Effective August 7, 2008, the SEC provided new interpretive guidance regarding the use of company websites under the Exchange Act and the antifraud provisions of the federal securities laws. 1 The SEC noted that its purpose in issuing the new guidance is to encourage the continued development of company websites as a significant vehicle for the dissemination of important company information to investors.
The interpretive guidance focuses principally on four topics:
- when information posted on a company website is “public” for purposes of Regulation FD;
- company liability for information posted on a company website;
- the types of controls and procedures advisable with respect to information posted on a company website; and
- the required format of information posted on a company website.
Using Websites to Satisfy Regulation FD
Perhaps the most intriguing, and potentially significant, aspect of the new guidance is its recognition that in certain circumstances disclosure of information on a company website can, by itself, satisfy a company’s obligations under Regulation FD. If website disclosure constitutes valid Regulation FD disclosure, information posted on a company’s website would be considered “public”—meaning that subsequent discussion of that information in a private setting would not violate Regulation FD. The interpretive release provides a series of factors for companies to consider in determining whether website disclosure is sufficient under Regulation FD and makes clear that Regulation FD compliance depends on the particular facts and circumstances of the disclosure—there are no “bright-line” rules for companies to follow. The following are a few guidelines for companies to consider in fashioning their websites under the guidance:
Decide from an investor relations perspective whether website posting alone is the best approach for disseminating certain types of information. Although posting information to a website provides an efficient and inexpensive means of disseminating information, from an investor relations and communications perspective disseminating information solely or primarily through the company’s website may not be the best approach in many situations. For example, we do not expect that companies will stop issuing quarterly earnings releases or press releases regarding major developments. However, some companies may find that website dissemination makes sense as their primary or exclusive means of providing information about events or developments that are of general interest to investors, but are not clearly material, such as regular updates regarding changes in the company’s products or the status of product development projects. Each company needs to reach its own decision about what makes sense for it, but initially the primary focus should be on investor relations considerations.
If applicable, take steps to inform the public that the company plans to use its website to disseminate information. Several of the factors for determining whether a website posting satisfies Regulation FD focus on the steps a company takes to notify investors that it posts company information on its website and the way in which that information is posted. A company that decides to use its website as the primary or exclusive means of disseminating certain types of information should regularly use multiple methods (a) to inform investors that it plans to disseminate information on its website, and (b) to direct investors to the location on the website where the information will be located. Some of the options for accomplishing this include (1) regularly disclosing in periodic reports, proxy statements and other shareholder communications and press releases that information will be posted on the company website and that the company regularly uses its website as a key source of company information, (2) notifying newswires and the media that the company posts information on its website, and (3) prominently displaying investor-related information on the website, for example, by placing it in a location that is routinely used for such information or including a direct link on the company’s homepage to newly posted information.
Monitor use of the website to confirm that it is working as expected. The interpretive release stresses the importance of investors regularly accessing investor-related information on a company website—the posting of information alone will not satisfy Regulation FD. To this end, companies should monitor the use of their websites to ensure that investors and others are accessing the investor-related information. Companies should also consider using push technologies to ensure that information is getting out and to help direct traffic to the company’s website. Companies seeking to take advantage of the new interpretive guidance should be prepared to demonstrate a track record of successfully using their website to disseminate information.
Other important considerations. Finally, there are some important cautions to keep in mind:
- A company should not think that its website can be used episodically to “quietly” disclose negative information. In order for information posted on a company website to satisfy Regulation FD, a company will need to consistently use its website as a means of disseminating information. Inconsistent use of the website to disseminate information will not satisfy Regulation FD.
- A company should candidly assess how widely the company is followed, and how broadly its website is used. As the SEC observed in the release, companies with less of a market and media following will likely need to take more affirmative steps to notify investors and others that information has been posted on their websites.
- Although the interpretive release provides parameters for companies to consider for purposes of Regulation FD, companies should not lose sight of other applicable requirements. For example, companies must still comply with SEC rules requiring the filing of a Form 8-K to report specified events and, if applicable, NYSE rules requiring the use of a press release to disseminate material news, regardless of whether website posting would be sufficient disclosure for purposes of Regulation FD. The SEC’s guidance also does not address issues of insider trading that may be implicated by disclosure on company websites.
Summary of New Guidance
A. When Information Posted on a Company Website is “Public” for Purposes of Regulation FD
The SEC’s discussion of whether and when information posted on a company website will be considered “public” for purposes of Regulation FD implicates two important Regulation FD issues:
- Do private discussions of information after the information has been posted on a company website violate Regulation FD?
- Does posting information on a company website satisfy Regulation FD’s “public disclosure” requirement?
The release adopts a subjective, “facts-and-circumstances” approach rather than a “bright-line” approach to answer these questions. The release suggests that a company consider whether (1) its website is a “recognized channel of distribution,” (2) posting information on the website “disseminates” the information in a manner that makes it available to the securities marketplace in general, and (3) there has been a reasonable waiting period for investors and the market to react to the posted information.
