Inadequate Disclosure: The Truth About Transparency

May 3, 2010

– by Neil Hershberg, Senior Vice President – Global Media, Business Wire

It is the hidden paradox of the regulatory reform debate dominating today’s headlines. While improved disclosure and transparency are widely seen as the ‘silver bullets’ to remedy Wall Street’s worst abuses, the integrity of the disclosure process itself is under attack.  And individual investors are once again in danger of bearing the brunt of the damaging fallout.

For all the current talk among reformers, regulators and journalists touting the need for better disclosure and transparency, there is an inconvenient truth that is being ignored. Hardly anyone has bothered to “look under the hood,” specifically to examine the engine that drives the disclosure process. It is deliberately being throttled, resulting in ‘inadequate disclosure,” and having the reverse impact of what the reform movement is seeking to accomplish. Today’s transparency challenge could very well lead to tomorrow’s financial crisis.

Equal and Unrestricted Access to Market-Moving News

Disclosure has traditionally been defined as providing material information to ALL market participants, simultaneously and in real-time. The ideal is that all investors have equal and unrestricted access to market-moving news that may influence their investment decisions. The SEC, under Arthur Levitt, got it right when it published Regulation Fair Disclosure in 2000, formalizing the egalitarian concept of a ‘level playing field.’

By most accounts, Reg FD as originally conceived worked reasonably well, correcting certain practices that had favored Wall Street professionals, often at the expense of the average investor.

Unfortunately, the SEC didn’t leave well enough alone. It tinkered with Reg FD during the Christopher Cox regime, coming up with a solution for a problem that didn’t exist.

Interpreting the SEC Interpretive Guidance

The agency issued its Interpretive Guidance Release on Web-based Disclosure in 2008, and it quickly proved to be the modern-day equivalent of a Rorschach test for investor relations professionals. The SEC’s guidance left much to the imagination, and that is the crux of the problem. Nearly two years later, IR professionals are still trying to figure out what it all means.

Rather than providing clarity as to the appropriate use of technology in investor relations, the SEC’s guidance offered ambivalent guidelines and imprecise circumstances that created unnecessary uncertainty in the marketplace.

The true intent of the SEC’s guidance was to encourage companies to make more information available to the marketplace, by posting ‘supplemental’ news to their corporate web sites, information that may not have warranted a news release. Unfortunately, the message never resonated with the IR community, which failed to appreciate that the SEC’s guidance was simply meant to augment their communication initiatives.

The agency’s indecisive guidelines have led to predictable results, and unintended consequences. Whenever there is a perceived policy void, opportunistic individuals will seek to step in and fill the breach. Many self-anointed experts have aggressively advanced their own interpretations of the SEC’s intent, which coincidentally coincide with their own commercial interests.

Inadequate Disclosure

More ominously, however, a handful of companies have tested the waters by deliberately limiting the information that is broadly disseminated to investors. Several companies have published “notice-and-access” releases, which are brief announcements that direct investors to full-text postings on corporate websites.

Based on the sharply critical response, no one has confused “notice-and-access” with “best practices.”  The decision continues to be unpopular among journalists and investor advocates. Obviously, no one wants to play “Where’s Waldo?” during earnings season, or go scrambling for information in today’s millisecond trading environment.

The equation is clear:  “Notice-and-Access”= Inadequate Disclosure.  No advanced calculus required here; it’s Logic 101.

Here’s a checklist of critical shortcomings:

  • Simultaneous?  No.
  • Easy and equivalent access for all investors. No.
  • Archived permanently in leading databases? No.
  • A definitive audit trail for regulatory and legal review? No.
  • Protection against future insider-trading allegations? According to authoritative legal experts, no.
  • In synch with the SEC’s intent to consolidate financials in a universal programming format [XBRL]?  No.
  • Worth the risk for the modest cost-savings involved? Definitely not.

Best-Practice Disclosure Mosaic

The bottom line is that disclosure is a mosaic of distribution channels; all platforms that encourage investor outreach  – traditional, web-based, and social media — should be embraced as part of an integrated and comprehensive IR strategy. The use of Business Wire ensures simultaneous, secure and real-time delivery of price-sensitive information to ALL market participants. Corporate web sites, RSS feeds, and other emerging technologies can, and should, play an important complementary role in reaching investors.

