are going to direct investors to your site, you need to make sure it is ready for them.  IR website best practices, enterprise level hosting and accessibility + mobile access are all important areas to focus on to ensure that you can leverage the increased traffic to your site.

The benefits of using your IR website in this matter include:

• Improved disclosure & transparency – linking to your website allows you to share Excel files and formatted documents, which give investors more context and downloadable assets than reading the news on a third-party website.
• Improved efficiency –  putting the full-text release on the website allows you to manage only one version of the release and related financial tables , no longer will you have to juggle multiple versions with the newswire
• Increased investor traffic – linking to your website as a recognized disclosure channel will increase the number of investors to your website and allow you to provide more context  around your business
• Increased direct subscriptions and followers - with more investors visiting the website, there is an increased opportunity for them to register for email alerts, RSS and social updates –allowing you to build relationships directly.
• Reduced costs over time – moving to advisory releases reduces costs simply because these releases are shorter and commercial wires charge by the word.

We’re going to keep track of this trend and will report back in Q2.  If you know of other companies using these tactics, please include in the comments or share with us on Twitter or LinkedIn.

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Regulation FD

Last Update: August 14, 2009

These Compliance and Disclosure Interpretations (“C&DIs”) comprise the Division’s interpretations of Regulation FD. Some of these C&DIs were first published in prior Division publications and have been revised in some cases. The bracketed date following each C&DI is the latest date of publication or revision.

Section 101. Rule 100: General Rule Regarding Selective Disclosure

Question 101.01

Question: Can an issuer ever confirm selectively a forecast it has previously made to the public without triggering the rule’s public reporting requirements?

Answer: Yes. In assessing the materiality of an issuer’s confirmation of its own forecast, the issuer should consider whether the confirmation conveys any information above and beyond the original forecast and whether that additional information is itself material. That may depend on, among other things, the amount of time that has elapsed between the original forecast and the confirmation (or the amount of time elapsed since the last public confirmation, if applicable). For example, a confirmation of expected quarterly earnings made near the end of a quarter might convey information about how the issuer actually performed. In that respect, the inference a reasonable investor may draw from such a confirmation may differ significantly from the inference he or she may have drawn from the original forecast early in the quarter. The materiality of a confirmation also may depend on, among other things, intervening events. For example, if it is clear that the issuer’s forecast is highly dependent on a particular customer and the customer subsequently announces that it is ceasing operations, a confirmation by the issuer of a prior forecast may be material.

We note that a statement by an issuer that it has “not changed,” or that it is “still comfortable with,” a prior forecast is no different than a confirmation of a prior forecast. Moreover, under certain circumstances, an issuer’s reference to a prior forecast may imply that the issuer is confirming the forecast. If, when asked about a prior forecast, the issuer does not want to confirm it, the issuer may simply wish to say “no comment.” If an issuer wishes to refer back to the prior estimate without implicitly confirming it, the issuer should make clear that the prior estimate was as of the date it was given and is not being updated as of the time of the subsequent statement. [Aug. 14, 2009]
Question 101.02

Question: Does Regulation FD create a duty to update?

Answer: No. Regulation FD does not change existing law with respect to any duty to update. [Aug. 14, 2009]

Question 101.03

Question: Can an issuer ever review and comment on an analyst’s model privately without triggering Regulation FD’s disclosure requirements?

Answer: Yes. It depends on whether, in so doing, the issuer communicates material nonpublic information. For example, an issuer ordinarily would not be conveying material nonpublic information if it corrected historical facts that were a matter of public record. An issuer also would not be conveying such information if it shared seemingly inconsequential data which, pieced together with public information by a skilled analyst with knowledge of the issuer and the industry, helps form a mosaic that reveals material nonpublic information. It would not violate Regulation FD to reveal this type of data even if, when added to the analyst’s own fund of knowledge, it is used to construct his or her ultimate judgments about the issuer. An issuer may not, however, use the discussion of an analyst’s model as a vehicle for selectively communicating — either expressly or in code — material nonpublic information. [Aug. 14, 2009]
Question 101.04

Question: May an issuer provide material nonpublic information to analysts as long as the analysts expressly agree to maintain confidentiality until the information is public?

Answer: Yes. [Aug. 14, 2009]

Question 101.05

Question: If an issuer gets an agreement to maintain material nonpublic information in confidence, must it also get the additional statement that the recipient agrees not to trade on the information in order to rely on the exclusion in Rule 100(b)(2)(ii) of Regulation FD?

Answer: No. An express agreement to maintain the information in confidence is sufficient. If a recipient of material nonpublic information subject to such a confidentiality agreement trades or advises others to trade, he or she could face insider trading liability. [Aug. 14, 2009]

Question 101.06

Question: If an issuer wishes to rely on the confidentiality agreement exclusion of Regulation FD, is it sufficient to get an acknowledgment that the recipient of the material nonpublic information will not use the information in violation of the federal securities laws?

