The Ultimate Irony

July 1, 2010

– by Neil Hershberg, Senior Vice President, Global Media

Neil Hershberg

Neil Hershberg, SVP - Global Media

It is perhaps the ultimate irony: playing fast and loose with the facts to promote disclosure and transparency.

With online disclosure tools becoming an integral part of today’s expanding disclosure mosaic, the “window of opportunity” for web disclosure proponents to capitalize on their advisory services is closing fast.

The proliferation of newswire service providers offering web-based investor-relations solutions as part of their product portfolio has marginalized these reform advocates. The newswires have integrated the power of the Internet into an expansive multi-channel disclosure matrix that leverages a range of communications platforms. The swift and successful industry transformation has largely relegated web disclosure strategists to the sidelines; the need for their consultative services is drying up faster than a passing shower in the Sahara.

With a need to reinvent themselves to remain relevant in this revamped landscape, some have resorted to distasteful tactics that border on desperation. Business Wire’s most valuable asset is its reputation; it also prides itself on its commitment to full and fair disclosure for ALL market participants. We therefore cannot let gross misrepresentations and egregious arguments go unanswered.

Dominic Jones has long used his blog, IR Web Report, as a bully pulpit to sanctify his views. Jones finally confirmed last week what we have said all along: He is simply a vendor in blogger’s clothing, as opposed to an impartial observer. His latest offering is a new “Online Disclosure Model.” (The cost is $575 but, if you had acted before June 30, it would have been yours for only $488.75.) No word on whether he is throwing in a free set of Ginsu knives if you call within the next 15 minutes.

In touting his latest miracle disclosure tonic, Jones’ game plan is to sow seeds of doubt and fear among issuers, making a raft of unsubstantiated allegations that have absolutely no basis in fact.

It is time to separate fact from fiction, focusing on the most flagrant of Jones’ many misrepresentations:

The Claim: “New regulations and new web communications technologies are disrupting established practices. The old model is under pressure and increasingly incapable of meeting the needs of companies and their investors.”

The Facts: The SEC has not issued any new rules governing disclosure compliance requirements since Reg FD was enacted in 2000. The agency’s Interpretive Guidance Release, published in 2008, was just that – guidance, not a rule change. Recent changes in exchange listing requirements simply synched their disclosure guidelines with Reg FD’s decade-old compliance criteria.

The commercial newswire industry has adapted remarkably well to the changing regulatory environment. Business Wire, for example, recently launched InvestorHQ, which features comprehensive self-service content management tools, built-in search engine optimization, social media engagement features, and advanced measurement analytics. Business Wire releases are posted simultaneously on its hosted IR web sites, ensuring equal, real-time access across a range of platforms. Additionally, Business Wire has incorporated RSS feeds, XHTML and other web tools to provide even greater distribution, functionality and flexibility.

The Claim: “…companies have a false sense of security [re compliance] . . . Disclosure is fragmented . . . exposing companies to growing compliance risks.”

The Facts: The web-based disclosure model is the major contributor to the fragmentation that threatens our information infrastructure. The current disclosure system serves the information needs of ALL market participants in an equitable manner. Full-text announcements are readily available via a cross-section of traditional, online and mobile platforms, providing real-time, simultaneous access for institutional and individual investors, as well as allowing issuers to tell their story directly to the investor universe in their own words.

The current disclosure framework also is fully XBRL-compatible, which enables investors to digest data more intelligently and efficiently. Web disclosure hinders the seamless implementation of interactive data initiatives, creating a splintered data environment that limits the benefits of a universal financial reporting format.

The Claim: “It is becoming increasingly clear that companies which continue to rely on full-text PR wire distribution for regulatory compliance are in fact exposing themselves to increased compliance risk and a potential backlash from investors . . . “

The Facts: The simple reality is that issuers and investors see the current system as eminently fair; Reg FD was widely perceived as ending many of the previous practices that favored select investors. There have been no torch-bearing investor insurrections that we know of where the levelness of the playing field was the incendiary issue.

Market observers worldwide agree that our disclosure model is the “best of all possible worlds.” (with apologies to Voltaire). After studying alternative options, international jurisdictions – including the European Union – have reached similar conclusions; the EU adopted the North American disclosure model as the backbone of its 2007 Transparency Obligations Directive.

Business Wire’s patented news delivery system delivers material news simultaneously and in real-time to ALL market participants. We have been awarded patents in the United States and Canada, and we anticipate a patent in Europe in the very near future. We will have passed muster in three major international jurisdictions, which subjected our applications to their own rigorous approval processes.

Jones’ latest rant was likely sparked by the conclusive findings of NIRI’s authoritative membership survey on web disclosure, which unequivocally confirmed that common sense still prevails in the investor relations community. The industry’s reaffirmation of its commitment to best practices was welcome news to investors–and a sharp rebuke to Jones’ one-dimensional crusade.