Business Wire is a strong proponent of orderly and efficient capital markets; we are justly proud of the critical infomediary role that we play in the process. Of equal importance, we pride ourselves on the outstanding value proposition that we provide our clients, which continues to expand with the addition of new mobile applications, SEO platforms, and enhanced metrics that quantifies our return on investment.

The cost of our service is fair; the value we provide could be described as extraordinary. And when all the different expense elements that public companies pay annually to meet their listing requirements and disclosure obligations are considered, Business Wire clearly ranks as one of the least expensive charges among all compliance expenditures.

Better disclosure and transparency may well be the answer to the problems that have plagued our financial system. We ask that if improved disclosure and transparency requirements are indeed part of the financial reform package that is ultimately enacted, that the integrity of the disclosure process is upheld, and that the interests of ALL investors are protected.


XBRL Update for April, 2010

April 20, 2010

Since our last update, there have been four significant XBRL developments:

  • Transition of responsibility for maintaining the US GAAP Taxonomy
  • SEC release of a new Previewer and Viewer engine
  • Update to the EDGAR Filer Manual
  • SEC Webinar focused on detailed tagging requirements.

Taxonomy Maintenance Transition
On February 5, 2010, the Financial Accounting Standards Board (FASB) announced the Financial Accounting Foundation (FAF) will be responsible for the ongoing maintenance of the U.S. GAAP Financial Reporting Taxonomy. The current 2009 taxonomy in use by SEC issuers was developed by XBRL US, Inc., an independent non-profit organization, with technical accounting support provided by the FASB. Going forward, XBRL US will transition to other projects with continued technical support from the FASB.

Read the rest of this entry »


XBRL Update: Jan 2010

January 8, 2010

On December 4, 2009, the Securities and Exchange Commission launched its XBRL information portal, which can be found at http://xbrl.sec.gov. The portal consolidates in one easy to find central location all SEC related XBRL information and also highlights new XBRL developments to simplify searching for the most up-to-date information. In this issue of the XBRL Update, we will summarize the information available on the SEC’s XBRL portal, discuss the quality of the second wave of filings and provide you an update on how to best prepare for the upcoming 10-K and detailed tagging requirements.

SEC’s XBRL Portal

The SEC’s XBRL portal contains five main categories: Rules and Regulations; Background; View Filings; Interpretive Guidance; and Technical. Details of each category are as follows:

  • Rules and Regulations: Contains postings of final XBRL rules for Publicly Traded Companies, Mutual Funds, Nationally Recognized Statistical Rating Organizations and the Voluntary Filer Program (VFP).
    • Allows users to access the respective rules and regulations without having to search through the SEC website.
  • Background: Contains general XBRL information, covering:
    • A brief synopsis of XBRL and the countries in which XBRL has already been implemented.
    • A glossary of frequently used terms (i.e. element, concept, extensions, etc).
    • History of the SEC’s adoption of XBRL and information regarding the Office of Interactive Disclosure (OID).
  • View Filings: Various options for viewing XBRL filings submitted to the SEC are listed:
    • Users may subscribe to an RSS feed or view the latest 100 XBRL files submitted to the SEC.
    • View filings submitted under the VFP.
    • Search EDGAR filings (which include XBRL exhibits, if submitted) by company name, ticker symbol or CIK number.
    • Link to upload XBRL files to the Interactive Data Viewer (“Previewer”).
  • Interpretive Guidance: The SEC will continue to issue XBRL guidance based on their

review of interactive data submissions and questions raised by filers and agents.

  • Technical: The technical section includes links to:
    • Approved taxonomies.
    • The EDGAR Filer Manual.
    • Shortcut to the SEC Previewer.
    • Listing of EDGAR XBRL Validation Errors and Warnings.

Second Wave of Filings Submitted to the SEC

On September 28, 2009, the SEC updated the EDGAR system to enhance its Interactive Data (XBRL) file validation capabilities. Since the update, Business Wire has been closely monitoring the quality of the filings, noting a marked improvement in the SEC submissions as compared to the prior quarter. Furthermore, upon closer examination, we have noted through two sets of independent validation tools that the SEC continues to accept filings with EDGAR Filer Manual

errors. From September 28th through November 20th, we noted 30 out of 410 filings had at least one error according to one of the validation tools.

