Corporate Eye

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Brian Nelson

Brian Nelson

Better Information Instead of More

In the world of Investor Relations web sites, there is an ongoing tug-of-war between the investor’s desire for more information, the regulations and requirements regarding that information, and the company’s need to preserve some information as private.  So, while we should and will continue to find more ways to provide more information, perhaps another goal should be to make the information already provided more useful.

Infosys

Infosys Technologies Ltd. (NASDAQ: INFY) is a global IT and consulting company that generates over $4 billion in revenue.  Four billion dollars in U.S. dollars, that is.  And, therein lies the rub.  As a global company Infosys boasts of offices in India, China, Australia, the Czech Republic, Poland, Canada, Japan and the UK.  In particular, Infosys has strong ties to India.  So, why just show accounting for U.S. investors?

Infosys provides an array of financial information on their IR web site.  What makes that information even more usable for more even more investors is that the information can be viewed by either Indian GAAP or by US GAAP.  Doing so provides not only a benefit to investors who can now select the information they want according to what they are most comfortable with, it also provides the company the benefit of showing an apples to apples comparison to either companies that operate in such a way as to only follow Indian GAAP or US GAAP.

Although a savvy, dedicated, experienced analyst could make such comparisons and calculations themselves, the same is not true for many investors.  Often, even sophisticated investors don’t understand all the nuances of US GAAP let alone, of both US and Indian GAAP.  For example, an Indian investor researching several companies for investment, including Infosys might like to compare some line on the balance sheet with another company.  If Infosys provided only US GAAP numbers, the investor might not make a relevant comparison to a company that provided Indian GAAP numbers, and thus, Infosys might lose out on a good investor.  The same situation, of course, would apply to an American Investor who might be doing a similar comparison should Infosys report only Indian GAAP numbers.

Presumably, Infosys is required to calculate both sets of numbers, or simply feel it is in their best interest to do so.  They are not unique in this respect.  However, some companies use the dual set of numbers by creating separate reports and then mailing the one that matches the investor’s address or request.  This, obviously, robs both the investor and the company of the benefits of having already compiled two sets of numbers.  Other companies might package both sets of reports together, much like multi-language instruction manuals often have English instructions followed by French Instructions, for example.  Although this method allows the investor access to both sets of information, many investors might simply disregard the additional information as duplicate information provided for multi-lingual purposes, thus negating the benefits again.

However, with the dynamic nature of an IR web page, the clear cut choice via a simple link immediately informs an investor that he or she has access to two sets of information and they can choose to either only use the set that interests them, or use both for whatever reason.

By taking an extra step with their IR site, Infosys provides not necessarily any more information than your average company’s Investor page, but information that is potentially more usable and friendly.

Investor Relations Web Site Done Right

It is often easier to explain by showing examples of what not to do.  However, that doesn’t mean there aren’t companies out there doing Investor Relations web sites right.

One such company is Nestle.  What makes Nestle’s IR page interesting is that, although a well known household name in America, it is in reality very much an international company.  In fact, to invest in Nestle without the machinations of investing on a foreign stock market, an US investor would have to buy shares via ADR.  Of course, Nestle isn’t the only international company out there, but as the world’s biggest food company, you can imagine that the interest from around the world is high.

Nestle’s headquarters is in Switzerland.  American investors aren’t the only ones who would be interested, so the IR page will have to not only provide good information, but do it in multiple languages.

No big deal?

Award
Yahoo Finance - Nestle

Well, just getting the accent mark right trips up our friends at Yahoo Finance. Although, to be fair, I don’t know how to do it on my article either. :)

When Investor Relations Pages Go Good

Let’s check our first criterion for a good IR web site, a good link on the front page of a company’s “main” website.  At www.nestle.com we see a link right in the main menu to Investor Relations.

Nestle.com Main Page
Nestle.com Main Page

On the Nestle IR site, under reports you can get annual reports back to 1998 in English, French, and German.  If you prefer the financial statements you can get full year financials back to 1998 and half year reports back to 2002.  You can also get company press releases, audio recordings or transcripts of conference calls and roadshows.