Answer: No. The recipient must expressly agree to keep the information confidential. [Aug. 14, 2009]

Question 101.07

Question: Must road show materials in connection with a registered public offering be disclosed under Regulation FD?

Answer: Any disclosure made “in connection with” a registered public offering of the type excluded from Regulation FD is not subject to Regulation FD. That includes road shows in those offerings. All other road shows are subject to Regulation FD in the absence of another applicable exclusion from Regulation FD. For example, a disclosure in a road show in an unregistered offering is subject to Regulation FD. Also, a disclosure in a road show made while the issuer is not in registration and is not otherwise engaged in a securities offering is subject to Regulation FD. If, however, those who receive road show information expressly agree to keep the material nonpublic information confidential, disclosure to them is not subject to Regulation FD. [Aug. 14, 2009]

Question 101.08

Question: A publicly traded company has decided to conduct a private placement of shares and then subsequently register the resale by those shareholders on a Form S-3 registration statement. The company and its investment bankers conduct mini-road shows over a three-day period during the private placement. Does the resale registration statement filed after completion of the private placement affect whether disclosure at the road shows is covered by Regulation FD?

Answer: No. The road shows are made in connection with an offering by the issuer that is not registered (i.e., the private placement), regardless of whether a registration statement is later filed for an offering by those who purchased in the private placement. [Aug. 14, 2009]

Question 101.09

Question: Can an issuer disclose material nonpublic information to its employees (who may also be shareholders) without making public disclosure of the information?

Answer: Yes. Rule 100(b)(1) states that Regulation FD applies to disclosures made to “any person outside the issuer.” Regulation FD does not apply to communications of confidential information to employees of the issuer. An issuer’s officers, directors, and other employees are subject to duties of trust and confidence and face insider trading liability if they trade or tip. [Aug. 14, 2009]

Question 101.10

Question: If an issuer has a policy that limits which senior officials are authorized to speak to persons enumerated in Rule 100(b)(1)(i) – (b)(1)(iv), will disclosures by senior officials not authorized to speak under the policy be subject to Regulation FD?

Answer: No. Selective disclosures of material nonpublic information by senior officials not authorized to speak to enumerated persons are made in breach of a duty of trust or confidence to the issuer and are not covered by Regulation FD. Such disclosures may, however, trigger liability under existing insider trading law. [Aug. 14, 2009]

Section 102. Rule 101: Definitions

Question 102.01

Question: If an issuer wants to make public disclosure of material nonpublic information under Regulation FD by means of a conference call, what information must the issuer provide in the notice and how far in advance should notice be given?

Answer: An adequate advance notice under Regulation FD must include the date, time, subject matter and call-in information for the conference call. Issuers also should consider the following non-exclusive factors in determining what constitutes adequate advance notice of a conference call:

• Timing: Public notice should be provided a reasonable period of time ahead of the conference call. For example, for a quarterly earnings announcement that the issuer makes on a regular basis, notice of several days would be reasonable. We recognize, however, that the period of notice may be shorter when unexpected events occur and the information is critical or time sensitive.
• Availability: If a transcript or re-play of the conference call will be available after it has occurred, for instance via the issuer’s website, we encourage issuers to indicate in the notice how, and for how long, such a record will be available to the public. [Aug. 14, 2009]

Question 102.02

Question: Could an Exchange Act filing other than a Form 8-K, such as a Form 10-Q or proxy statement, constitute public disclosure?

Answer: Yes. In general, including information in a document publicly filed on EDGAR with the SEC within the time frames that Regulation FD requires would satisfy the rule. In considering whether that disclosure is sufficient, however, companies must take care to bring the disclosure to the attention of readers of the document, must not bury the information, and must not make the disclosure in a piecemeal fashion throughout the filing. [Aug. 14, 2009]

Question 102.03

Question: For purposes of Regulation FD, must an issuer wait some period of time after making a filing or furnishing a report on EDGAR that complies with the Exchange Act before making disclosure of the same information in a non-public meeting?

Answer: Prior to making disclosure of this information in a non-public meeting, the issuer need only confirm that the filing or furnished report has been accepted for filing on EDGAR and is publicly available on EDGAR. [Aug. 14, 2009]

Question 102.04

Question: During a nonpublic meeting with analysts, an issuer’s CEO provides material nonpublic information on a subject she had not planned to cover. Although the CEO had not planned to disclose this information when she entered the meeting, after hearing the direction of the discussion, she decided to provide it, knowing that the information was material and nonpublic. Would this be considered an intentional disclosure that violated Regulation FD because no simultaneous public disclosure was made?

