Stop II: Disclosure of material information
January 25th, 2006 by Todd Van Hoosear
Now that we’ve defined and distinguished material from immaterial and public from nonpublic, the second stop in our tour of press releases, public companies and blogs is what to do with the material, nonpublic stuff. Specifically, I asked the question: What is currently being required of companies in regards to disseminating material nonpublic information?
The short answer seems to be:
The long answer is largely a repost of an earlier comment, but I figured it’d be a little more readable in this format.
I’m going to focus on Reg FD, but there are other factors: for instance, I believe that both the NYSE and the NASD still require listed companies to disclose material news via press releases. The SEC’s final ruling states (links and emphases are mine):
Rule 101(e) defines the type of “public disclosure” that will satisfy the requirements of Regulation FD. As proposed, Rule 101(e) gave issuers considerable flexibility in determining how to make required public disclosure. The proposal stated that issuers could meet Regulation FD’s “public disclosure” requirement by filing a Form 8-K, by distributing a press release through a widely disseminated news or wire service, or by any other non-exclusionary method of disclosure that is reasonably designed to provide broad public access — such as announcement at a conference of which the public had notice and to which the public was granted access, either by personal attendance, or telephonic or electronic access. This definition was designed to permit issuers to make use of current technologies, such as webcasting of conference calls, that provide broad public access to issuer disclosure events.
Commenters generally favored the flexible approach provided by Rule 101(e). The American Society of Corporate Secretaries and the Financial Executives Institute, among others, agreed that the definition should not stipulate particular means of technology used for public disclosure. Individual investors supported the idea that issuers should open their conference calls to the public through means such as webcasting over the Internet. Some commenters, however, raised the concern that conference calls or webcasts should not be permitted to supplant the use of press releases as means of disclosing material information. Others suggested that we provide that an issuer’s posting of information on its website should also be considered sufficient Regulation FD disclosure.
After considering the range of comments on this issue, we have determined to adopt a slightly modified definition of “public disclosure” that would provide even greater flexibility to issuers in determining the most appropriate means of disclosure. As adopted, Rule 101(e) states that issuers can make public disclosure for purposes of Regulation FD by filing or furnishing a Form 8-K, or by disseminating 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.”
The ruling goes on to pay tribute to “Alternative Methods of Public Disclosure:”
We are recognizing alternative methods of public disclosure to give issuers the flexibility to choose another method (or a combination of methods) of disclosure that will achieve the goal of effecting broad, non-exclusionary distribution of information to the public.
As a general matter, acceptable methods of public disclosure for purposes of Regulation FD will include press releases distributed through a widely circulated news or wire service, or announcements made through press conferences or conference calls that interested members of the public may attend or listen to either in person, by telephonic transmission, or by other electronic transmission (including use of the Internet). The public must be given adequate notice of the conference or call and the means for accessing it. The regulation does not require use of a particular method, or establish a “one size fits all” standard for disclosure; rather, it leaves the decision to the issuer to choose methods that are reasonably calculated to make effective, broad, and non-exclusionary public disclosure, given the particular circumstances of that issuer. Indeed, we have modified the language of the regulation to note that the issuer may use a method “or combination of methods” of disclosure, in recognition of the fact that it may not always be possible or desirable for an issuer to rely on a single method of disclosure as reasonably designed to effect broad public disclosure.
Still no mention of blogs, of course. The closest we get is their ruling on using a company’s own web site as a communication vehicle:
In the Proposing Release, we stated that an issuer’s posting of new information on its own website would not by itself be considered a sufficient method of public disclosure. As technology evolves and as more investors have access to and use the Internet, however, we believe that some issuers, whose websites are widely followed by the investment community, could use such a method. Moreover, while the posting of information on an issuer’s website may not now, by itself, be a sufficient means of public disclosure, we agree with commenters that issuer websites can be an important component of an effective disclosure process. Thus, in some circumstances an issuer may be able to demonstrate that disclosure made on its website could be part of a combination of methods, “reasonably designed to provide broad, non-exclusionary distribution” of information to the public.
We emphasize, however, that while Rule 101(e) gives an issuer considerable flexibility in choosing appropriate methods of public disclosure, it also places a responsibility on the issuer to choose methods that are, in fact, “reasonably designed” to effect a broad and non-exclusionary distribution of information to the public. In determining whether an issuer’s method of making a particular disclosure was reasonable, we will consider all the relevant facts and circumstances, recognizing that methods of disclosure that may be effective for some issuers may not be effective for others.
We’re getting closer. But the real meat, and actually not an uninteresting read, is the special study the SEC launched in 2001. This is the most recent consideration that the SEC has given REG FD as far as I know, and it sheds some insights into where the SEC sits on the topic of press releases. Some excerpts:
So far, the Commission has refrained from allowing Reg FD disclosure to be made solely by means of the Internet. In the Adopting Release, the Commission stated: “In the Proposing Release, we stated that an issuer’s posting of new information on its own website would not by itself be considered a sufficient method of public disclosure. As technology evolves and as more investors have access to and use the Internet, however, we believe that some issuers, whose websites are widely followed by the investment community, could use such a method.”
It went on to call out some statistics on Internet access from 2001–anybody who’s seen my presentations has seen the latest numbers, which are much higher.
The report’s discussion of dissemination tools concludes thusly:
As the digital divide continues to narrow, the Commission should continue to reevaluate its position on how the Internet can further the goals of Reg FD. The Commission should consider encouraging use of the Internet as a prime dissemination tool. In particular, the Commission should deem adequately noticed website postings, fully accessible webcasts (without an accompanying press release repeating the substantive information) and electronic mail alerts to satisfy Reg FD.
So we see where the commission was leaning back in 2001. I’d like to see if any public companies have taken up the torch and declared that a website, blog and published, indexed RSS feed satisfy Reg FD, and to hell with the press release as an investor relations vehicle. Frankly, I just haven’t seen it, despite these leanings.
This entry was posted on Wednesday, January 25th, 2006 at 9:40 am and is filed under PR. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.