Recognized Channel of Distribution; Dissemination
The release explains that the SEC will consider a company website to be a “recognized channel of distribution” when the company has taken steps to alert the market to its website and its disclosure practices. The SEC will also take into account the extent of investors’ use of the company website.
For companies whose websites are known by investors as a location of company information, “dissemination” turns on (1) the manner in which the information is posted on the company website, and (2) the timely and ready accessibility of posted information to investors and the markets.
The release provides a non-exclusive list of factors for a company to consider in evaluating whether its website is a “recognized channel of distribution” and whether information posted on the website is adequately “disseminated”:
- whether and how the company informs investors that it has a website that they should look at for company information;
- whether the company has notified investors that it will post important information on its website and whether it typically posts important information on its website;
- whether the website directs investors to investor-related information, whether such information is prominently disclosed in a location routinely used for such disclosures and whether the information is posted in a format that is readily-accessible to the general public;
- whether the market and media regularly report on information posted on the website and the extent to which the company has advised newswires or the media about such information;
- the size and market following of the company involved;
- the steps the company has taken to make its website accessible, including the use of “push” technology or releases through other distribution channels either to distribute the information or advise the market of its availability;
- whether the company keeps its website current and accurate;
- whether the company uses other methods (in addition to website posting) to disseminate the information and whether such methods are its predominant methods for dissemination of company information; and
- the nature of the information.
Reasonable Waiting Period
If posting information on a company website is considered to be a valid means of publicly disseminating information for purposes of Regulation FD, the posted information will be deemed to be properly publicly disclosed only after investors have been afforded a reasonable waiting period to react to the information. Whether a waiting period is reasonable depends on the particular facts and circumstances of the dissemination. The release provides the following non-exclusive factors for companies to consider:
- the size and market following of the company;
- the extent to which investor-oriented information on the company website is regularly accessed;
- the steps the company has taken to notify investors that it uses its website as a key source of company information;
- whether the company has actively disseminated the information posted on the website, or notice of the availability of this information, including through other channels of distribution; and
- the nature and complexity of the information.
Thus, the duration of a reasonable waiting period will vary across companies. For example, a large company that frequently uses its website to provide information, has taken steps to make investors and markets aware of this and reasonably believes that its website is closely followed by investors, will require a shorter waiting period than a company that is not in the same situation.
The release also suggests that companies consider taking additional steps to alert investors and the market that important information will be posted on their websites—such as posting, filing or furnishing the information to the SEC or issuing a press release—prior to posting the information on the website.
Under the foregoing analysis, if information posted on a company website qualifies as “public,” a subsequent private disclosure of that information—such as to an analyst—would not constitute a “selective disclosure” under Regulation FD (and thus would not violate Regulation FD) because such information, even if material, would not be non-public. Moreover, in certain circumstances, posting information on a company website may, in and of itself, be a sufficient method of simultaneous public disclosure of material nonpublic information that is otherwise being disclosed in a nonpublic forum or of curative public disclosure following a non-intentional selective disclosure. 2
B. Company Liability for Information Posted on Company Websites
The release also addresses the applicability of the antifraud provisions of the federal securities laws to:
- previously posted materials;
- hyperlinks to third-party information;
- summary information; and
- interactive website features.
Previously Posted Materials
The release clarifies that, as a general matter, companies that maintain previously-posted materials or statements on their websites are not reissuing or republishing such information for purposes of the antifraud provisions of the federal securities laws merely because the materials or statements remain accessible to the public—and therefore should not have liability if those older statements are no longer accurate. If, on the other hand, a company affirmatively restates or reissues a statement, the antifraud provisions will apply to such statement, and such statement must be updated as necessary to ensure it is accurate as of the date it is restated or reissued. To ensure that investors are aware that previously posted materials or statements speak as of a certain date or earlier period, companies should (1) identify such materials or statements as historical or previously posted (including by dating the materials or statements), and (2) locate such materials or statements in a separate section of their websites.
A company can be liable for third-party information to which it hyperlinks from its website if such information is “attributable” to the company. In 2000, the last time the SEC provided guidance on the topic, the SEC explained that third-party information is attributable to a company if the company has (1) been involved in the preparation of the information (the “entanglement” theory), or (2) implicitly or explicitly endorsed or approved the information (the “adoption” theory). In 2000, the SEC went on to provide the following non-exhaustive list of factors for companies to consider in determining whether hyperlinked information will be attributed to them under the adoption theory:
- what the company says about the hyperlink or what it implies by the context in which it places the hyperlink on its website;
- the presence or absence of precautions against investor confusion regarding the source of the information; and
- the way in which the hyperlink is presented on the website.
