Before I get into the recap, I’d like to thank @bropo, @AVGoldberg, @Box_IR and Z_Kommunikation in advance. Honourable mentions go out to @ir_practice and @pkiss as well.

This week, the discussion centered around two main questions.  The first pondered ideas for increasing board/shareholder engagement.  The second tackled how IROs will need to communicate differently this proxy season, due to new era of governance stipulations.

Q1: ‘Want 2 f/u on my RT by @Matt_Brusch: http://bit.ly/apkoTl & discuss ideas 4 increasing board/shareholder engagement.’

A snippet from the article:

Shareholders expect you not only to know your business — how to control risk, market, compete, profit and grow in an increasingly global marketplace — but, in many cases, to know about and effectively oversee the impact that your businesses may have on the financial system.

At the same time, much of the regulatory framework within which your businesses operate is also changing. As SEC Chairman, I recognize that many of our new rules, and the rules that we will be adopting over the next two years, will profoundly impact both how your boards fulfill their responsibilities, and how you communicate those activities to your shareholders.

@q4websystems: ‘Article states ‘new rules adopted over next 2 yrs., will impact both how your boards fulfill their responsibilities and…’
@q4websystems: ‘…how you communicate those activities to your shareholders.’
@bropo: ‘As with most comms plans, I’d make this multi-phase. If not yet doing, provide BoD w/qtrly updates on s/h sentiment.’
@bropo: ‘Reports/discussion can be both quant (survey-based) & qualitative (capturing daily discussion). Protect anonymity of s/h.’
@bropo: ‘Would also make certain to factor current dialog/concerns into quarterly script so s/h hear their concerns being addressed.’
@q4websystems: ‘@bropo I agree with u about 1/4ly updates to board. Should also incl. training on what can/can’t b said.’
@bropo: ‘Next, would roll-out a face-to-face strategy – start first with investor days, and then take key Bd members on the road.’
@bropo: ‘In conjunction with all of that, make it real so that shareholder questions get directly to the Bd – responses w/control.’
@bropo: ‘Training definitely required before you take them on the road. Practice by including them in onsite activities, like s/h visits.’
@bropo: ‘Visits to the company, that is. When they’re on track, then you can invest in taking them on the road.’
@bropo: ‘But, in taking them on the road, their presence shd be logical, ie rolling out a new strategy in area where they have expertise.’
@AVGoldberg: ‘Most alrdy do1/4ly updates 2 bd & factor S/H sentiment in earnings remarks. Tkng key Bd members on the road wld be something new.’
@bropo: @AVGoldberg ‘You would think … I’m always surprised at how many do not yet report to the Board! Or, info doesn’t get to BoD.’
@AVGoldberg: ‘Not sure how many Bd members would be willing to go on the road to investor community.’
@bropo: @AVGoldberg ‘I think the more BoD members are expected to u/s what’s going on, the more likely they would consider.’
@q4websystems: ‘Esp.on gov.issues RT @bropo: @AVGoldberg think the more BoD members r expected 2 u/s what’s going on, more likely they wld consider.’
@bropo: @q4websystems ‘Exactly on governance issues! If you risk action because of inaction, you’ll reconsider involvement & engagement.’
@q4websystems: ‘Posting gov. policies in pdf on website is not enough anymore….’
@q4websystems: ‘Article rightly states that clear conversations abt how co. is governed & why & how decisions r made.’
@bropo: @AVGoldberg ‘Being a BoD member is a greater responsibility with more accountability than ever.’
@AVGoldberg: ‘Agree BOD has more responsibility than evr, but they think it’s R job 2 keep them informed. If did go out, training wld b key.’
@bropo: ‘And I think they should be engaged at annual meetings. Present reports for their area, i.e., bd recruitment, compensation, etc.’
@q4websystems:@bropo ‘Agree boards shld have more visibility when possible i.e. @ Annual mtg. need 2 convey board is right choice 4 the co.’
@bropo: ‘That said, as with all things, should begin with a strategy, a plan and be implemented with care, control and checks.’

@q4websystems: @AVGoldberg ‘I agree most do 1/4ly. How can IROs ensure board reads report?’