One of the really great things about the Nestle IR site is that they have taken full advantage of the way the Internet and websites work.  One hot topic, according to the email that Corporate-Eye gets, is getting corporate governance and management information to investors.  Technically, the Corporate Governance section of Nestle’s website is under the “All About Nestle” part of the site, but knowing that such information is very likely to be of interest to investors as well, Nestle places a menu item to the information under Investor Relations as well.  The information is not duplicated, rather investors are subtly shifted to a new spot in the navigation menu while the information loads in the main reading area as if the user were just continuing to read in the IR section.

Nestle.com Investor Relations Page

The web site also allows investors to sign up to receive emails alerts.  Such emails can be configured to be received in English, French or German.  These alerts can be customized such that an investor receives only the information he or she is interested in.  For those who prefer an RSS feed, that option is available too (and marks, as far as I can tell, the only place where English is the only option).

While there are individual product websites for various products and countries, including the US specific site nestleusa.com, all of them point back to this one investor relations page so that an investor can rest assured that if they are using this one section of the nestle.com web site, that they are getting all the investor targeted information made available by the company.  It appears that even the home country nestle.ch investor page points back to the nestle.com IR page, although I might be missing something since I’m yet another American who only speaks English.  I’m not sure if one of those menu items means “Investments” in…um…wait, Wikipedia — Switzerland — language — German, French, Italian, Romansh…I’m going to go with German.  Yes, German, final answer.  I’m not sure if any of those links means “Investments” in German.

What it all comes down to is that the Nestle IR web site has A LOT of information for an investor looking for data.  It’s safe to assume that investors will always want more, but if every company’s IR web site had this much data, presented this cleanly, the world of investor relations web sites would be off to a great start.

Hyperlinks to Third-Party Information

In its recent Interpretive Release, the SEC addresses links to third-party information from a company web site.  This new guidance applies only to the liability a company might face for purposes of the antifraud provisions of the federal securities laws.  This guidance in no way alters their position as it relates to the Securities Act.

Rules in the Exchange Act may hold a company liable for third-party information that it links to from its web site if it could be attributable to the company.  In the 2000 Electronics Release, the SEC stated that such information can be attributable to the company if either the company was involved in the preparation of the information, or if the company explicitly or implicitly endorsed or approved the information.  Not surprisingly, it is the “implicitly” that makes company lawyers nervous.

The three factors delineated at the time by the SEC, context, confusion, and presentation, left plenty of room to be nervous.  So, there is some new guidance to answer the principal question:

“Does the context of the hyperlink and the hyperlinked information together create a reasonable inference that the company has approved or endorsed the hyperlinked information?”

Here is where it gets scary.  The SEC states that they “begin with the assumption that providing a hyperlink to a third-party web site indicates that they company believes the information on the third-party web site may be of interest to the users of its web site.”  Further, the SEC states that “The degree to which a company is making a selective choice to hyperlink to a specific piece of third-party information will likely indicate the extent to which the company has a positive view or opinion about that information.”

Yikes!

I know what you are thinking.  You’re thinking, “No problem, we’ll just put a notice that we don’t endorse the information and we’re done.”  Unfortunately, that is not going to work.  The SEC states that a disclaimer or “exit notice” alerting users that they are leaving the company web site and accessing an unendorsed web site is not sufficient.  One example cited is a company that links to only one stock analyst web site and that site happens to have positive information while other analysts who might be more negative are not linked.

Best Practices

So, where does that leave our IR web pages?  First, while notification is not a free pass, it is still useful in making sure that web site users are aware of when they leave the company web site and that where they are going is not endorsed by the company.  To achieve this, an “exit notice” for every off site link on the Investor Relations pages is a must.  No, it doesn’t let the company off the hook, but it does let the investor know what is going on and is the first step in making sure there is no endorsement.

The second task is a little more complicated.  The fewer links that exist in any one area or page, the higher the probability that those links can be considered selective.  On the other side, the lower the quality of the site or page being linked, the higher the probability of that link being considered misleading.

Your best bet then in providing links is to follow some basic ground rules.  First, when it comes to analysts and research, never link to just one.  Always have multiple links.  A good way to get multiple links without having to worry about quality is to link to the big independents like Thompson or Morningstar if they have research about your company.  Finally, determine if the links really belong on the Investor Relations page or if they would be better located elsewhere.  Links from the IR page will take on a heavier weight than those on other areas.  If the company wants to showcase recent charity work, link from the Community Involvement page or the Recent News page.

