To blog or not to blog? That is the question facing many corporate executives today.  Blogs are just the tip of the iceberg though. As we become an increasingly web-centric society, investors appreciate – and in some cases expect – convenient forms of web-based disclosure.  Many companies have responded to investor demands for information by endorsing corporate blogs and creating investor relations sections of their websites, both of which tread in the murky waters of informal disclosures.  Even the SEC seems to be jumping on board with some forms of web-based disclosure by issuing rules and guidance intended to recognize new media disclosures while keeping them in check.  Now that the SEC is merging formal disclosure with informal routes of the web, what’s next?

A number of companies have jumped on board the “Corporate Blog Express” as a cheap and direct route to shareholder disclosure.  For example, Google, General Electric, and Amazon’s blogs have been hailed as worth following for the informed investor. A few years ago, corporate blogs were seen as simply an informal way for companies to communicate with employees and customers. But last summer, the SEC provided guidance on company website postings as a form of public disclosure.  Now, boards and executives are even more likely to see company blogs as a convenient way to communicate with shareholders on a regular basis. Wells Fargo hosts a blog dedicated to conveying information about the changes taking place following the company’s acquisition of Wachovia.  On its blog, GE recently addressed investor concern that it will be required to raise new capital near term, calling such claims “pure speculation” and “inaccurate”.   Last year, Yahoo even embraced its corporate blog as a tool to communicate with shareholders during the now-infamous proxy battle over control of the company. 

As discussed above, the SEC is increasingly permissive of corporate blogs and other web-based disclosure.  In some cases, the Commission has even mandated web-based disclosure. For example, in its recent final rule on XBRL, the SEC required that XBRL filers post the data on their websites.  In addition, as part of its e-proxy initiative, which we at Westlaw Business have covered before (see Related Resources), companies are required to post proxies on the official website and provide shareholders notice of that availability.  In this vein, global insurer Aflac and countless other companies have recently disclosed that shareholders may both submit and revoke proxy proposals via the Internet.  The SEC has also mandated that companies disclose on their websites certain amendments to, or waivers from, their codes of business conduct and ethics.  Alnylam Pharmaceuticals, like most other companies, states in its 10-K that it intends to disclose such information.  Perhaps in a testament to the times, BB&T specifically states in a recent filing that it intends to disclose any substantive amendments or waivers to the Code of Ethics for Directors or Senior Financial Officers on its company website.
 
The SEC requires that companies make certain filings available on their websites. Beyond that, most public companies have a section of their websites specifically dedicated to investor relations, which features a variety of information that might interest investors and analysts. Chemicals company Hexion, for example, plans to post presentation materials for its upcoming teleconference on its Q-4 results on the Investor Relations section of its website.  And in what is perhaps what is the most common example of information conveyed via corporate websites, MBIA this week disclosed to the SEC that the corporate site would be its mechanism for certain financial disclosures. 

The SEC’s move to recognize corporate blogs was applauded as a loosening of disclosure restrictions, recognition of the far reach of social media, and an effort break up and open up disclosure.  But with the move came risk and potential liability.  Though it is permissible that corporations disclose some things informally, it is also expected that corporate blogs be fair, accurate, timely and clear. Whole Foods found itself in the middle of an SEC investigation after allegations that the CEO had used the company blog to intentionally manipulate a rival’s share price – presumably not a company-endorsed use of the blog.  Apple, on the other hand, learned the hard way that even third party blogs can become a liability. Last year, a so-called “citizen journalist” reported on the website of a major media organization that the company’s popular CEO, Steve Jobs, had suffered from a heart attack. The false rumor caused Apple’s stock to crash and ultimately led FINRA to propose a rule regulating corporate rumors (See Related Resources).  In extreme cases, website disclosure can even result in litigation.  In a recent securities case against AIG, plaintiffs alleged that website disclosures about “shelf space” payments were misleading. The case was ultimately dismissed, but not before burdensome litigation.

Some companies seem to be recognizing the risks of informal disclosure through social media and are taking steps to mitigate those risks and curb undesired informal web-based disclosure. Consider for example, the Telus Corporation, a Canadian telecom firm which, in its amended ethics policy, acknowledged that selective disclosure of confidential information by any team member can create liabilities. Inappropriate disclosure by an employee would include participation in an investment-related discussion forum, chat room, blog or bulletin board on the Internet or the disclosure of “any confidential or material information” about the company. Likewise, Yahoo announced before last year’s annual meeting that it did not intend to solicit proxies via Internet chat rooms. 

So far, websites and formal disclosure documents have not been “birds of a feather” – not all “informal” company information announced via the company blog is disclosed in parallel with the SEC (one notable exception website materials constituting soliciting material, which must be filed by rule). Going forward, these two types of disclosure must start “flocking together” (or at least flying in the same direction), or companies may find themselves exposed to unexpected disclosure liability.  Palm, for example, recognized this and covered its bases when disclosed contents of a CEO blog entry to the SEC after the blog entry was posted. 

Three lessons can be learned from all of this: First, companies should strongly consider how they commence dialogue with their shareholders – every executive statement on a blog should be taken with the same seriousness as a formal disclosure.  In addition, companies must clearly identify the methods of disclosure they endorse so they don’t get caught in a web-based rumor mill that may harm the company, as was the case in the Apple example above.  Finally, despite the appeal of the cost and ease of web-based disclosure, companies should remember that Reg FD fundamentally changed disclosure standards by mandating that all publicly traded companies disclose material information to all investors at the same time.  So far, the Commission has not superseded that regulation to take web-based disclosure into account. Consequently, unless a specific exception is made, the Internet alone is not sufficient to satisfy SEC disclosure requirements.

Over the past year, the SEC has addressed a number of cutting edge disclosure issues, including Internet access to disclosures, web-based disclosure, corporate blogs and e-proxies.  With the rapid evolution of Internet technology, there is no end in sight for how far the boundaries of traditional disclosure may go.  Therefore, the SEC would be wise to formulate general disclosure rules and standards that can apply across the boundaries of technological development, rather than attacking new media avenues piecemeal.  The forward thinking company, meanwhile, will continue to seek out clever new ways to keep the savvy investor abreast of company happenings. Twittered disclosures, anyone?

Published: March 5, 2009