Answer: Yes. A disclosure is “intentional” under Rule 101(a) when the person making it either knows, or is reckless in not knowing, that the information he or she is communicating is both material and nonpublic. In this example, the CEO knew that the information was material and nonpublic, so the disclosure was intentional, even though she did not originally plan to make it. [Aug. 14, 2009]

Question 102.05

Question: Can an issuer satisfy Regulation FD’s public disclosure requirement by disclosing material nonpublic information in a speech at a shareholder meeting open to the public? The meeting will not be covered by the press, or webcast or broadcast by any electronic means.

Answer: No. Under Rule 101(e), public disclosure of information required to be disclosed by Rule 100(a) can be made either by furnishing or filing with the Commission a Form 8-K disclosing that information, or by disseminating the information through another method or combination of methods of disclosure “that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” A meeting that is open to the public but not otherwise webcast or broadcast by any electronic means is not a method of disclosure “reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” [Aug. 14, 2009]

Question 102.06

Question: Does the mere presence of the press at an otherwise non-public meeting attended by persons outside the issuer described in paragraph (b)(1) of Rule 100 under Regulation FD render the meeting public for purposes of Regulation FD?

Answer: No. [Aug. 14, 2009]

Question 102.07

Question: What are the circumstances under which information posted on a company web site (whether by or on behalf of such company) would be considered “public” for purposes of evaluating the (1) applicability of Regulation FD to subsequent private discussions or disclosure of the posted information and (2) satisfaction of Regulation FD’s “public disclosure” requirement?

Answer: The Commission has provided guidance on both of these questions in its interpretive release, “Commission Guidance on the Use of Company Web Sites,” Exchange Act Release No. 58288 (Aug. 1, 2008). [Aug. 14, 2009]

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Access to management and senior executives is obviously most helpful. Some of the other tools that they find particularly useful include investor days, where they are able to get a sense of a company’s culture through speaking in-person with management, and get a chance to see a hands-on demonstration of the product or service they provide. Packaged information on a company website, including company presentations, are particularly helpful in advance of such events as they provide the opportunity to prepare questions that aren’t covered in other material made available.

Some of the efforts that may not be so useful industry sponsored broker conferences, and the four to five hundred emails per day that contain information that they already receive from other sources.

And finally, what role does social media play in keeping them informed? One panelist confirmed that a vast amount of key information is getting pushed through social media, and sees it as the communication way of the future. The other panelist uses blogs often to find out real information about companies; competitive pressures, the way they and their products/services are regarded in the industry, finding out the right questions to ask, etc.

This makes a lot of sense of course; when I think about making a major purchase or contracting a service personally, I simply put out the word to my contacts to ask for advice, input and any information I can, and what I gain from these conversations always factors largely into my buying decisions.

These conversations are taking place constantly, in real time, on the web through Twitter, Friendfeed and various other social media channels. It is critical for companies to take part in those discussions. That this was confirmed at the luncheon yesterday wasn’t rocket science social media is shaping the buy-side’s decisions and its day is coming

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The 2008 Year in Review � Securities Litigation and Enforcement, is the first of a regular webcast series on related topics from Securities Docket(an online publication that tracks securities litigation and enforcement developments on a global basis).

This one hour presentation touches on all the big stories: the financial crisis; Siemens bribery; Mark Cuban and a host of other litigations (both successful and not); the Madoff scandal (could you have scripted it better – that the pronunciation of his name is: Made-off ?); the liability exposure of the major accounting firms; the culpability of the SEC in some of the year’s financial disasters and its need for a makeover…

Kudos to Securities Docket for assembling such an impressive speaker panel, all of whom have very worthwhile blogs – which inspired me to write this post:

Kevin LaCroix – an attorney and Partner in OakBridge Insurance Services, an insurance intermediary focused exclusively on management liability. Kevin is a prolific writer of the D&O Diary blog, which he refers to as “a journal from the world of Directors & Officers Liability with Occasional Commentary”.

Tom Gorman – former Senior Counsel with the SEC Enforcement Division, now Co-chair of ABA White Collar  Securities Section and Chair of Porter Wright Securities. Tom’s blog SEC Actions covers SEC investigations, civil and criminal, class actions and internal investigations. Today’s post poses a poignant question,The SEC and the Madoff Scandal: can the Commission Restore Confidence in its Ability to Protect Investors?

Francine McKenna – with a background at PwC, KPMG/BearingPoint, JP Morgan and Jefferson Wells/Manpower, Francine advises professional services firms. Her blog re: the Auditors is an insightful, highly engaging and often very funny look at Corporate Governance issues, the 4 big audit firms, securities regulation, the markets in general…

Walter Olson – a regular contributor to the NY Times and Wall Street Journal and a senior fellow at the NYC think tank . The Manhattan Institute, Walter’s popular blog Overlawyered provides commentary on the American litigation system – it’s anything but dry.