@bropo: ‘Send directly?’:)
@q4websystems: @bropo ‘In addition 2 sending directly what about presenting info. 2 them in person on via webcast/conf. call?’
@AVGoldberg: RT @bropo: ‘IRO 2 speak at BD mtg?’
@bropo: @q4websystems ‘However you can reach them. Many are still not super savvy digitally. Some cos. allow IRO to speak privately to BoD.’
@bropo: @q4websystems ‘Conference calls seem work for them! Reports are often better, dep. on age/composition. Address as works: > one way.’

@bropo: The question is, with all of this accountability and responsibility, are BoD members going to want better comp?

@q4websystems: @bropo ‘Another consideration is BoD’s typically sit on > than one board – How 2 keep them engaged?’
@bropo: ‘Their responsibility. We help.’

@q4websystems: ‘Speaking of governance…another gr8 article 2day that discusses merits of talking 2 investors face-2-face: http://bit.ly/bsS6FY

Q2: ‘IROs need 2 comm. diff. this proxy season. How 2 go about ensuring new issues i.e. say-on-pay are understood by investors?’

A snippet from the article:

As companies approach the 2011 proxy season, they are rethinking the way they reach out to investors and how that communication can be more useful to both parties?

Next proxy season will stand apart in terms of investor communications due to new items on the ballot as a result of demands from the SEC and Congress, including say on pay. And even though proxy access has been delayed, experts say good investor relations should be exercised now to lay the groundwork for when and if access is granted.

@bropo: ‘I think IROs first need to internalize that this is a different kind of voter than they’ve had to address in the past.’
@q4websystems: ‘Proxy issues r another key area board shld b informed & able 2 speak to.’
@bropo: ‘This is a less sophisticated voter, so no more financial/legal gobbeldygook. Play it straight. Address issues upfront/head-on.’
@bropo: ‘It’s a great time to establish a Facebook page that you can point to and provide easy access to voters who own thru big funds.’
@q4websystems: @bropo ‘I like idea of FB page. shld also co-ordinate info. on website 4 those investors who aren’t using soc. med.’
@q4websystems: ‘I think it’s imp. to keep investors informed of key gov. issues thruout yr, which IMO may make proxy season a bit easier.’
@bropo: ‘And not just “retail investors” that so many seem to disdain. Of course, always point back to posted/filed info.’
@q4websystems: ‘Article talks about how Time Warner meets with 50 lrgst investors during proxy season, & fewer during yr. sometimes with IRO.’

@q4websystems: ‘Should IRO or corp. secretary be in charge of informing investors esp. during proxy season? In my exp., IR dept. did this.’

@bropo: ‘In my experience, IRO does this better. Of course, report & update Corp Sec on a regular basis.’
@q4websystems: ‘Agree need 2 work 2gether’
@q4websystems: ‘As I stated b4, gov. issues shld be discussed thruout yr. easily done @investor anal. day or on 1/4ly conf. call.’
@AVGoldberg: ‘Advantages to both IRO & Corp. Sec. Think answer depends on co. and s/h base.’

@q4websystems: ‘What about activist investors? hard 2 control if they call Board directly.’

@bropo: ‘Shd they b a surprsie?’
@q4websystems: ‘Hopefully not’ RT @bropo: Shd they b a surprsie? RT
@bropo: ‘IRO shd be aware/prepared/reporting. Agreed upon responses.’RT @q4websystems: Q2: what about activist investors?

@bropo: ‘Can’t always prevent/control, team shd be prepared.’ RT @q4websystems Q2: activist investors? hard 2 control if they call BoD directly

Well that is the end of another great #irchat.

Don’t forget to join us every Thursday @ 11:00 a.m. EST. In the meantime, if you have any questions you’d like to submit for an upcoming #irchat, tweet @meetthestreet or send an email to sherylj@q4websystems.com and I’ll pass it along.

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The founders of Agoracom are set to appear in front of the OSC at the end of April, where we assume we will all hear more details of the allegations and the defense of Agoracom. I, like many others, await more details before passing judgment on what really happened and to what degree fraud was committed (if at all).

