by Cathy Baron Tamraz, Chairman & Chief Executive Officer, Business Wire
Records are meant to be broken. Rules, on the other hand, aren’t.
And when those rules have a direct impact on both the fairness and workings of our financial markets, then an even higher standard of accountability is in order.
Unfortunately, it is becoming apparent that Regulation Fair Disclosure — which the SEC originally conceived to provide ALL investors with a level playing field — is something of a misnomer. “Request Fair Disclosure” or “Regulation Flex Disclosure” would seem to be more appropriate rubrics, as issuers who fail to meet Reg FD’s compliance standards continue to go unchallenged.
This troubling situation raises the obvious question: If rules aren’t enforced, then what is the purpose of having them in the first place?
The latest disclosure debacle involves Microsoft, which abruptly notified the market of its shift to a web-disclosure model. The company posted its earnings online, without benefit of a corresponding broadly disseminated release.
Microsoft’s ill-fated foray into web-based disclosure provides a textbook example of “worst practices” investor relations.
The company issued an advisory on October 27, 2010, alerting the marketplace that it would post its earnings on its website the next day. No time was specified as to when the results would be posted.
Microsoft’s disclosure strategy is problematic on many substantive levels. The SEC’s 2008 Interpretive Guidance Release states that companies can disclose material information on their web sites provided certain criteria are satisfied; a key requirement is that the corporate website is a “recognized disclosure channel.” This standard suggests that the issuer must be able to demonstrate that its website is a primary “go-to” site for investor information, over a sustained period of time.
Given the fact that Microsoft literally made the transition to web disclosure overnight, it makes a sham of one of the SEC’s few tangible web-disclosure guidelines. Unfortunately, there aren’t all that many requirements to begin with, which is the crux of the problem.
Clearly, Microsoft has one of the most heavily trafficked sites on the Internet. However, there isn’t necessarily a correlation between a popular consumer site, and a “recognized disclosure channel.” By my way of thinking, “recognized” suggests a documented and defensible track record over an extended time frame.
Microsoft’s arbitrary disclosure designation has short-circuited the SEC’s intent, giving the clause new meaning. The unwelcome result: Instant disclosure channel. The SEC’s Interpretive Guidance Release, already condemned by its critics for its lack of clarity, has effectively been watered down further by Microsoft’s unanswered actions.
Philosophical arguments aside, Microsoft’s disclosure process was badly bungled.
Here’s a chronology of the confusion (all times Eastern):
- Investors were frantically scrambling to get the results at market close; the results weren’t posted until 4:15 pm. That’s 15 minutes of high anxiety, angst and frustration as investors pounded the Microsoft site seeking the company’s results.
- The 8-K wasn’t filed until 4:28:49 p.m.
- The advisory press release finally moved almost a half-hour after the posting [4:44 p.m.], thus the Notice came AFTER the Access.
- The conference call was held at 5:30 p.m.
Without question, it was a disclosure disaster.
As noted, the 8-K was filed 13 minutes after the posting on Microsoft’s website. Our interpretation of Reg FD is that the filing should have preceded, or been filed simultaneously, with the web posting.
In a Dow Jones interview published in The Wall Street Journal, a Microsoft IR team member revealed a basic lack of understanding of what services are available today, as well as a blatant disregard for investor relations’ core mission.
The Microsoft spokesperson asserted that posting onto the company’s website allowed users to “see additional information that they wouldn’t see if they only looked at our press release.”
Definitely not true. Releases today are transmitted in XHTML format, which provides for increased online functionality and flexibility. Business Wire, for example, has all of the rich multimedia capabilities that Microsoft was seeking to accomplish on its own site; e.g., slides detailing the company’s performance, key operating metrics, and links to webcasts and other documents.
The major difference, however, is that Business Wire makes this information available to the entire investment community simultaneously, and in real-time. Business Wire’s patented news delivery platform distributes and posts to the world’s leading portals, financial information platforms, and databases, creating a true level playing field for all market participants. We literally push the information to millions of eyeballs around the globe, and everyone receives it AT THE SAME TIME. Yes, it’s ubiquitous.