Bruce Carton – editor of Securities Docket, was a former senior counsel in the SEC’s Division of Enforcement. A blog pioneer, Bruce is the author of Compliance Week’s Enforcement Action.

If you’re looking to stay plugged into capital markets issues, these blogs are worth a look.  We’ll write a future post soon on other great blogs that we follow.

At the end of the presentation on the Year In Review, each speaker was asked to provide their predictions for 2009:

• Kevin – we will see an unprecedented surge of securities class action suits, far outstripping 2002. (I told my son he should go into securities law!)
• Tom – predicts a significant reshaping of both the compliance and enforcement divisions of the SEC (and he doesn’t think it makes sense to merge the SEC with the CFTC).
• Francine – says that one of the Big 4 audit firms will be pushed to the brink of failure. (One of her blog readers is egging her on to create a pool predicting timing on this.)
• Walter – believes that a formerly rated Triple AAA firm will either have its executive indicted or will be revealed to be insolvent. (He also made reference to the fact that Triple AAA will soon regain its former meaning as a reference to a bad car accident that required Ambulance… Apolice? Afire truck?  what else starts with “A”?)
• Bruce - predicts that 90% of lawyers will begin to use Twitter for PR. (I hope Twitter can keep up; yesterday it was sooooooo slow.)

With the exception of Bruce’s prediction, sadly none of these are surprising.

For 2009 I peered into my crystal ball, read the tea leaves in my cup and consulted the psychic who left a pamphlet on my windshield  happily 2008 was all about lessons learned (again). The coming year sees us all older and hopefully wiser.

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Determining the best approach to these requirements should not be something delegated to the web master or IT department (although they will ultimately be involved). These are communications, compliance and risk management issues – requiring the involvement of Corporate Legal Counsel, Investor Relations and the Disclosure Committee.

Strong disclosure controls & procedures, supported by consistent, thorough and searchable records is an issuer’s best defence in the wake of a regulatory inquiry. To reduce risk and liability, records should be able to demonstrate due diligence by documenting:

1. what was on the web site at any given point in time (including all downloads, presentations and information  populated through data feeds)
2. the accessibility of the content (to illustrate that negative information wasn’t ‘buried’)
3. the full chain of approvals/timelines for information posted to the site

There are several ways that issuers try to capture and maintain records of their web site disclosure including:

Real Time Records & Audit Trail – This method records each change and associated approval in real time, as changes are made to the site. Information is captured in a verifiable, time-stamped audit trail enabling you to instantly access each specific change, when it was made, who made it and who approved it. The system allows internal users to report on all changes and enables the instant recall of fully functioning web site duplicates from any point in time.(See below – Q4 WEB’s proprietary ‘ time-shifting feature, which allows you to specify date and time  in order to recall historical versions.)

Manual Approach – Many companies try to maintain records by capturing screen grabs (pictures of web site pages) and then filing these along with Word, PowerPoint and PDF versions of web site content. Manual records do not include information updated through data feeds and do not provide the location or complete context of how information was presented, Manual processes are error-prone and reliant on specific individuals. Using this approach to capture and maintain web records makes it difficult to ensure accuracy and completeness.. This method is very labor intensive, difficult to report on and does not adequately address risk.

Site Scraping – An alternate to screen grabs is to implement site scraping software to visit your site on a pre-determined time scale and copy all of your content. The challenge here is that scraping must happen on a pre-determined time scale (i.e. every month) whereas content can be on and off a site in minutes meaning the record may not be reliable. It also means a high likelihood that site changes will not be accurately time-stamped, which is critical in a due diligence defence. As well, this approach does not tie the copy of the site with the Audit Trial, therefore necessitating a reconstruction after the fact. In addition to increased time and costs, accuracy is questionable.

Content Management Systems (CMS) – the majority of web content management systems (CMS) on the market today provide some level of content versioning. Depending on the cost and sophistication of a each system, this ‘version’ can range from simply the prior version to every prior saved version of a page. This type of versioning was designed to provide internal users with the ability to roll-back to a previous version of a page. The problem with using a standard CMS for web site records is that these systems were not designed for compliance risk management and  do not capture all web site content – instead they capture only the page content. This means that items such as data feeds, documents, images, downloads and multi-media are not captured in the same record.  As well, there is no record of how the information was displayed on the site (meaning no way to demonstrate information was not buried).

Combinations of the above – It is possible to combine the options above to create a fairly accurate web site record. For instance using Site Scraping along with a CMS has the ability to generate both a record of the site and the evolution of the main content. The challenge however, is the manual steps to combine each of these record sets into some type of searchable system.