In the new release, the SEC provides further guidance on the adoption theory, explaining that the analysis focuses on whether a company has explicitly or implicitly approved or endorsed a third-party statement such that the company should be liable for that statement. While explicit approval/endorsement is “plainly evident,” the less obvious concept of implicit approval/endorsement turns on whether the context of the hyperlink and the hyperlinked information together create a reasonable inference that the company has approved or endorsed the hyperlinked information.
To avoid potential confusion regarding a company’s view or opinion with respect to hyperlinked information, the release advises companies to explain why the hyperlink is being provided. Companies should also consider the nature and content of the hyperlinked information in deciding how to explain the context for the hyperlink. For example, a company that provides a hyperlink to a single news article that praises management should consider including explanatory language about the source and why the company is providing the hyperlink in order to avoid the inference that the company is commenting on or approving the article’s accuracy. On the other hand, a company that has a media page and provides hyperlinks to recent news articles—both positive and negative—faces less of a risk that it will be deemed to endorse or approve of each and every article and may only need to provide a title such as “Recent News Articles” to avoid being deemed to have adopted the materials.
Companies can also use other methods, including “exit notices” or “intermediate screens” to denote that a hyperlink is to third-party information. While suggesting the use of such methods, the SEC was careful to note that no one type of exit notice or intermediate screen will in all circumstances absolve a company for antifraud liability for third-party hyperlinked information. Moreover, a disclaimer alone will not insulate a company from liability for hyperlinked information (for example, a company cannot use a disclaimer to shield itself from liability for hyperlinking to information it knows, or is reckless in not knowing, is materially false or misleading).
A common concern relating to website information is that summaries of a company’s business or other information may run afoul of the antifraud provision requiring that statements not omit any material information that must be included to ensure that the information presented is not misleading. The release explains that, when using summaries or overviews on websites, companies should consider ways to alert readers to the location of the detailed disclosure from which the summary information is derived or upon which an overview is based. Companies should also highlight the nature of summary or overview information, including through the following techniques:
- use of titles or headings that convey the summary, overview or abbreviated nature of the information;
- use of additional explanatory language to identify information as summary and to specify the location of the more detailed information;
- placement of hyperlinks to more detailed information in close proximity to the summary or overview information; and
- use of a “layered” or “tiered” format with embedded links that enable the reader to “drill down” to more detail.
Interactive Website Features
In the release, the SEC acknowledges the utility of interactive website features, such as blogs and electronic shareholder forums, but recommends that companies implement controls and procedures to monitor statements made by them or on their behalf on these types of electronic forums. The release also provides the following guidance for companies that host or participate in blogs or electronic shareholder forums:
- The antifraud provisions of the federal securities laws apply to blogs and electronic websites, and a company is responsible for statements made by the company, or on its behalf, on its website or on third-party websites. Employees acting as representatives of a company cannot avoid their responsibilities in these forums by purporting to speak in their “individual” capacities.
- A company is not responsible for statements that third parties post on a website that the company sponsors, nor is a company obligated to respond to or correct misstatements made by third parties.
- A company cannot require investors to waive the protections of the federal securities laws as a condition to entering or participating in a blog or forum.
C. Disclosure Controls and Procedures
The SEC has adopted rules permitting companies to satisfy certain Exchange Act disclosure obligations by posting specified information on their websites as an alternative to providing the information in an Exchange Act report. 3 If a company satisfies these disclosure obligations by posting the information on its website, the Exchange Act requirements regarding maintenance of, and other requirements relating to, disclosure controls and procedures apply to the information because it is information required to be disclosed in Exchange Act reports.
The Exchange Act rules relating to disclosure controls and procedures (and the related certification provisions) do not otherwise apply to other information posted on a company website. Of course, because companies are responsible for, and could have liability as a result of, information posted on their websites, all companies should have controls and procedures designed to ensure the accuracy and completeness of information posted on their websites.
D. Format of Information
The release explains that information posted on a company website need not satisfy a printer-friendly standard, unless the SEC’s rules explicitly require it. 4
1 The new guidance is contained in Commission Guidance on the Use of Company Web Sites, Release No. 34-58288 (Aug. 1, 2008).
2 Rule 101(e) of Regulation FD requires that once a selective disclosure has been made, a company must file or furnish a Form 8-K or use an alternative method of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public—simultaneously in the case of an intentional disclosure, or promptly in the case of a non-intentional disclosure.
3 For example, a company may provide its audit, nominating or compensation committee charters on its website as an alternative to providing them in its proxy or information statement; may disclose a material amendment to its code of ethics, or a material waiver of a provision of its code of ethics, by posting the information on its website rather than by filing a Form 8-K; and may provide information regarding board member attendance at the annual shareholder meeting on its website rather than in its proxy statement.
4 For example, the SEC’s notice and access model requires that posted proxy materials be presented in a format “convenient for both reading online and printing on paper.”