In rationalizing the company’s decision, the Microsoft executive focused on the benefit of a reduced staff workload, concluding “it’s one less check mark.”
The critical lesson that has been lost here is that when it comes to investor relations, it’s not about the issuer, it’s about the shareholders. It’s unfortunate and inexcusable that the legitimate information needs of the marketplace are deliberately being sacrificed simply because they require an extra “check mark.” It’s a small price to pay, in our view, for market fairness.
Web disclosure clearly has major drawbacks; its obvious deficiencies disadvantage investors in multiple ways. Seasoned market observers shudder when imagining the ensuing anarchy if hundreds, or thousands, of issuers choose to follow Microsoft’s misguided example.
At a time when there continues to be a growing global demand for increased transparency and disclosure, Reg FD — the backbone of America’s disclosure system — is unfortunately being emasculated because of benign neglect and gross misinterpretation. The SEC needs to take decisive action reaffirming the basic tenets of Reg FD; otherwise, the concept of full and fair disclosure will prove to be more of an empty premise rather than an enduring, guiding principle that has proudly come to define our capital markets.
The facts speak for themselves: The SEC should take appropriate action to reverse these disturbing disclosure trends. The evidence supporting such a move is overwhelming.
Authoritative academic research conducted by a professor at the Harvard Business School has conclusively demonstrated that greater news dissemination improves stock liquidity and lowers volatility, while enhancing a firm’s visibility. It can even lower the cost of capital.
Independent surveys confirm that an overwhelming majority of securities attorneys continue to counsel corporate clients to broadly disseminate their news, rather than limiting distribution to a corporate website.
There’s a large investor in Omaha who doesn’t want to be checking hundreds of websites minute-by-minute throughout the day. But then again, who would?
- Here’s a related post on the 24/7 Wall St. site: Microsoft Goes Cheapo on Earnings Releases (MSFT)
by Cathy Baron Tamraz, Chairman and Chief Executive Officer, Business Wire
SEC Chairman Mary Schapiro, in prepared remarks to the Society of Corporate Secretaries and Governance Professionals last Friday, stated the SEC is intent on ensuring that all investors have access to a highly complex and technologically sophisticated trading market.
We at Business Wire could not agree more — that’s been OUR intent as well for the past 50 years — to support and enhance full and fair disclosure, via our own patented Internet-based news delivery platform that ensures that material news is available to all market participants in an easily accessible and digestible format.
With all the hoopla about new newswire models, I thought it might be useful to provide some perspective on why we invented our business model and, further, the myriad and increasing benefits we provide to the investor relations and public relations communities. There are two primary reasons companies use a commercial newswire: DISCLOSURE and DISTRIBUTION. While the delivery mechanisms have radically transformed (from messenger, to mail, to dictate, to fax, to FM sideband, to satellite, to internet, mobile and more), the goals are everlasting — transparency and eyeballs.
It’s significant to note that Business Wire has been on the bleeding edge of this technological change. In fact, most of the newswire technology changes these past 50 years have been driven by our company (via our proprietary internet patents and many other firsts in the industry). Having been born in the SF Bay Area, we live and breathe innovation and technology; it’s simply what we do and how we view our business model — everchanging and everlasting.
Companies use Business Wire to both satisfy their regulatory requirements AND get the word out quickly and simultaneously to all market participants. When you use Business Wire, you are assured of satisfying disclosure and getting the broadest distribution possible via our proprietary, secure network. The benefit of ubiquitous distribution is that anyone interested has the opportunity to: buy a product, buy/sell a stock, attend an event, analyze a company, report on a story, blog, tweet, etc.
When your news is on Business Wire, everyone can access it via their choice of platform — and, most importantly, rely on the veracity of the information.
And therein lies the power of our brand — TRUST.