Jones was undoubtedly disheartened to see that a higher percentage of respondents today are relying on paid press release services as a primary disclosure vehicle than before the SEC issued its Guidance Release. The small percentage of senior IR professionals that have made changes to their disclosure practices have ADDED new distribution channels, a strategy that Business Wire has always advocated. The IR industry clearly signaled that it was not ready to jettison a proven disclosure system that is cost-efficient, effective and equitable.

The Claim: “. . . it may no longer be safe for companies to assume that PR wires satisfy Reg FD disclosure.”

The Facts: The important role of the press release in satisfying disclosure has been acknowledged by the world’s most prominent regulatory authorities. In addition to Reg FD itself, CIFiR, an independent advisory group appointed by the SEC to examine ways to improve the financial reporting process, specifically referenced the value of full-text press releases in fair disclosure.

“We do not share the concerns of some commenters that Regulation FD will lead to press releases being supplanted as a regular means of corporate disclosure. In many cases, a widely-disseminated press release will provide the best way for an issuer to provide broad, non-exclusionary disclosure of information to the public,” noted Reg FD.

Securities regulators and stock exchanges in other major financial centers – including the UK’s FSA, France’s AMF, and Canada’s TSX – specifically cite a broadly distributed press release as the key to regulatory compliance.

The Claim: “. . . the diminished primacy of the PR wires as disclosure tools.”

The Facts: As already noted, the NIRI membership survey shows that the use of paid press releases as primary disclosure vehicles has actually increased since the publication of the SEC’s Interpretive Guidance Release.

The Claim: Jones says that smaller, less followed companies are getting “little measurable reaction from investors” when they use a PR wire.

The Facts: Simple logic suggests that smaller, less followed companies are among the biggest beneficiaries of using a PR wire service. Their full-text announcements are carried full-text on a half-million Thomson Reuters terminals, some 300,000 Bloomberg terminals, and on the screens of virtually every other major financial information provider.

Additionally, their news is carried full-text on all major financial portals, including Yahoo! Finance, Dow Jones MarketWatch, and hundreds of other consumer, professional, and industry sites.

That’s tremendous bang for the buck for small companies seeking investor visibility. In my book, PR wires are an absolute must for smaller companies seeking to carve out an investor profile; Jones is grasping at straws in a desperate bid to discredit the news wire industry, which clearly provides outsized value for the distribution dollar.

The Claim: Citing a grossly inflated estimate of the “average” cost of an earnings release, Jones warns of the supposed “chilling effect that PR wire fees have on companies’ willingness to communicate relevant, but not necessarily material information to their investors.”

The Facts: When asked to rank the factors that influence their decision to issue a press release, versus an alternative channel, respondents in the recent NIRI survey ranked, on average, materiality as the most important factor, and cost as the least.

The Claim: “Inconsistent disclosure dissemination leads to uncertainty for investors.”

The Facts: Independent academic research provides strong empirical evidence supporting the value of broadly disseminated news releases. Dr. Eugene Soltes, a Harvard University business professor, has studied this issue exhaustively, concluding: “Research has shown greater dissemination improves stock liquidity and lowers volatility while enhancing a firm’s visibility; it can even lower the cost of capital. Thus, IR departments should be wary of making changes to news distribution that could diminish dissemination.”

The Claim: In his “Online Disclosure Model” synopsis, Jones writes: “[T]here is widespread uncertainty among investor relations and public relations professionals about how best to adapt their practices to this new reality. Principles-based regulations provide little certainty and vendors of competing services are at odds with one another over which approach is best. In such an environment, it can be hard for business communicators to know what to do.”

The Facts: Hello? Isn’t this what Business Wire has been saying since the SEC’s Interpretive Guidance Release was published nearly two years ago? We’ve said this from Day One . . . and have firmly stood behind our stance ever since.

Ironically, Jones was among the staunchest and most outspoken supporters of the SEC’s Interpretive Guidance Release; his zeal evoked images of Charlton Heston hoisting the Ten Commandments on Mount Sinai.

Either reality has finally set in, or Jones has concluded that it is in his commercial self-interest to now distance himself from the SEC Guidance Release. So much for the strength of his convictions.

While Jones pontificates about disclosure issues from his hermit kingdom north of the border, Business Wire brings a real-world, hands-on perspective to the disclosure debate.

We have proudly been at the nexus of the disclosure process for nearly a half-century, interacting on a daily basis with key stakeholders, including issuers, media, regulators, exchange officials, and leading marketplace infomediaries.

It’s time for Jones to leave the safety of his cocoon, and to practice true engagement – he needs to venture outside his comfort zone of like-minded followers. There is a much broader conversation underway that Jones would be wise to listen to.


