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Is the Self-Published Earnings Release Really A Threat to Transparency?

Is the Self-Published Earnings Release Really a Threat to Transparency?

This New York Times DealBook piece seems to thinks so.

To add a little context: This past April, rather than issue its traditional earnings release, Google, Inc. issued a media advisory announcing the availability of its first quarter earnings and directing readers to its own investor relations website.  Google also indicated in the advisory that future earnings releases would be made available exclusively through its investor relations website, as opposed to being disseminated through a newswire service.

Google’s not the only company, or even the first, to move away from newswire services.  Other examples include Expedia, Inc., Marathon Oil Corporation, SVB Financial Group, and, most recently, Microsoft, which announced on October 27 that it would be publishing its earnings release through its own investor relations website.

This seemingly growing trend was brought about, in part, by the Securities and Exchange Commission’s August 2008 release of interpretive guidance on the use of company websites.

The DealBook piece offers up an interesting perspective on the trend, arguing that:

In an age of high-frequency trading when every millisecond counts — even in after-hours trading — the move toward companies’ distributing earnings and other market-moving information via their Web sites rather than through wider distribution channels raises some serious questions about transparency. …

If every company were to release all of its market-moving news only on its Web site, investors would have to traipse around the Internet in search of the market-moving information.

The premise seems to be that the Commission has “bungled its disclosure rules” by issuing some “vaguely worded guidance” (i.e., the August 2008 interpretive guidance) that permits a company to release important information through its website, rather than through a traditional newswire service, thus allowing “some savvy investors an edge while potentially putting the rest of us at a disadvantage” and “rais[ing] some serious questions about transparency” .

I must be missing something here.  Last I checked, information published through a company’s website was accessible to all investors simultaneously.   Not to mention that with the aid of push technologies like RSS and email blasts it’s only necessary for an investor to visit a company’s website once in order sign up for and receive up-to-the-minute alerts and news releases.

If transparency and parity of access to information are truly the concerns, then I don’t see how this trend can be viewed as a negative. Actually, if the analysis set out in this IR Web Report piece remains accurate–that individual investors, whether by the nature of newswire distribution or internet data transmission, receive news releases anywhere from a few seconds to several minutes after professional investors–then this trend may actually place more of us on the same information plane as those savvy investors with which DealBook seems so concerned.

As a separate point, the piece also focuses on the time between the publication of Microsoft’s earnings release and the posting of its Form 8-K on the Commission’s EDGAR website (a period of 13 minutes), and goes on to state that companies are supposed to file their Form 8-Ks with the Commission “before, or at least simultaneously with, the publication of an earnings report”.  This isn’t exactly correct, at least not with respect to an earnings release.

As a general matter, Regulation FD requires that when a company discloses material, non-public information to certain enumerated persons it must, in the case of an intentional disclosure, simultaneously disclose that information publicly.  This public disclosure requirement can be satisfied either by filing a Form 8-K or by any other method reasonably designed to provide broad, non-exclusionary distribution of the information to the public.  In its August 2008 interpretive guidance the Commission discusses, among other things, the circumstances under which material, non-public information disseminated through a company’s website would be considered public for purposes of Regulation FD, concluding that:

[W]e now believe that technology has evolved and the use of the Internet has grown such that, for some companies in certain circumstances, posting of the information on the company’s web site, in and of itself, may be a sufficient method [reasonably designed to provide broad, non-exclusionary distribution of the information to the public] .

In the cases of an earnings release, however, a company must file a Form 8-K–there is no alternative method of public disclosure available–and has four business days within which to do so.

So, assuming for a moment that by publishing its earnings release through its own website, Microsoft satisfied the public disclosure requirement of Regulation FD, then as far as the federal securities laws are concerned the company had four business days to file its Form 8-K.  Determining whether publication of its earnings release through its own website actually satisfied Regulation FD would require a further analysis of whether its website is a recognized channel of distribution and whether publishing information through its website disseminates that information in a manner that makes it available to the securities marketplace in general … we’ll leave that one for another post.

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