In light of this recent situation, I wanted to take this opportunity to talk about the problems with message boards and the importance of transparency and trust and being successful online.

Similar to Yahoo!Finance message boards, Agoracom uses alias for all members. As you can see from the screenshot below, there no real names listed and there is no further information available on the site on who these people are.

The BIG problem here is the complete lack of transparency. Who are these people? What are their backgrounds, their day jobs, etc? In their current format message boards like this can’t be trusted if anyone can create an alias and “pretend” to be an investor.

The reason why social media works, is because of the trust that is built up over time between real people. This would never work if everyone used an alias and you didn’t know who they were. The best practice across all social media channels is to use your full name in your profile and/or links to further details about yourself.

What would Facebook be like if everyone used an alias? It only works because it’s real people connecting with real people. A great example of this can be seen in some of the Facebook pages used by companies to connect with investors. See TVI’s Facebook page (disclosure: TVI is a Q4 client)

Seeking Alpha is a great example of transparency, a part of their success has come from how transparent the community is, people connecting with people.

On Twitter there are many users that have an alias for the account name, however most people provide their real name within their profile. There are certainly many automated accounts and many fake accounts, however the people with the most influence and benefit to the company are those that are real people being transparent. I know in my own work with social media, being transparent and authentic is absolutely critical to connecting with people online and building trust.

Sure there are Twitter accounts today that are based on aliases and stock promoters are using them to create “fake awareness”. I hope the actions from the OSC sets a precedence that other regulators can use as an example to control this type of fraud.

Social media is about connecting real people. This is true across every line of business using social media, including marketing, public relations and investor relations. Transparency and trust are required to be successful.

I don’t think that these allegations apply to any PR or IR firm tweeting on behalf of a client, as tweeting for a client is very different than pretending to be an investor:

• When posting for a client it is being done under the company account and is being used to assist in the distribution of content and to build a following through engagement with stakeholders. There is nothing underhanded in this approach and this is within regulations and ethics.

• If an IR firm creates an alias account and then pretends to be an investor engaging in discussions with the company and other investors then this is simply lying and is not ethical in any way. Perhaps a case can be made that this is not securities fraud, but it certainly is business fraud and should not be tolerated by companies, regulators or investors.

On a related note, in 2007 Whole Foods’ CEO John Mackey was caught posting messages on Yahoo! Under the name “rahodeb”:

Investigations were launched by the FTC (to block an acquisition) and by the SEC. Ultimately both agencies did not pursue the issue and Mr. Mackey got off. In his own defense Mackey said that he had the right to post under an alias because everyone else did on the message board. Mackey also said that he thought the posts of one man under an alias would never be able to move to the stock and that this was not his intention. However, with posts such as this one posted in Jan 2005, it’s hard to believe his intentions were ethical:

“13 years from now Whole Foods will be an $800+ stock before splits”
John Mackay, CEO of Whole Foods posting as “Rahodeb”.

There are other stories about the CEO of overstock.com using aliases on message boards to spread misinformation, attack his critics and even leak information.

Neither the CEO of Whole Foods or Overstock.com was charged by the SEC for these types of postings. However, it seems the SEC wasn’t doing much enforcement during this period (too many stories to mention here) and I have to wonder if these events happened today would the current SEC react in the same way? Their recent increased judgments related to Reg FD seem to suggest they would react differently.

If the OSC needs to set the precedent that companies and by extension IR agencies can’t create fake investor accounts, then I think this is good for all companies and investors.

As I said early in this post, we’ll all know much more about Agoracom and OSC at the end of this month. Until then I reiterate, I am waiting to get all the details before passing judgment.

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“Due to Twitter’s innovative, yet immediate and informal, nature, tweets made by public companies and their employees may create a higher risk of violating US securities laws because the substance of each tweet may not be as thoroughly vetted as information that is disclosed through traditional channels of communication. Twitter’s appeal as a tool for companies to use to quickly dispense information to the public heightens these risks”.