Web-Based Disclosure Still Not Ready for Prime Time

July 29, 2009

The one-year anniversary of the SEC’s Interpretive Guidance Release on web-based disclosure will likely pass unnoticed this weekend– and for good reason. In the eyes of most market participants, it has proven to be a non-event that has gained little traction among issuers reluctant to tinker with a proven and effective disclosure system that works exceptionally well.

In retrospect, there are several reasons why the SEC’s Guidance Release failed to become the landmark event that its supporters had hoped for:

  • Within weeks of its issuance, the global financial system was in danger of imploding, diverting the attention of the media, the investment community, and other key audiences. As the markets teetered, most constituents were oblivious to the change — and a good many continue to be unaware of its potential implications to this day.
  • The fact that web-based disclosure was a pet project of former SEC Chairman Christopher Cox, vilified by some observers in the wake of the financial crisis, wasn’t a selling point either.
  • At the end of the day, however, the major reason why the SEC’s Guidance Release has had marginal impact is simple: The financial marketplace recognized its very real shortcomings. In the process, investors have tacitly reaffirmed a proven regulatory disclosure model that has emerged as the global gold standard.

The orderly flow of price-sensitive information to all market participants — available simultaneously, in real time, and without restrictions, to institutional and individual investors alike — was judged to be too important to be left to chance.  RSS feeds, corporate blogs and standalone web postings are no substitute for the broad-based distribution of a news release via a secure multi-channel distribution platform.

The SEC’s Guidance Release purposely lacked clarity and definition; the variables to meet compliance standards ultimately proved far too vague to justify the risks.

Furthermore, we see constant reminders of why credible information channels are so important. Just this past weekend, Reuters rejected a faxed release originating from the Middle East about a purported takeover that was later exposed as being fraudulent. The editor on duty immediately questioned why a release of this magnitude wasn’t transmitted via a recognized commercial news wire such as Business Wire — and he correctly decided not to run the story.

There is a lot more to the disclosure process than simple “information access.”  Authenticating the source, editorial review, and secure networks all contribute to the effective functioning of the global financial markets. We’ve spent nearly a half-century earning our stripes as a reliable, credible news source, which is more important than ever as governments grapple to restore financial stability and transparency.

We certainly don’t want to seem dismissive of the SEC’s Interpretive Guidance Release. In the final analysis, it cast a much-needed spotlight on important new technology tools that help to expand  investor outreach.

We stated from the outset that corporate web sites, blogs and RSS feeds are indeed valuable adjuncts that can help get the corporate message out. We are certainly huge proponents of technology and, in fact, use many of these complementary tools to augment our patented news delivery network.

It is reassuring to note that once the initial hoopla surrounding the SEC’s Guidance Release died down, reason ultimately prevailed. Slowly emerging is a hybrid approach that retains the broad-based disclosure model at its core, while also including the ancillary communications channels cited in the agency’s position paper.

We’ve seen this evolution before — our own distribution network went from telephone lines, to satellite systems, to Internet protocol. Along the way, we folded in fax, e-mail, RSS feeds, blogs, IR web sites, and any other communication tool that will increase “full and fair” disclosure.

The real winner now that the dust has finally settled: Investors who are enjoying the best of all possible worlds.

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


Dominic: “We’re Just Not That Into You”

February 6, 2009

While we are not in the habit of engaging in discourse with the blogging equivalent of someone standing in the middle of Park Avenue screaming at the top of his lungs that the world will end unless we sinners repent, it is amusing to us that Mr. Dominic Jones seems to become more and more unhinged as we, as is our right, continually highlight and crystallize the many valid benefits of disclosure via our simultaneous news distribution platform.

Everyone is entitled to their opinion, and we would be happy to engage in a serious, reality based dialogue with anyone who wishes to discuss the case for website disclosure.  We’ve done so numerous times, in a highly appropriate and professional manner, with the likes of the SEC, the New York Stock Exchange and Sun Microsystems. Though we may not always agree, we all still respect each other.

However, let us be clear that we will not, from this point forward, get ourselves involved in any conversations, online or otherwise, with any self-styled disclosure evangelists who appear unable to have a reasoned, mature, philosophical discussion about a topic on which we disagree, having instead to resort to childish tantrums of name-calling (surprised we haven’t seen “liar, liar pants on fire” from him yet) and even resorting to characterizing highly respected members of the financial media who do not share his opinions as “pimps”.  We choose not to muck around in that mud.

So let us conclude by saying we believe in the value, validity and integrity of our business, and would gladly continue to go into great detail about that with anyone who wishes to hold a reasoned, adult conversation on the topic.  And if, in the end, we cannot convince you of our convictions, we promise not to call you a liar.

Gregg A. Castano, Co-Chief Operating Officer, Business Wire


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