Q4 Blog

On April 15th, Google issued an advisory release that instructed people to visit their IR website for their earnings and also included the following statement:

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.

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The XBRL-US developer Technology Workshop & Summit was recently held in Santa, Clara, CA.   The event was hosted by Hitachi Data Systems and brought together XML developers and other professionals from around the world who are involved with implementing XBRL reporting standards.

The 2 ½ day event consisted of discussion sessions and workshops to educate and generate ideas on solving issues in XBRL development such as rendering, versioning, data quality and validation.

In an otherwise very tech-centric conference, Q4’s Co-founder and CEO, Darrell Heaps provided some interesting ways that companies can make XBRL content discoverable, shareable and viral to move seamlessly through the financial web by key stakeholders such as analysts and investors.

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During the SEC’s meeting today the panel voted 4 to 1 in favor for mandating XBRL for the 500 largest US issuers. Other companies will have until 2010 (likely) to begin filing using XBRL. This article from Dow Jones provides some additional details. 

Chairman Cox Video: The SEC has approved interactive data financial reporting to give investors faster, better, and less expensive information disclosure.

As many of you know, over the past several weeks I have been speaking with issuers of all sizes across North America – both U.S. and Canadian inter-listed companies – regarding their transition to a web disclosure model.

Most of the companies I’ve spoken with are intrigued by the potential cost savings of disseminating their disclosure without the expense of newswires. Some of the companies I’ve spoken with are busy putting plans in place to meet the new SEC criteria. Others have been made to fear that adopting this method of disseminating information to the market would prevent them from attaining simultaneous disclosure.

Most are wondering what steps they need to take to transition to this model. Although I have dealt with this more specifically in previous blog posts, here is my 1,000 foot perspective:

1.       Inform yourself of what’s possible from a technical standpoint and obtain opinions from a number of sources. To optimize web disclosure according to the SEC’s new guidance, your goal should be to investigate technologies that enable you to easily meet the SEC criteria while minimizing risk for your company. You may have to pay more than you do now for this technology, but taking control of your own distribution will allow you to reallocate some of your newswire costs to ensure a more effective web presence.

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Yesterday, I submitted the following letter to the SEC regarding our comments on the latest Reg. FD guidance.  

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

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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.

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Darrell and I had an interesting conversation with a securities regulator the other day regarding where legislation is headed as fallout to the financial crisis. (This is a topic of great interest to us and at times I find myself providing armchair observations.) Read a summary of the conversation: Read more…

Earlier today the SEC Chairmen, Christopher Cox unveiled the successor to the form based EDGAR database.   The new system is called IDEA (Interactive Data Electronic Applications) and will be built on an XBRL based platform that will give investors access to faster and more detailed financial information than ever before.

IDEA is the latest in a string of significant announcements that have come out of the SEC including, XBRL mandate and the guidance on web disclosure and RegFD. There have already been a number of posts regarding this announcement and it seems to be well covered by the financial media (see bottom of IR Web Report’s post – SEC unveils IDEA — and that’s all it is). 

During the webcast Chris Vickerson, our CTO was involved in FT Alphaville’s liveblog  discussion and also had one of his question answered by Christopher Cox.  After the web cast the SEC home page was updated with a significant focus on IDEA. From the link on the home page there is an overview of IDEA that I’ve summarized below (emphasis is mine):

IDEA will at first supplement and then eventually replace the EDGAR system, which will become an archive of SEC filings made prior to the new era of financial reporting in interactive data format. The SEC has formally proposed requiring U.S. companies to provide financial information using interactive data beginning as early as next year, and separately has proposed requiring mutual funds to submit their public filings using interactive data.

The decision to replace EDGAR marks the SEC’s transition from collecting government-prescribed forms and documents to making the information itself freely available to investors in a user-friendly format they can readily use. Instead of sifting through one form at a time in EDGAR and then re-keyboarding the information to analyze it, investors will be able to utilize interactive data to instantly search and collate information to generate reports and analysis from thousands of companies and forms through IDEA.

The ease with which interactive data will make financial information more readily available also is expected to generate many new Web-based services and products for investors. IDEA’s launch represents a fundamental change in the way the SEC collects and publishes company and fund information — and in the way that investors and the markets will be able to use it.

Although there was nothing materially new announced during today’s webcast (no new technology or application were shown), IDEA is an important when viewed in the context of how disclosure is going to evolve over the next 5 years. The timetable to full maturity is 5 years out, and while it is being phased in EDGAR will remain an important component of the financial disclosure system. However, if we fast forward to market adoption of XBRL and IDEA there will be many new ways that companies will create and distribute disclosure to the market and there will be all sorts of new applications and methods for investors to benefit from this data. It certainly is an exciting time for our industry and we are very pleased to see the leadership Christopher Cox has shown in bringing the SEC into the age of the Internet.

Some Additional information on Interactive Data:
http://www.sec.gov//spotlight/xbrl.shtml

Although we are not a proxy for the entire market it is interesting that since the SEC guidance on web disclosure we have seen a noticeable increase in clients looking to enable RSS feeds for their corporate web sites along with increasing the prominence of their email alerts. I’m really pleased to see this happening so close to the announcement and I think it is an early indication of the changes the SEC intended when it released the guidance. 