Some of the issues brought to light have been widely discussed in the IR world (i.e. Reg FD).  However, they dig a bit deeper into other areas such as Exchange Act Rule 10b-5, which (like any other statement made by the company) would bind tweets by antifraud provisions.  They also confer on how companies should handle information that resides on Twitter (i.e. can stale information be deleted and/or archived somewhere).

The ideas they present are very thorough.  They even present some suggestions for combating these issues and provide a list of best practices at the end.  It is worth the read, but I thought I would provide a rundown of the main ideas.  Where applicable, I’ll also offer an Investor Relations (IR) perspective based on insights gathered from research Q4 has conducted on the use of Twitter for IR and in speaking with various IR professionals.

Reg FD

In a nutshell, an issuer must disclose material nonpublic information to everyone at the same time.  As we know, the most common way to do this is via a broadly disseminated press release or on a publicized call or webcast to which access is provided to everyone.  The article states that Twitter cannot substitute for other, more broadly used means for disseminating as it is unclear whether a tweet would be deemed a communication to shareholders or market professionals.  Therefore, companies should presume that Reg FD applies to tweets.

In my discussions with IR professionals, Reg FD is one of the top reasons why public companies don’t use social networks for IR.  So the authors are correct when they state that companies should surmise that tweets are governed by Reg FD.

Further, they go on to say, that on its own, Twitter does not distribute the information to the public in a broad, non-exclusionary way.  Therefore Twitter should not be considered a primary method of disclosing and disseminating information, but rather should only supplement the more traditional forms of disclosure and dissemination.  In our Twitter for IR report, we found that virtually all public companies are using Twitter as a channel to supplement traditional disclosure channels.

Best Practice Tip:

If a company is using Twitter in conjunction with some other method to disclose material information, the authors suggest they should provide advance notice with appropriate details, when for example, they are going to live-tweet their earnings call.

I would go on to add that if a company is using Twitter to supplement their other disclosure channels, they should say so.  For example, saying something like “Follow us on Twitter and provide the link: http://twitter.com/q4websystems” which can be easily included in a standard boilerplate or FLS used for press releases and other company documents shared with the public.  After all, why be on a social network if you aren’t going to disclose this to your key audiences?

Exchange Act Rule 10b-5

According to the definition provided in the article “This Act prohibits untrue statements of material fact and omissions of material facts that make what have been said misleading”.  In other words, just like any other statements made by the company, Tweets would be bound by antifraud provisions.  So, employees acting as company representatives are not exempt from any material misstatements or omissions by purporting to speak in their individual capacities.

The authors argue that “the casual and immediate nature of tweets and the appeal of being able to quickly disseminate information poses risk that a statement would create a Rule 10b-5 violation”. They also point out that Twitter’s 140-character limit could create additional risk due to a potential for misinterpreting a tweet based on its brevity.

There are a few ways that companies can mitigate the potential for shareholders misinterpreting a tweet:

• Preparing tweets in advance of the call. This is easily done by extracting key messages from the release and the script. Compiling the information for the tweets prior to the call will ensure consistent messaging and help mitigate the risk of tweeting anything that was not previously disclosed over an approved disclosure channel.
• Providing a link to the materials associated with the live event.  For example, providing a link to the press release and presentation would provide followers with the complete information for the call.

Some additional ways that will also help mitigate liability:

• Company policy that outlines exactly what employees can and cannot tweet about.
• Disclaimers that are provided on Twitter profile and on website about use of Twitter.
• Links to your own website and blog.  You could also reference a link that appears on a page on your website (which may appear in a list of other links) and provides the necessary disclaimers.

Archiving Information

The authors have some interesting observations regarding the information that is now housed on Twitter:

• The brevity that is required for a tweet limits a user’s ability to archive information or delete material that is out-of-date.  As previously mentioned, providing the disclaimer at the beginning of the call will help mitigate liability.  Hashtags are widely used by Twitter users to tweet conferences, quarterly calls and conduct on-line chats.  Hashtags allow users to follow along live.

