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Corporate Secretary, August 1, 2010 article


Corporate Secretary

New lines of communication

Dissemination of corporate information gets more complicated as issuers contemplate the new DIY options

In 1988, sending out news was a simple affair – your chief financial officer would sign off on the quarterly earnings, and the public relations office would then fax the press release to one of the various dueling business news distribution services. What they did with it was anyone’s guess, but the information went to the wires and the Wall Street Journal, and everyone was happy.

Today, the dissemination of information is a carefully regulated, technologically compounded industry. Companies aren’t simply charged by the word, as they used to be; instead, they can choose from a shopping list of options. Expectations for information are exponentially higher now. There is ambiguity, however: what does ‘instant’ mean? How does the SEC define fair and equal access to information?

The distribution people who are quarterbacking the changes maintain they are making communications faster and easier – and often cheaper. But a company has to make some hard choices about how much information it wants to put out there, who needs to see it, and how much more sophisticated than mere on-screen text it needs to be. Some providers even offer ‘DIY’ options in addition to their showier multimedia packages; these are cheaper for companies, as they are priced by distribution rather than word count.

A world of options
For example, it’s possible for an investor relations officer (IRO) or corporate secretary to prepare and proof a release announcing quarterly earnings, and time to the second exactly when that information should show up on BlackBerrys and Bloomberg terminals. The release might have the full EDGAR report as an attachment. It could include a video message from the company president or chairman, analyzing the news with quotable phrases. The release might contain photos of a new store or product, or include a 15-second video clip about some environmental or workplace innovation the company is particularly pleased about.

Making material information public satisfies the letter of disclosure laws, but these services can also deliver your information onto the keyboards of business bloggers, place it on industry-specific websites, insinuate it into social media and – possibly most important – follow it up with detailed metrics showing exactly who reads your release, and what they do with it. Most providers now offer several tiers of service, depending on a company’s investor relations or governance budgets, and its distribution ambitions.

The venerable PR Newswire and Business Wire are sporting all sorts of new bells and whistles, while newcomer GlobeNewswire, a division of NASDAQ OMX, is building on a more modern base. Even Thomson Reuters, an old-school provider with a distinguished multimedia business pedigree, has launched an enhanced distribution service.

‘Originally, we fed the newspapers, the Associated Press and everybody else,’ says Scott Mozarsky, executive vice president of commercial operations at PR Newswire. ‘It was all about text communication. Now it has become possible for companies to engage in much richer and more compelling ways.’

On the other hand, about a half-dozen public corporations, led by Google, are now posting material information directly on their websites and leaving it at that. They are still filing their Ks and Qs and other mandated material to the SEC but they are cutting out the push, to use distribution language, and gambling that investors, analysts and others will find the information on the website for themselves.

Google’s site is a game changer, a technology-fueled experiment in corporate hubris that has stabbed news distribution services in the heart and forced IROs everywhere to question the nature of communication. If we post on our website, will the news get lost? Will it satisfy Reg FD and SEC regulations? What if nobody notices?

Although slow to catch on, self-posting does appear to be legal. In the summer of 2008, the SEC issued  guidance stating that publicly traded companies could, in effect, forgo the whole issuing of press releases and simply post their EDGAR filings on their websites. It was a change that, while important, went largely unnoticed at the time. Google was one of those companies that decided to test out the SEC rules, and it believes self-posting is both legal and efficient. Many investors in the company agree; the dissemination community is not so sure. It could ruin the business if it catches on.

The guidance states that, given ‘the development and proliferation of company websites since 2000, and our expectation that continued technological advances will further enhance the quality, not just the quantity, of information delivered and available to investors on such websites, as well as the speed at which such information reaches the market,’ the SEC believes the internet is uniquely useful in ‘promoting transparency, liquidity and efficiency in our trading markets.’ It also notes that approximately 80 percent of mutual fund investors have internet access at home (see 'Commission guidance on the use of company websites').

The 21-page document has been endlessly pored over by corporate IROs, traditional news distribution points and institutional investors concerned they will miss something important. The language is so dense and the implications are so broad that it took nearly two years for the first company to test the waters.

In April, Google announced that it ‘intends to make future announcements regarding its financial performance exclusively through its investor relations website,’ thereby creating the expectation of a veritable sea change in reporting.

‘To avoid potential Regulation FD liability, a company considering adopting exclusive website disclosure must satisfy the criteria in the SEC’s August 2008 interpretive release to ensure the disclosures will be considered publicly disseminated,’ wrote Albert Rota, a lawyer in Jones Day’s Dallas office, in an opinion published earlier this year by Corporate Secretary.