IR Template Solutions - IR template solutions often do not provide versioning of any of the site content. Because these solutions are primarily outsourced service offerings, rather than technology solutions, they provide virtually no record or audit trail of the web site. Instead, these solutions rely on back-up tapes of previous site versions which require extensive manual efforts to reconstruct information and in many cases do not provide an accurate chronological history of content changes.

Download Full Article (PDF 375k) 

Many issuers we’ve spoken with believe that their current approach to capturing and maintaining web site records is more accurate and comprehensive than it really is. As your company moves toward a Reg. FD web disclosure model, a closer examination of this is imperative. To learn more about how to implement appropriate web site controls and records using Q4 WEB or to discuss your current approach, please email us or call 1-877-426-7829 ext. 225.

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To view a complete list of all the comments submitted go here: http://www.sec.gov/comments/s7-23-08/s72308.shtml

———————————————————-

November 5, 2008

Florence E. Harmon
Acting Secretary
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090

Re: Commission Guidance on the Use of Company Web Sites (the guidance)
File No. S7-23-08

Dear Ms. Harmon,

This letter is in response to the request for comments on the Commission Guidance regarding the Use of Company Web Sites under Regulation Fair Disclosure (Reg. FD). To give you some background on my company, Q4 Web Systems is a software firm founded in 2005 that provides on-demand solutions to help public companies in the management and distribution of corporate material information.  We are committed to using emerging Internet technologies to help public companies reduce costs, manage risks and build better relationships with their investors and stakeholders.  

Introduction

We fully support the SEC’s guidance regarding the use of company web sites for the disclosure of material information.  Since the original Reg. FD ruling, we have seen a dramatic transformation in how individuals and the market communicate with one another. As the penetration of the Internet surpasses 70% in North America, and with the emergence of new web services and capabilities, we now live in a world where the distribution of information is immediate, free and democratized. In the past, only media companies, newswires and their partners had the ability to move information through the market.  Today a combination of web sites, RSS, email, search engines, social networks and emerging communication platforms like Twitter now moves information throughout the world at a rapid pace and at no cost for distribution.  With the pace of innovation on the Internet increasing, this trend of immediate connectivity will only continue. The recent guidance is an important step in recognizing and supporting this key trend.

Our comments related to this recent guidance are outlined below.

Comments

1. The Internet has replaced proprietary networks for the distribution of information

The recent guidance has laid the ground work for allowing companies to use web technologies to disclose information under Reg. FD.  We fully support this decision because the Internet has now replaced proprietary networks for distribution and the recent guidance clearly demonstrates support of this evolution.

This change to Reg. FD is based on the fact that technology has advanced beyond the need for newswire distribution. Newswires were founded on infrastructure; they were a required intermediary for companies in the pre-Internet era because they provided a necessary service. By using a newswire, companies could have their press releases delivered directly to the journalists of publications. This was initially accomplished through telegraph (hence the wire in newswire), which then evolved to private networks and satellites. However, today this entire infrastructure has been replaced by the Internet.  Newswires no longer own their infrastructure and in fact rely on the Internet to provide the backbone of their distribution.  Newswires (just like you and I) pay nothing for the privilege of using the Internet (beyond connection fees) to distribute information. For the same reason that newswires now rely on the Internet for distribution, we believe that companies should also have the right to use the same technologies and methods to connect with their stakeholders and the market in general. The new guidance ensures that companies have this option, should they wish to pursue it.

In speaking with numerous issuers across the U.S. since the release of the SEC’s recent Reg. FD guidance, it is clear that they are interested in alternate distribution channels for their disclosure – not only to save costs, but to build better relationships with their stakeholders.

According to our clients and those individuals we have informally surveyed, annual press release distribution costs range from $60,000 to $300,000 per year.  By adopting a web disclosure model, companies stand to save a considerable amount of money while improving their level of engagement with the market. The Internet enables the distribution of information for free – meaning a more level playing field for issuers who may not have large communication budgets. 

We believe that all companies should have the right to communicate directly to their stakeholders and the market at large using web technologies like web sites, RSS, email alerts and social networking services such as Twitter.  By following the guidance and transitioning to a web disclosure model, we believe that significant improvements can be made to the disclosure system while dramatically reducing costs for issuers.

2. Social Media has redefined how the world communicates and is doing the same to corporate disclosure

The explosion of social media has redefined communications. Blogs, RSS, Twitter, Facebook, LinkedIn and other social networking sites now provide an interactive two-way method to distribute, discuss and comment on information in real-time. In the past, companies would communicate in a “broadcast” method, pushing information out – similar to how an issuer pushes information out to the market now via a press release. Social media differs in that it permits a ‘conversation’ with a broader group of interested parties. It goes beyond even a two-way dialogue and allows an entire community of individuals, corporations, and media to participate in a conversation with an issuer, which in turn informs issuers as to the information most relevant to its audiences. These conversations define transparency between the issuer and its audiences. Any interested party can plug in to this conversation simply by subscribing to a company’s RSS feed, email alerts, or by following them on Twitter or any number of similar social networks.