They also allow a user to search by the specific topic at a later date and read the thread.  As far as dealing with information that is out-of-date the tweets are clearly time-stamped:

Also with respect to quarterly call tweets, companies like Weg S.A. make it easy to discern what quarter the tweet applies to:

• A post that is later viewed as problematic cannot be edited to include such disclaimers.  As previously mentioned, preparing the tweets using hashtags that specifically denote the session will help avoid confusion as to whether the information is new or not.
• Chronological representation of tweets inhibits the ability to archive historical materials and statements to a separate section of the Twitter page to store the information.  The authors specifically state “….historical statements…cannot be archived on a separate Twitter page to store the information”.  In my opinion, this is splitting hairs a bit, as Wikipedia broadly defines Twitter as “a free social networking and micro-blogging service that enables its users to send and receive messages known as tweets”.   Case in point, research we conducted on the use of Twitter for IR found that the majority of companies are primarily using Twitter for sharing links to materials that reside on their IR website already disclosed through Reg FD channels.  So providing a disclaimer on your Twitter profile that directs people back to your IR website will alleviate any notion that Twitter is the primary place that you post material information.  As for archiving historical statements I can say that hashtags would help a company archive statements pertaining to a specific event (as I have done this for webinars we have tweeted and was able to search for the specific event and compile the tweets).
• Hyperlinks to third-party websites exposes a company to liability if there is an inference that the company approved or endorsed the information.  The authors then go on to cite that the “SEC does not feel a disclaimer alone is insufficient to insulate a company from antifraud liability and encouraged issuers to describe the purpose of the link, use an “exit notice” or “intermediate screen” so that a user knows that the third-party content is not company information and avoid links to only favourable information”.

If this was applicable to tweets, there are a few issues that could be raised to dispute the enforcement of this by the SEC:

• Technically tweet an article or sharing other third-party information you are not linking back to your website, so it would be difficult to say that a company was “endorsing” the information that is being tweeted.  However, a company could preface the tweet by stating for example: interesting article from Wall Street Journal and then link to the article housed on the WSJ’s website.
• If users find interesting information they want to share, it can be retweeted.  Retweeting complicates the liability as should the onus apply to the person who initially provided the link and the person who RT’d it?  Tweets get retweeted all the time, so this would be an onerous policing undertaking for the SEC.

The authors have provided some good examples of potential compliance issues for public companies to consider for using Twitter as part of their corporate strategy.  While some of the arguments are stronger than others, it is important that you read and be cognizant of these issues so you can take the necessary steps to prevent liability problems.

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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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The response has been both positive and negative. Criticism has primarily focused on the accessibility of information disclosed in this way – although anyone can receive automatic updates through RSS feeds, which take all of 2 minutes to set up. And North America enjoys the highest penetration of internet usage in the world.

What’s important to note is that GE executives say the blog permits them to disclose more information and on a more frequent basis, which translates into greater transparency regarding issues that would otherwise remain internal. “This is a tough environment, a lot of misinformation in the marketplace,” GE spokesman Gary Sheffer said. “This is just a fast and simple way to punch through it and to make sure that you tell your story in a simple and engaging way.”

This immediacy is one of the many positive outcomes of the new Reg. FD governing corporate web sites and blogs. In terms of engagement, I love the fact that GE incorporates video to support many of their blog stories. (Jason’s post on the Q4 blog yesterday sited another great example of this tactic, as employed by Overstock.com.)

In taking a quick look at the GE blog, one can see that they are receiving numerous comments, which isn’t surprising considering that the company has lost 62 percent of its value in the last year. Many of these comments are asking for more and different information. Some are suggesting specific measures be taken to protect shareholder value.

At first glance, this may seem a frightening scenario for the IRO who feels it’s better to ‘manage’ what’s being said about their company. The reality is that the Internet has provided a voice to everyone (as per Gary Sheffer’s comment on “misinformation”) and social media has amplified that voice. In today’s market there is no way to muzzle disgruntled investors and it’s much better to communicate with them.

Ruth Cotter, Director of Investor Relations, Advanced Micro Devices said it best in a recent presentation on social media, “Our communications are much more proactive. Instead of ‘pushing’ information at investors, we are now engaged in conversations with them. We’re learning a lot from this dialogue.” And this in turn helps shape future communications.

With corporate leaders such as GE embracing the new SEC guidance, it is anticipated that other companies will follow suit.

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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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