AT THE CORE:
Material news is clearly a company’s most important news; simple logic suggests that it deserves the broadest possible distribution, maximum visibility, an authoritative, credible editorial environment and a permanent, easily accessible archive for future reference. Business Wire has always been a convenient, effective and cost-efficient way to accomplish each of these critical objectives.
Business Wire is also a strong proponent of the spirit and intent of the SEC’s Regulation FD: full and fair disclosure means that all market participants have simultaneous and real-time access to corporate news that may influence their investment decisions. The integrity of our financial marketplace is predicated on the principle of fairness and transparency; and that’s our sweet spot.
Business Wire’s proprietary NX platform (awarded U.S. and Canadian patents, and patent-pending in Europe) provides for equal access by institutional and individual investors. We have been sanctioned as a recognized regulatory disclosure service in multiple international jurisdictions; as such our network security, redundant technical systems and operational procedures are audited annually by the world’s leading accounting firms to confirm Business Wire’s strict and continued compliance with rigorous approval criteria. Simply put, it’s the best system out there — and built in-house, too.
With nearly 200 editors in 21 newsrooms worldwide, we authenticate and validate our members, vet copy for accuracy and legitimacy and catch countless client errors. The coding, keywords and meta-tagging (XHTML) that we add to each release are critically important in how copy is processed by advanced search engines, enterprise IT systems, algo-traders and databases. While much of this behind-the-scenes process is invisible to issuers and investors, it is absolutely critical to the proper parsing and distribution of information given today’s highly intricate IT network architecture.
Lastly, we won’t outsource disclosure. It’s way too complex to leave to someone else or put on auto-pilot.
The other major reason clients use a newswire is distribution; there is no better way to get your message out than Business Wire. We have the most expansive global reach in the industry, capitalizing on strategic relationships with scores of national and international news agencies, major web portals, aggregators and, of course, our own robust and highly viewed website.
Most recently, we’ve leveraged our reach to include the mobile apps of many of our news agency partners, including Agence France-Presse, Associated Press, Canwest and more. Business Wire provides anywhere, anytime, up-to-the-minute access in multiple languages via a choice of mobile platforms. This is just another example of how we have embraced the latest technologies to address the shifting work habits of the on-the-go professional and retail investor — and to make information easily available to all market participants.
Business Wire has also integrated social media and search engine optimization into every distribution, exponentially heightening the online profile of each release. Our advanced metrics provide clients with valuable statistical usage data and online posting reports. Yes, it really is all about pickup; the more eyeballs, the more pickup — which is the start of the engagement process. In our business, less is definitely not more.
We live by the Warren Buffett quote: Price is what you pay, value is what you get. Our mantra is to continually increase the value we provide for our members. As we approach our 50th anniversary, our motivation and commitment is to continue to be the best that we can be. Our passion is to be the industry’s technology leader, and to offer the most innovative and enterprising products and services. And we are equally passionate about our clients, who have trusted us with their important news for nearly a half-century. Our goal is to continue to exceed their expectations.
While Business Wire has continuously evolved with bleeding edge technology, the technology exists to build upon our core business principles: to always provide the gold standard in disclosure and global news dissemination.
Stay tuned… the best is yet to come.
We know there has been much discussion in the past day with regards to the SEC’s statement on websites and disclosure. Our press release issued today indicates that before we can issue a detailed response, we are waiting until the SEC’s interpretive guidance is issued.
However, we continue to maintain that simply posting material news on a corporate web site or using blogs does not meet the spirit and intent of Regulation FD because it is neither simultaneous, nor full and fair. It is Business Wire’s belief that this is not what the SEC intended.
As we have stated in the past, the use of web sites as an ancillary means of news dissemination is, in our view, a best practice. However, web posting or blogs alone are not a substitute for secure and simultaneous push delivery of material news to the disclosure media, financial markets, online web portals, aggregators, and the global investing public. Neither does it accomplish the requirements of the major stock exchanges.