I had removed this post initially because Dominic Jones—whom I still think is one of the more knowledgeable IR people I’ve ever read—told me I was making a fool of myself by posting it. I didn’t want this blog to be the source of inaccurate information.

From the standpoint of the current regulation, though, Dominic (in a comment to this post) wrote, “For what it???s worth, your post did a fair job of analyzing what Regulation FD actually says.” Since the point of my post was not to address debate that has ensued since then (the part that made me look foolish), but rather to outline what the current regulation actually says—the regulation that could lead to sanctions against your organization if it is violated—I guess I’ll go ahead and re-post. I certainly acknowledge the debate that has raged since this regulation was enacted, but I don’t believe the SEC would accept a defense along the lines of, “Yeah, but some of the commissioners have been saying the regulation needs to be updated.”

I’ll pick up the post, with a few minor modifications, from the part where I started talking about Reg FD ,and skip the bit about my motivation for posting. You already know that.

First, I wanted to make sure I was clear on what is meant by “material.” My initial understanding turned out to be right: Reg FD suggests careful review of some items such as earnings information, mergers, changes in management or control, change of auditor and the like. Reg FD does not, however, change older rules regarding the nature of material information. Information is material if “there is a substantial likelihood that a reasonable shareholder would consider it important??? in deciding to buy or sell the company???s stock. It’s also material if it would have ???significantly altered the total mix of information available.”

Before slogging through the regulatory language of Reg FD to determine once and for all the role of the press release, I searched the Web looking for a repository of information about disclosure, but came up dry. (It would make a nice project for someone, wouldn’t it?) I did find a few interesting tidbits here and there, such as this from the PR Newswire site:

When a corporation goes public, it assumes certain obligations to disclose material information about its operations and financial performance, both in documents filed with the SEC and through timely public disclosure via the media. Announcements of material events or information are not deemed to have been properly disseminated or made public until they have been released to the exchanges…and distributed to key media.

Okay, but not specific to the U.S. law, so I moved on to the regulation itself. (Dominic was right; I should have done that instead of relying on Wikipedia.) There are several passages that are pertinent, beginning with this one:

...technological developments have made it much easier for issuers to disseminate information broadly. Whereas issuers once may have had to rely on analysts to serve as information intermediaries, issuers now can use a variety of methods to communicate directly with the market. In addition to press releases, these methods include, among others, Internet webcasting and teleconferencing.

Hmm. Webcasting and teleconferencing, but not blogging or RSS feeding. But is a webcast or teleconference enough? Let’s continue. The final rule on selective disclosure and insider trading notes:

As adopted, Rule 101(e) states that issuers can make public disclosure for purposes of Regulation FD by filing or furnishing a Form 8-K, or by disseminating information “through another method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public.”

What does that mean?

In the Proposing Release, we stated that an issuer’s posting of new information on its own website would not by itself be considered a sufficient method of public disclosure. As technology evolves and as more investors have access to and use the Internet, however, we believe that some issuers, whose websites are widely followed by the investment community, could use such a method. Moreover, while the posting of information on an issuer’s website may not now, by itself, be a sufficient means of public disclosure, we agree with commenters that issuer websites can be an important component of an effective disclosure process. Thus, in some circumstances an issuer may be able to demonstrate that disclosure made on its website could be part of a combination of methods, “reasonably designed to provide broad, non-exclusionary distribution” of information to the public.

The pertinent question to this conversation, then, is whether blogs and RSS feeds qualify as “broad, non-exclusionary distribution of the information to the public.” I would maintain they do not, given that most of the public does not read blogs or RSS feeds. The SEC agrees. Here’s what Reg FD says:

We believe that issuers could use the following model, which employs a combination of methods of disclosure, for making a planned disclosure of material information, such as a scheduled earnings release:

• First, issue a press release, distributed through regular channels, containing the information;
• Second, provide adequate notice, by a press release and/or website posting, of a scheduled conference call to discuss the announced results, giving investors both the time and date of the conference call, and instructions on how to access the call; and
• Third, hold the conference call in an open manner, permitting investors to listen in either by telephonic means or through Internet webcasting.

By following these steps, an issuer can use the press release to provide the initial broad distribution of the information, and then discuss its release with analysts in the subsequent conference call, without fear that if it should disclose additional material details related to the original disclosure it will be engaging in a selective disclosure of material information. We note that several issuer commenters indicated that many companies already follow this or a similar model for making planned disclosures.

In the Proposing Release, we stated that an issuer’s posting of new information on its own website would not by itself be considered a sufficient method of public disclosure.

Again, the SEC seems pretty clear here, while not mentioning blogs specifically, that a blog simply won’t cut it. While the regulation does not reference blogs and RSS—leaving that in the category of technological advances—the regulation is pretty damn clear on the expected use of the press release!

There’s one more passage worth citing:

In determining whether an issuer’s method of making a particular disclosure was reasonable, we will consider all the relevant facts and circumstances, recognizing that methods of disclosure that may be effective for some issuers may not be effective for others. If, for example, an issuer knows that its press releases are routinely not carried by major business wire services, it may not be sufficient for that issuer to make public disclosure solely by submitting its press release to one of these wire services; the issuer in these circumstances should use other or additional methods of dissemination, such as distribution of the information to local media, furnishing or filing a Form 8-K with the Commission, posting the information on its website, or using a service that distributes the press release to a variety of media outlets and/or retains the press release.

We also caution issuers that a deviation from their usual practices for making public disclosure may affect our judgment as to whether the method they have chosen in a particular case was reasonable. For example, if an issuer typically discloses its quarterly earnings results in regularly disseminated press releases, we might view skeptically an issuer’s claim that a last minute webcast of quarterly results, made at the same time as an otherwise selective disclosure of that information, provided effective broad, non-exclusionary public disclosure of the information.74 In short, an issuer’s methods of making disclosure in a particular case should be judged with respect to what is “reasonably designed” to effect broad, non-exclusionary distribution in light of all the relevant facts and circumstances.

I’m hopeful I got this all right; I am not an investor relations expert and it has been 14 years—long before Reg FD—since I handled any financial communications for a public company. But even if I misinterpreted or missed something (I’m sure someone will let me know), the crux of the content is unmistakable. Press releases have a role to play under the current regulation—whether they should or not, given the evolution of the technology—which means they are far from dead. Blog postings by executives or employees will not satisfy current regulatory requirements.