10-K and Detailed Tagging Requirements

Along with the 10‐K filing come additional XBRL requirements, which include mapping: the Statement of Shareholders’ Equity, additional notes to the financial statements and financial statement schedules.

  • Detailed Tagging: For clients required to file XBRL exhibits in the first phase, detailed tagging will be here before we know it. First phase filers will be required to present detailed tags for their second quarter filing in 2010. Detail tagging creates an additional burden on the filer as it increases the amount of work required to ensure XBRL compliance and forces the filer to change their financial reporting process to ensure ample time in incorporating last minute changes.

Have any XBRL questions or concerns?  Simply contact us at XBRL@BusinessWire.com.


Technology Media Pros Discuss Transparency in Financial Reporting and Media Communications

September 15, 2009

bweventswrapupheader

Business Wire Silicon Valley hosted “Transparency in Financial Reporting and Media Communications,” with a panel  featuring technology media writers and editors discussing the most important issues in corporate disclosure and investor relations. The panel, moderated by Steve Trousdale, Business Editor for the San Jose Mercury News, included:

L-R: Steve Trousdale, Aaron Ricadela, Michael Liedtke, Shana Lynch

L-R: Steve Trousdale, Aaron Ricadela, Michael Liedtke, Shana Lynch

The event, held at The Tech Museum of Innovation in San Jose, was attended by more than 55 area investor relations, public relations and media relations professionals.  Among the key tips and observations offered by the panel:

Steve Trousdale

  • PR and IR professionals should research the appropriate reporter for their story and tailor a sophisticated and creative pitch.
  • Please don’t call and ask “Who covers the Internet?”  This reflects poorly on your communications and messaging team.
  • He is more skeptical when reading earnings releases now after the tech crash in the late 90’s, so they have a keep eye for seeing the story and reading between the jargon.
  • To build and foster relationships with his news room, please offer the CFO and other key IR professionals for interviews, briefings, one on ones, etc.
  • The Mercury News enjoys working for exclusives, but as they compete with the Wall Street Journal and the New York Times, being transparent about who also has seen the press release is a best practice.

Aaron Ricadela

  • Believes PR and IR professionals should provide unfettered access to earnings calls.
  • Believes the most successful IR press release is composed clearly and that it should be easy to read.
  • Reporters at BusinessWeek do use Twitter and he believes it’s a solid way to build relationships w/ his newsroom.  Sharing tweets with relevant topics and industry chatter is valuable to them.
  • He’s not a fan of “investor days” as he would rather do a one-on-one interview.
  • PR and IR professionals also need to understand how to communicate smaller companies in a broad way, so that round-up stories and trend pieces are timely.

Michael Liedtke

  • IR professionals need to keep the writing clear in an earnings press release and offer the bottom line and top line.
  • They can quickly find the “spin” and jargon and have distaste for that language, especially since they can easily do research and see the “real story.”
  • It’s necessary for PR and IR professionals to do their homework to foster best media relations practices.
  • Do not send template PR or IR pitches. 
  • For smaller to mid-size companies, he recommends pitching a trend story or a round-up piece to connect to a larger news.
  • Companies he believes consistently push out “A+” earnings releases include: Intel, Microsoft and Oracle.
  • An industry that he covered that he considers a “poor” performer re: earnings releases include most newspaper companies.  They don’t share information well and are not strong with financial reporting.

Shana Lynch

  • All reporters on staff use Twitter, and she believes this is a fantastic way to build relationships, find leads, etc.
  • She recommends that all PR and IR professionals read the weekly and do archive searches before contacting or pitching.
  • Email is the best way to contact a reporter and to pitch a story.
  • They are interested in exclusive stories and news, but will only do so if the breaking news has not been offered to another media point.
  • A local angle is key to circulation and appeal, so please do your homework, as the BizJournal company covers the entire country.
  • The clean tech industry is also something they are covering a lot of and believe is the strongest trend.

Local Business Wire offices host several events each year on PR, IR, SEO, media and other topics.  To find out about upcoming Business Wire events both in your area and online, visit the Events section of BusinessWire.com.  And follow the #bwevents hashtag on Twitter for real-time updates during events.


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