Social Media’s impact can be seen explicitly in how the media is now notified of breaking stories. In the past, journalists relied heavily on press releases to write their stories, however, in today’s world, services such as Twitter, which are able to instantly notify large groups of people, are now key to breaking news stories. In fact, CNN anchors now track twitter conversations live on-air during broadcasts and many leading companies currently use Twitter to release breaking information as an important element in how they communicate to the market.

Social media services have created the infrastructure that allows for relevant content to be easily found, subscribed to and followed. With the recent SEC guidance supporting social media and with it being an integral component of how companies will disclose information, we believe the SEC has taken a significant step forward in ensuring that regulation can and will support emerging communication options for companies and investors.

3. Interactive data (XBRL) and Web Disclosure are intrinsically tied to market transparency and efficiency

The broad adoption of XBRL will provide a significant improvement to the transparency and utility of financial information.  With the new guidance supporting web disclosure, companies will now have the option to notify the market of the release of this information and have it posted on their web sites and distributed to interested parties through their RSS feeds, Email Alerts and Social Networks.

This approach to releasing material information will support the ongoing conversation between investors, companies and the market in general because the information will be easily shared, distributed and then discussed in the market using web technologies.

Once information begins to be disclosed in this fashion, aggregators will establish new methods to obtain the content from issuers and redistribute it to their content partners such as Yahoo!Finance or Bloomberg. These aggregators are not bound to exclusive contracts with newswires and will quickly follow the market to obtain the necessary information in order to remain relevant.

We applaud the leadership position of the SEC regarding XBRL and web disclosure and believe that the combination of these initiatives will usher in a large number of new and innovative services that will benefit investors, issuers and the market in general.

4. The principles based guidance has been written to drive innovation & transparency. We support not adopting “bright line” tests which would result in built-in demand for specific technologies.

The use of the Internet continues to increase, and the speed and options for communication continue to expand.  The SEC, with its current guidance, has opened the playing field and broadened the channels by which issuers can communicate under Reg. FD. The Commission needs to continue to provide guidance that drives innovation and challenges the market to create new ways to improve transparency and interactions between a company, their stakeholders and the market at large.

Already, since the SEC’s recent announcement, we have seen great activity in the market as issuers look to educate themselves and consultants and technology providers look to fill the gap.

The current guidance, as it exists, encourages a transition to a web disclosure model – which we believe is a very effective and responsible way of moving the market forward. While issuers are taking steps to notify the market of their disclosure channels, they will also be looking to improve their own disclosure processes, technologies and delivery systems.

Many of the early concerns expressed by newswires (regarding universal and simultaneous disclosure) will be quickly addressed as the market moves toward a web disclosure model. Doing anything to impede the direction that the SEC has taken, would be to deny the enormous potential the Internet has for leveling the playing field and improving communications between an issuer and its stakeholders.

By adopting a principles-based approach rather than bright line tests, the Commission is allowing the market to determine what is acceptable and ensures that certain technologies and/or companies are not able to create protected industries. This is in the best interest for investors, companies and the market at large.

5. The market is already using the Web to consume disclosure and those that are not will quickly adapt.

The fact of today’s market is that the Internet and web technologies are being used by virtually all stakeholders (including newswires) in the distribution and consumption of corporate disclosure. Newswire’s make many claims about the value of their systems and how the media, investors, markets, etc. will not be able to function without them.  Although we agree that newswires move a great deal of information in today’s world, their current model of distribution is quickly growing irrelevant as Web technologies and social networks surpass the value they provide.

Although newswires are currently responsible for the initial distribution of press releases from a company to an aggregator such as Yahoo! Finance, it is then the Web and all of its interconnectivity that spreads that news around the world.  Whether by RSS, Email alerts, Twitter, etc. news spreads around the world in a split second using the Web as the platform – not the newswire. The newswires are well aware of this and in fact, use the same technologies such as RSS, Email, Twitter and social networking to distribute their press releases around the world.

The key aspect of the guidance that we support is the right for each company to use the same technologies to interface directly with the end user. The need for companies to have an intermediary transmit information from them to the market has been replaced by the Internet and all related web technologies.