‘The company should establish its website as a ‘recognized channel’ of disclosure by providing its website address in all press releases, SEC filings, and online posts,’ Rota continued. ‘One measure of whether a company’s website constitutes a recognized channel is the extent to which the general media reports on announcements made exclusively through the company website. Thus, a company with less of a market following or smaller market capitalization may need to affirmatively alert media outlets before moving to exclusive website disclosure of financial information.’

A matter of opinion
Not everyone is on board with Google’s innovation, however. ‘Some investors are not online,’ says Tim Smith, an executive director at the socially conscious Walden Asset Management in Boston. ‘A website-only policy would discriminate against those without regular internet access, who are primarily retail investors.’ Smith is all for full disclosure on company websites, he says, but feels investors should have the option to receive electronic or even paper notices if they choose.

In a recent study of IROs conducted by the National Investor Relations Institute, only 7 percent of respondents had recently changed their disclosure practices, and only another 7 percent had any near-term plans to do so.

Google is a unique case, however, and it appears that few other companies are as suited to make the change as the internet giant. Google has been posting all filings, press releases and conference calls on its website since 2005, and has already set up a distinct and detailed portal just for investor relations.

This is the kind of move that could put a news distribution outfit out of business so, unsurprisingly, PR professionals advise against it. Self-posting won’t necessarily work, they say, unless your company is the kind of rare beast that everyone pays constant attention to – and your company probably isn’t that.

‘Whatever Google does is news, big or small,’ says Demetrios Skalkotos, senior vice president of global corporate services for NASDAQ OMX in New York. ‘If this will work for anyone, it might work for them. For other companies, it’s not a good idea; not without sending out a notice to tell the media and everyone else that the news has been posted.’

Google can probably pull it off, experts concede. Apple may be able to as well, though so far it has chosen not to go down this route. Whether recent converts Expedia and Marathon Oil can make a go of it is still an open question. Both companies are hedging their bets, for now, by sending out notices, or RSS feeds, to let investors, analysts and the media know that something new has been posted.

NASDAQ has recently followed the lead of many foreign stock exchanges, which have long sent out press releases for listed companies. Traditionally the release was just a few sentences of introduction followed by a link to forms or filings the company had just submitted to the government or regulatory authorities, but things have changed significantly. Last year NASDAQ acquired GlobeNewswire for its foray into business news dissemination. The company will, effectively, send out press releases for its listed companies for free, in conjunction with a suite of other corporate services. Skalkotos acknowledges that the newly announced service does not yet have clients, but is optimistic that it will by the time of the rollout.

Changing of the guard
This is the kind of competition that may well spell trouble for the original corporate press release distributors, Business Wire (established in 1961) and PR Newswire (established in 1954). Both have scrambled to come up with new products and services to keep their businesses from going the way of the typewriter repairman and the broad tape. Both have thousands of corporate clients in the US and internationally, and both have in recent years upgraded their technology and expanded their offerings.

Observers and competitors are watching Business Wire to see how the venerable company manages. Some IROs claim that senior Business Wire officials have implied that disclosure regulations require an issuer to use an established third-party service rather than self-posting or going with an upstart. Company officials deny this is their intention.

Neil Hershberg, senior vice president of global media at Business Wire, says his company is well positioned to compete with newcomers in an expanding market. He says Business Wire has many of the same features the others offer, plus 200 editors in 31 offices to catch copy mistakes, fix transposed numbers and insert coding and keywords to optimize a corporate release’s visibility in internet searches.

‘Distribution on Business Wire satisfies Reg FD by making information available to all market participants,’ Hershberg explains. ‘Whether you’re an analyst or trader with a Bloomberg terminal or someone sitting at home with a laptop monitoring your portfolio on Yahoo! Finance, you’ll get the information you need at precisely the same second.’

Hershberg says the SEC guidance has ‘muddied the waters’ of fair and equal information, in part by disadvantaging the casual investor. ‘Web disclosure is fine as long as you do it in conjunction with a wire release, and send it to the press and individual investors alike,’ he states, pointing out that even the Motley Fool missed Google’s last quarterly numbers. ‘You’re dealing with a microsecond trading environment today.’

Despite these reservations, some very large and very successful companies are cutting wire services out of their information distribution models. It is unlikely that this trend is going to stop, and it means newswires and investors will have to adapt to the new reality or else run the risk of losing relevance. Companies do not take the step lightly, as they want investors to be well informed and up to date with the corporate story – something that is likely to become even more important following the new disclosure requirements that are part of the recent financial reform. 

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