The MoPR Blog

At the beginning of August I wrote a post about the then-pending changes to the guidelines from the Securities and Exchange Commission (SEC) regarding the notorious Reg-FD – the set of SEC rules guiding fair disclosure of material information to the public. Six weeks later, all hell has broken loose on the stock market (for myriad reasons), and in the news today comes word that even John McCain would fire Chris Cox, the SEC chairman who until now was being credited for bringing the commission into the 21st Century.

But I want to go back to something I said in my August 1 post:

“Instead of waiting for the SEC to catch up to technology advances, social media and blogging companies may want to drive technology advances to catch up with the appropriate need for fair disclosure.”

At issue in this post was whether the SEC was going to allow publicly traded companies to issue material information via company websites and blogs. The SEC position was that at the time Reg-FD was written there were no such phenomena as social networks and blogs, and therefore regulation needed to catch up with technology.

Although a huge fan of social media and true believer in the ability to use them for dispensing news and opinions, I wanted to sound a note of caution. Unlike the wire services that likewise urged the SEC to reconsider whether material information may be distributed via blogs, Mobility PR won’t face an economic impact from the rule changes. My position comes from working in corporate communications at public companies and understanding the need for simultaneous and widespread disclosure of information that impacts stock price.

My concern in August was that while social media is the communications platform about which everyone is buzzing, it’s still very much nascent and in many instances as yet unproven. The purpose for disclosing material non-public information – that is information known only inside a company that once made public will cause a change in the stock price – is so that all investors have access to important information at the same time. Without a simultaneous and widespread release of information, some investors will have an advantage over others. The best method for simultaneous release of information, still today, is the traditional newswire service. Using the blogosphere for such a release assumes that everyone investing has caught up with technology – and perhaps more important, that technology has caught up to the purpose of this regulation.

Reg-FD is designed to protect investors. I think the past two weeks have demonstrated that investors do need protecting. Not from the violent mood swings of the stock market this week (that’s called “inherent risk”), but from incidents like the one that happened last week. The SEC commissioners should pay very close attention to what happened when a “glitch” led to a massive sell-off of United Airlines stock, resulting in a price drop so fast and so large that it forced NASDAQ to stop trading on the stock.

Here’s what I’ve discerned from the reports on the events of last week. On September 8, 2008, a Chicago Tribune online news article from December 10, 2002 about United Airlines’ then-plan to seek bankruptcy protection was inadvertently recirculated by Income Securities Advisors to a Bloomberg stock market website. Investors believed the article to be current news (because all news on these sites is supposed to be current), and the sell-off began. Before NASDAQ halted trading of United, shares had fallen from about $12 to $3.

When a mistake like this is made, everyone wants to blame someone, particularly the parties involved who want the blame to rest with someone else. So the Tribune Company, which owns the Chicago Tribune, laid blame at the feet of Google. A company press release issued two days after the event begins:

“Tribune Company today said the confusion surrounding a 2002 Chicago Tribune article on the Internet this past weekend started with the inability of Google’s automated search agent “Googlebot” to differentiate between breaking news and frequently viewed stories on the websites of its newspapers.”

Google of course disagrees and thinks the fault lies elsewhere. A Computerworld blog post by Preston Gralla I think best encapsulates the true essence of the problem, and why the SEC needs to pay close attention. Preston writes:

“So who’s at fault here? The Tribune Company, Google, and every other Web site that uses automation rather than human intelligence for determining what is news. The old story showed up as a top link in the South Florida Sun Sentinel because the story was clicked on once during a late hour when there was little traffic to the site. That made it a “top story,” and so it was automatically put near the top of the page. The Google bot saw it, and assumed it was a new story. Things spiraled out of control from there.”

That the fault ultimately lies with the automated mechanisms involved in collecting and distributing news – in this case specifically to investor news websites – should prove to everyone that the online/social media apparatus are not yet mature enough to satisfy the intent of Reg-FD.

What is exposed in this instance is not vulnerability of social media, but an opportunity for social media companies to build a better newstrap. When protecting the public trust, it’s not always a question of regulation catching up to technology. In the instance of using social media to communicate material information to investors, the question must be whether technology can catch up to regulation.

We invite your comments.

The chatter among public relations and investor relations practitioners this week is about pending (read that word again for emphasis, please) new guidelines from the Securities and Exchange Commission (SEC) regarding the notorious Reg-FD – the set of SEC rules guiding fair disclosure of material information to the public. On Wednesday this week, the SEC commissioners voted unanimously to “provide new guidance to public companies about how to comply with the securities laws while developing their Web sites to serve as an effective means for disseminating important information to investors.”