Financial websites such as Yahoo and Google and many others have already begun to post blogs alongside press releases.  As companies leverage the web to disclose information, it will also enable a more direct relationship between the companies and the aggregators. The same reasons why companies should have the right to communicate directly with end users also apply to communications between companies and aggregators. With today’s technology there is no longer a need for an intermediary between a company’s information and that of its stakeholders – no matter if these end points are people, web sites or other systems.

On that note, some institutional investors currently consume full-text press releases in their trading and/or investment systems. As such, there is an argument that these stakeholders will be at a competitive disadvantage to the retail investor if information is disclosed through the web and not in a full-text press release delivered by a newswire.  This argument is weak considering the competitive nature of automated trading – as companies begin to disclose information through the web, these systems will quickly adapt to consume the information, whatever and wherever its source may be. 

In fact, there are numerous technologies already emerging in the market today that provide institutional investors with a rich set of structured information to drive their investment and trading strategies. Next generation Bloomberg’s such as FirstRain, Kapow, InfoGen and SkyGrid instantly search and acquire web content from issuers and stakeholders, then apply advanced filtering, ranking and analysis and present it through various methods to their subscribers. As issuers begin to disclose through the web, these platforms and the current dominant players will be quick to adapt.

6. In order for this guidance to be adopted the stock exchanges need to be brought on board.

Due to the major exchanges having their own set of disclosure policies, it is important that the commission work to bring them on board with this new guidance. Exchanges should not be allowed to force companies to use any specific newswire or any newswire at all.  The SEC needs to make this a priority as it is contradictory to the guidance and a source of confusion amongst stakeholders at all levels.

Conclusion

The growth of the Internet and web technologies has fundamentally changed how companies communicate with their stakeholders and the market at large. The principles-based guidance endorses a transitional process of moving from the established systems to one that fully leverages all available web technologies. 

We ask that the commission remain focused on the benefits that web disclosure provides for companies, their investors and stakeholders and that it continue to utilize principles-based guidance that is focused on driving innovation and market improvements.

On behalf of the team at Q4 we appreciate the opportunity to comment on the guidance and would be pleased to discuss any of our comments at your convenience.  Please feel free to contact me at any time.

Sincerely,

Darrell Heaps
CEO
Q4 Web Systems Inc.
416-626-7829 ext. 222
darrellh@q4websystems.com
www.q4websystems.com
www.q4blog.com
www.twitter.com/darrellheaps   

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There was a lot of information crammed into the 1 hour session – the first 20 minutes or so was basically a summary of the SEC guidelines that were released on Aug 1.  A bit dry to be honest, but the “Do’s and Don’t's” portion that followed was likely beneficial to attending folks who aren’t as familiar with the new guidelines.  

Next up was a review of Microsoft’s Investor Central which showed a new spin on what an IR site could look like by leveraging Silverlight and XBRL. As far as the claim the agenda had about this presentation showing how an IR site could be ‘enhanced’ I would argue that the presentation of Microsoft’s information was actually less useful than information presented on stellar IR sites like  Potash or Nexen.

The key point to that came out of the this session occurred when a viewer asked the question “What would be considered appropriate information to post on your web site without issuing a press release?”Ronald Mueller (Partner, Gibson Dunn & Crutcher, Washington DC) replied with:

“If you’re doing something and you know when the event is going to occur and you give adequate notice of that, then that can be disseminated through and disclosed through the web site. Issues that are often times not appropriate for web disclosure only are matters that are happening very quickly, unexpected developments or matters that are complex. An example of this would be announcing a merger – you don’t have significant lead time or know exactly when you’re going to be announcing that and its a lot of detailed info and so companies are going to typically rely on a number of mechanisms such as the web cast, press release, 8-K filings and even a media interview. I think what the SEC’s goal was to start saying, “Focus on the different types of disclosure – see how you can design them to meet some of the standards and feel free to move toward that direction.”

 

I do think when companies are doing that they will want to take baby steps and see if they can document ‘is this working?’ and then if so, you have a good record for demonstrating that this is something investors rely on to pick up information.

 

One company recently, a very large Fortune 20 company, sent out an email announcing its new IR web site and announcing that the company was going to be using it for making information publicly  available. The mail went to everyone who had signed up for alerts.”

The key message in this statement is that provided an issuer gives adequate notice of disclosure they can use web disclosure to disseminate that information.  This opens the door to issuing earnings releases through web disclosure as issuers are already issuing advance notice of the release of earnings now.    In fact, based on this statement, any type of disclosure whether it be press releases, conference calls, earnings or other types of content outside of complex issues such as mergers or unexpected information can be disseminated via web disclosure.

It was refreshing to hear this type of response that aligns with the SEC’s guidelines surrounding web disclosure and I’d be interested to hear what issuers think about this topic.