It is obvious that it is going to take some time for the market to evolve to the new guidance and for new options to emerge for issuers to manage their corporate disclosure.  As more and more companies adopt RSS feeds and email alerts for the distribution of information I’m confident that a new platform (along with new technology) of web disclosure will emerge to become the dominant method of distributing and consuming corporate disclosure.

I would suggest that what we are seeing is similar to what happened to the music industry and Napster. Prior to Napster there was one defined distribution method of music – the CD. An entire industry was built around that distribution model. When Napster arrived it changed everything and it wasn’t until Apple’s iTunes that anyone figured out a new model for distributing music commercially.

With the SEC now opening the door for new models to emerge the big question is what will that model be? If we’ve learned anything from Napster it’s that trying to fight technology is a losing battle, the only way to win is to accept that the market has already changed and figure out how to make money from it.

When we all look back at the SEC guidance on web disclosure I’m confident that it will be viewed as the starting point of big improvements in how issuers communicate with their investors.  I’m really glad that we can be a part of it.
 

If you’ve had a chance to go through the 47 page guidance and specifically the section regarding “dissemination” of information and what “public” means in the context of RegFD and the corporate web site you’ve likely been left scratching your head thinking “ok, so now what?”The issue of what constitutes public information is one of the grey areas of the latest guidance. The purpose of this post is to try and provide some additional color to the guidance and help you understand what it is going to take in order to use your website as your “public” channel of disclosure under this new guidance.

To be considered “public” the corporate site needs to meet 3 criteria.

1. a company web site is a recognized channel of distribution
2. posting of information on a company web site disseminates the information in a manner making it available to the securities marketplace in general, and
3. there has been a reasonable waiting period for investors and the market to react to the posted information.

For the purpose of this post I’m going to focus on the first two criteria.

From the guidance:  Whether a company’s web site is a recognized channel of distribution of information depends on the steps that the company has taken to alert the market to its web site and its disclosure practices, as well as the use by investors and the market of the company’s web site

In general, for you to use your site as the main channel of disclosure it requires that you act like it is the main channel and that the market recognizes it as such. This means that you need to change the behavior of your company along with the perception of the market – which is going to take some effort. Here are a handful of suggestions (along with language from the guidance) for you to get started with:

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Late last week the SEC issued guidance on how companies can use corporate web sites and blogs for the release of material information under regulation Fair Disclosure. This timely announcement has the potential to dramatically impact the corporate disclosure industry.

Rather than outlining the content of the guidance I thought I would provide some initial thoughts on what I see as being the key messages of the interpretive release. If you are not familar with the guidance please see the following links for more information.  

SEC Docs

• The full SEC interpretive release (47 page PDF)
• SEC Press Release

Some Initial Blog Posts

• SEC OKs websites and blogs for Reg. FD
• SEC To Recognize Corporate Blogs as Public Disclosure, What This Means for Wires and Press Releases
• SEC To Recognize Corporate Blogs as Public Disclosure. Can We Now Kill the Press Release?
• The emerging self-distribution news model

Here are a few initial take aways from the announcement:

The playing field of disclosure has been leveled. Newswires no longer have the built in demand for their services that they did before. (NYSE still mandates the use of wires but the assumption is that they will follow suit). This does not mean that the Newswire’s are going out of business, but it certainly means they are going to have to compete with more than just each other moving forward. Newswires will need to look closely at their business model and determine how they are going to compete in a world where the distribution of information is free (welcome to the Internet).

The press release is not dead. There is nothing in any of the SEC announcement that speaks to companies not using a press release. The press release is a document type, not a distribution method. It can be posted to a corporate web site, company blog or sent out over a newswire. IROs and public companies have well defined controls and procedures around the creation of press releases and other disclosure documents. This recent announcement does not impact the importance of using a press release to disclose information to the market, just how the press release gets from the company to the investor.

In order for information to be “Public” (and applicable to RegFD) the corporate web site needs to meet 3 criteria.

1. a company web site is a recognized channel of distribution
2. posting of information on a company web site disseminates the information in a manner making it available to the securities marketplace in general, and
3. there has been a reasonable waiting period for investors and the market to react to the posted information.

As you can see, these are quite general and not prescriptive, this means that companies will need to be committed to meeting these guidelines and likely it also means that new vendors will step up to help. This criteria warrants a post on its own, so I won’t go into detail on each aspect here.

The guidance is principle based and future proof. If the SEC had come out and said “you must use RSS and email alerts” it would be creating the same problem it is now getting out of. By using a principle based approach it allows the market to determine what is acceptable and ensures that certain technologies and/or companies are not able to create protected industries (like the newswires did). Having said that, a principle based approach also creates a grey zone that lawyers do not like, which means that the mass market of issuers will likely not change anything, until the market adopts a new standard. This will require forward-thinking issuers and vendors to innovate and create this new standard.

The corporate web site is the podium for all disclosure. We’ve been saying this for some time (as have many others) but it is now official. The corporate web site is the hub of corporate disclosure. With this new guidance and the combined innovated efforts of issuers and vendors, we will continue to see the corporate site dominate the world of disclosure for the foreseeable future.

I would certainly advise all those in the corporate disclosure space to read the full 47 page report. It’s long but there are some great comments in there.