While those of us with Reg-FD and Sarbanes Oxley publicity regulations battle scars are waiting to see the official guidelines, some people are couching this vote as the final nail in the press release coffin. Let’s not be too hasty.

Fundamentally, Reg-FD protects investors and prospective investors by making disclosure of material non-public information simultaneous and widespread. In other words, a company needs to broadcast the disclosure of material information – information that will affect a stock price once made public – so that all investors can have access to it at the same time. Traditionally, this has meant using a newswire for such disclosure so that the information can be seen far and wide, and be easily discoverable on the Internet.

The SEC’s vote will (may?) amend this practice to allow Reg-FD disclosure on company websites in, what one IR website refers to as “certain circumstances.” Some people have interpreted this decision to mean that blogs can now be used to disclose earnings information to investors and therefore the press release is dead.

That’s probably too overstated and certainly premature. The SEC guidelines are not yet public information. What is public, as of today, is the 120 page (excluding the appendix) “Final Report of the Advisory Committee on Improvements to Financial Reporting to the United States Securities and Exchange Commission,” which on page 108 states:

The SEC has issued a series of interpretive releases and rules addressing the use of electronic media to deliver or transmit information under the federal securities laws. The SEC issued its last comprehensive interpretive release on the use of electronic media, including corporate websites, in 2000. Since 2000, significant technological advances have increased both the market’s demand for more timely corporate disclosure and the ability of investors to capture, process, and disseminate this information. Recognizing this, the SEC has adopted a large number of rules that mandate, permit, or require disclosure of the use of corporate websites to provide important corporate information and developments. The SEC has voted to publish an interpretative release to provide guidance regarding the use of company websites under the Securities Exchange Act of 1934 and the antifraud provisions of the federal securities laws.

Nowhere in the 120 pages of the report or the 60 or so pages of appendix will you find the words “blog” or “social media.”

That’s not to say blogs, forums or social networks won’t be impacted. In fact, in the press release issued by the SEC, Chairman Christopher Cox says, “The last time the SEC issued guidance in this area, the idea of ’social networks’ hadn’t yet been developed, and creating a social network where shareholders could meet and exchange views was barely imaginable. Ongoing developments in technology have increased both the markets’ and investors’ demand for more timely company disclosure on the Web, and in turn, raised new securities law issues for public companies to consider.”

Cox’s tenure as chairman of the SEC has been regarded by many as leading the SEC to live in the modern world. No question there is more consumable, and therefore more valuable, information available on the web than in the lengthy tables and text contained in a form 10K – the legally required content of an annual report – for example. That’s really cool, and great news for investors. It may even be great news for web design firms and companies like Wordpress. Likely this does not spell disaster for Business Wire, PR Newswire or Marketwire, nor for the press releases they issue.

No one knows yet for sure, because as mentioned before, the “interpretive release” from the SEC is not yet available. TheMoPRBlog asked Business Wire, PR Newswire and Marketwire for their reaction to this news, and all three had no comment to make because there is in fact nothing official yet about which a comment can be made. Once the SEC issues its guidance, these newswires will issue their own.

What may be of more concern to the PR profession is the notion of “under certain circumstances” as raised in the first sentence of the IR Web Report’s article. By way of analogy, think of how another government institution uses this same notion: stuff you pay for is tax deductible… under certain circumstances.

Guidelines are better when the issues are both easily understood and the outcome is binary; you either can do something, or you can’t. Tax laws aren’t binary, and therefore a great many people are forced to rely on outside help when preparing their tax returns, whether that help comes from a tax accountant or from software. The implications of adding a swath of gray to what is now black and white is troubling. Not only does it mean confusion and the possibilities of making mistakes (mistakes made by public companies can result in fines or even jail time for CEOs), it also creates an environment for potential abuse.

When discussing this issue with a corporate counsel friend of mine, he said “adding a subjective element to this process will open the door for mischief.”

Those like Brian Solis, of whom we’re big fans, who think this is the death knell for the press release are focused on form and not substance. Maybe the social media press release will replace the old text-only press releases of years past. The wire services themselves now offer social media wires and XHTML-based content, and our agency has invested in the in-house development of our own social media newswire to issue these social media enhanced news releases, so it’s fair to say that the traditional release will evolve. But changes to the SEC guidelines are probably not going to eliminate the need to cast a wide net so that material non-public information can be made simultaneously available to all investors, nor should they. Not all investors use social media, despite Jonathan Schwartz’s – and quite frankly, Mobility PR’s – desire to make social media ubiquitous.

Instead of waiting for the SEC to catch up to technology advances, social media and blogging companies may want to drive technology advances to catch up with the appropriate need for fair disclosure. TheMoPRBlog guesses that the forthcoming guidelines from the SEC will create the environment where such advances will be both compelling and profitable.

We invite your comments.