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After I created the first draft, I broadcasted the document to the Q4 management team for approval and then I checked the dashboard to see who looked at it or responded:

Next up I reviewed the suggested changes from Catherine and Darrell:

Both Catherine and Darrell approved the document, so I finalized it and generated an ‘exposure report’:

After the document was finalized, I was able to go in and generate a full historical report of exactly how my document evolved – what happened, when it happened and who did what:

As you read this, the post from yesterday was blasted out through our RSS feed, Twitter, Technorati, Facebook and our corporate website (via an inbound RSS module in Q4 WEB).  All of this distribution came for free through 1 simple process that has given us a full audit trail of how the content was created along with a ‘post once, distribute everywhere’ model.

The vehicle is the easy part and demonstrating that implementing proper controls isn’t as hard as the FUDDERS are making it out to be.

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becktold From IR Magazine: Perils in relying on company website as primary channel http://tinyurl.com/6qnlx9 about 3 hours ago from web

I’m always interested to see what IR Magazine has to say so I checked it out. I was disappointed to see the article was based on a “study” from The Equity Group that says the majority of security lawyers don’t support web-site disclosure. I dug in more and found the press release that the article was based on. 

Here are a couple of key things to note…

The Equity Group was commissioned by someone to conduct this study. They spoke to 15 security lawyers and used this as their sample, which according to research experts , falls well below what would be required to represent the full population of US securities lawyers. In addition, no information was given as to the nature of the survey – which as it turns out, was actually a poll. Personally I would love to see what the actual questions in the poll are.

According to the Equity Group, an ‘overwhelming majority’ are against web disclosure. In addition to the problems associated with the sample size and the ‘survey’ itself, let’s take a look at some of the ‘problems’ the article identifies with respect to the Reg. FD web disclosure model:

Potential fraudulent web postings – fraudulent web postings are a serious issue on their own. All companies must consider this liability when dealing with their web site in general. This is not a web disclosure issue. The reality is that companies must have controls in place to ensure their web sites never contain any type of fraud.

Technical glitches disrupting access to news -   is this saying that the company web site, RSS feeds, email alerts, content aggregators etc. all happen to not work simultaneously for some reason? Meaning the issuer’s site could not act as a recognized channel of disclosure? This broad non-descript fear statement, “some type of glitch may happen and the information isn’t accessible”, is irresponsible. The naysayers to web disclosure should step up and explain why companies can’t easily have web sites that are always available, when every other industry easily achieves this. 

SEC guidance squaring exactly with NYSE and NASDAQ rules - this is legitimate and something that the SEC needs to address. Paving the way for new regulation is expected to require some discussion with exchanges – it certainly isn’t an insurmountable road block.

Investors have come to expect to look in central places for financial news and don’t want to visit a number of corporate websites. – Web disclosure is not about having to visit each issuer’s web site to get information! It is about allowing companies to use their web site and all available technologies (Blogs, RSS, Email, Social Networks) to distribute their information to the market.

Positioning web disclosure as the requirement to “visit every company’s web site”, is a deliberate attempt to confuse the market and it is irresponsible for The Equity Group and whoever commissioned this “poll of securities lawyers” to continue to position the option of web disclosure as such.

On this note, the rest of the world’s information now utilizes the web and all of these technologies to communicate and distribute information around the globe. This study’s description of web disclosure is based on what the web was in the late 90s, and we’ve come a long way since then.

Goldstein said, ‘We concluded that attorneys generally don’t want clients to be test cases.” So based on the 15 lawyers you spoke to and asked if they’d rather visit a web site, or get their news delivered to them, the overwhelming majority chose newswires. (I’m paraphrasing, but I’d love to see the so-called “poll” questions). So, is that like 10? or 12? And from the 12 who said they’d prefer newswires, you can draw a market conclusion that no one wants to be a test case? Again, this is an obvious research piece created to scare the market into not changing.

The bottom line is that companies should not have to pay to disclose information to the market when the Internet provides this capability for free. Corporate disclosure is what the market requires to make decisions. In order to have the healthiest, most efficient market, there must be a high level of direct transparency between a company and its stakeholders.

This is why the SEC made the changes to RegFD in the first place.

The SEC has recognized that the way public companies disclose information today is trailing way behind how the rest of the world uses the Internet. It’s that simple. The SEC has opened a doorway that allows issuers to fully leverage the accessibility, reach and immediacy of the Internet. This opens the doorway to save issuers 100′s of thousands of dollars – which makes more sense then ever in today’s tough economic climate.

If you’re a smart IRO looking for a way to save your company a lot of money (particularly in this down market), then web disclosure is what you should be most interested in for 2009. You owe it to yourself and your company to investigate this fully and get the straight goods.

Please comment or email me and let me know if you come across any other FUD (fear, uncertainly and doubt) tactics out there in the market. We’ll work to call them out here.  

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