Sun’s Schwartz seeks SEC support to spill stuff directly to Shareholders (sorry…)

posted by Brendan Hodgson

Interesting article in today’s LA Times. Jonathan Schwartz, Sun Microsystem’s CEO, wants to be able to disclose material information via his blog.

This is a fascinating issue, and raises some important questions. For example, the article states:

The SEC requires companies to make announcements about topics including profits, new products and mergers in a filing with the agency or a news release so all investors can learn of news simultaneously. When the proposal was passed, the SEC said in 2000 that posting information on a website would “not by itself be considered a sufficient method of public disclosure.”

To me, in 2006, this seems rather backward thinking. How, for instance, is a news release deemed more of a method of public disclosure, particularly given that the public rarely view  news releases directly (although that is changing given the increasing reliance on RSS, as well as direct-to-stakeholder communications via corporate web sites themselves), and it is at the discretion of a media outlet to “broadcast” the information contained in that release.

At the same time, and to throw the ball back into Sun’s court, to say that Sun’s website, because it garners 1 million hits per day, makes that a legitimate vehicle for disclosure also raises questions around where in the site the visitor goes (that information could easily be missed), and how do we even determine what the numeric tipping point is?

Personally, however, and despite the above questions, I agree with Michael Dillon and Michael McCoy, who are also quoted in the article:

Michael Dillon, general counsel of the Santa Clara, Calif.-based computer company, wrote in a separate blog that the Internet was the most effective means of “timely dissemination of information to the widest possible audience.”

“Disclosing information on the company’s website should be sufficient,” said Michael McCoy, a former attorney in the SEC’s corporation finance division now in private practice at Bryan Cave. “It’s reasonable to assume that an investor in a company would be just as likely to read the company’s website as they would read SEC filings.”

While your responsibility is clearly to your shareholders, is it also not your shareholders’ responsibility to regularly track ‘the companies in which they have invested? Given that the means now exist to access and receive that information directly from the source in a timely fashion, and that it could be argued that a certain “tipping point” has been reached in terms of internet ubiquity within most major markets (is 80% internet penetration not an equally valid number?), why should we rely on increasingly outdated methods of communications to disclose information? When was the last time you read an SEC filing?

Update: IRWeb Report’s Dominic Jones offers some useful commentary on how and when a company’s website should be used, and explores several scenarios. A good summary of the issues.



Boyd Neil

The fact is that a combination of a prominent posting on a company’s home page — perhaps with a mandatory RSS link so that investors tracking a company would know immediately when an annoucnement is made — and a CEO’s blog post would provide  exponentially greater public disclosure than a news release posted on soemething like Sedar.



Larry Parnell

Colleagues and readers – these are all excellent points and should be sufficient to move the SEC – but in my view they will not do so – at least not yet. Keep in mind that the SEC (while an independent regulatory body) is also a political organization (Commisioners are appointed by the President and approved by Congress I believe) and there are few (if any) more political topics now in the US then keeping shareholders infomed of corporate progress (or the lack thereof. In my view, the SEC will follow in the best tradition and split the difference – allowing website disclosure and/or maybe even blog disclosure just as long as the company posts a news release with the same info in the "traditional media"

Any change in regulations – especially about disclosure – will move at a glacial pace at the SEC and would require extensive study, hearings, panels of experts and all that Beltway stuff before it moves. Think of the vested interests involved in arguing against this – unions, whose pension funds are major investors,("our workers don’t sit in front of a computer all day or have Blackberries") traditional news services (whose technology may be made obsolete) retail brokers (who might be bypassed soon anyway) and older investors (perhaps less tech savvy). Any and all of these folks could show at an SEC open hearing and make their arguments – leading to gridlock.

Unless that is if the SEC agrees that the internet/blogs are valid disclosure(for most folks) BUT let’s keep the old ways too and makes sure that everyone gets the news as close to simultaneously as possible. Still, this would be progress comapred to the current more narrow definition.



Colin McKay

Good points, Larry. I guess more traditional parties – like the SEC – would worry that insider traders reading the CEO’s blog could "use the Schwartz"* to profit on short term movements in the market as a result of significant blog postings.

*shout-out to Spaceballs!

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