Again, none of this is earth shaking news, but a couple ounces of prevention is always worth a pound of cure.

SEC Interpretive Release Part 2 – Antifraud

One of the SEC positions taken in 2000 when they addressed company web sites was that companies are responsible for the accuracy of statements made on their websites that could reasonably be expected to reach investors or securities markets.  This in turn makes statements made on a company’s website subject to antifraud provisions of federal securities laws.  Noted specifically is Exchange Act Section 10(b) which prohibits making material misstatements and omissions of fact.

The Good News

In the 2000 Electronics Release, the SEC noted possible liability arising from accessing previously posted material on a company’s web site.  The SEC notes that “some companies” continue to be concerned about whether or not previously posted materials that are accessed later by web site users would be considered “republished”.  In 2005, the SEC addressed this issue, but only in the context of registered offerings under the Securities Act.  Now, it seems, the SEC is ready to put this issue to bed.

The Interpretive Release states that the SEC does not believe that “companies maintaining previously posted materials or statements on their web sites are reissuing or republishing such materials or information for purposes of the antifraud provisions of federal securities laws just because the materials or statements remain accessible to the public.”

Yippee!  A straight answer!  Maintaining historical materials on a company website is not considered republishing.  There is a catch, however.  In circumstances where it is not apparent to a reasonable person that materials are from an earlier date then things might be different.  So, previously posted materials should be identified as historical by dating them.  Most companies tend to do this already.  But, also, the SEC recommends that such materials be “Located in a separate section of the company’s web site containing previously posted materials or statements.”

Investor Relations Web Site Best Practices

Not all companies were taking the hard line approach discussed by the SEC in regards to posting historical materials on their web sites, but none the less, the elements contained within the Interpretive Release give some guidance as to how the IR portion of the web site should be constructed.

In addition to the items outlined from the first section of the release, we have two new items to add to the best practices list.

First, all items should be dated.  For the most part, all official materials are already dated.  However, by making a date a requirement for anything posted to the IR pages, a company can ensure continued compliance particularly with materials that are “current” today, but will be “historical” sometime in the future.  An existing date when the material is first published eliminates the possibility that materials will inadvertently be archived without a date later.

Second, all historical or archived materials should be kept in a separate area.  Though not explicitly stated, a separate page with a large “ARCHIVE” or “HISTORICAL” heading across the top will be a great way to prevent any “reasonable person” from being unable to distinguish between new and old materials.

Chances are most IR web sites are at least somewhat on board with these issues already, but for those that aren’t, your reason to make some changes has arrived.

SEC Updates Website and Electronic Guidance

The SEC released its last extensive guidance on the use of websites and electronic media in 2000.  Of course, the Internet has changed A LOT since 2000.  Faster bandwidth, new technologies, and the explosion of mobile devices and social networking have all substantially altered what companies put on all areas of the websites, not just their Investor Relations pages.

SEC Updating Guidance on the Use of Web Sites and Electronic Media

On Wednesday July, 30, the SEC voted unanimously to update and provide new guidance to publicly traded companies in the US about how they can comply with securities laws when using their websites and other methods to publish information for investors.

The effect on IR sites could be big with the guidelines providing additionally acceptable materials for inclusion as well as potentially marking some materials as inappropriate for publication on a company’s IR site.

The new SEC guidance will be issued in the form of an interpretive release.  An interpretive release does not create new laws or regulations.  Instead, an interpretive release declares the SEC’s views and interpretations of existing laws and regulations.  Thus, no new restrictions or loosening of the same are forthcoming, but areas in which companies may have been cautious due to the possibility of varying interpretations may be clarified thus allowing for broader use of IR sites and the Internet in general.

Indeed, SEC Chairman Christopher Cox specifically mentioned “social networks” in his remarks on Wednesday.

“The last time the SEC issued guidance in this area, the idea of ‘social networks’ hadn’t yet been developed, and creating a social network where shareholders could meet and exchange views was barely imaginable.”

The SEC’s guidance will be divided into four parts:

  • Clarification of how information posted on a company website can be considered “public” and guidance on complying with Regulation FD.
  • Clarification of the liability framework for certain types of electronic disclosure.  Of note, is that companies cannot require users to waive any protections from federal securities laws as a condition of participating in forums or blogs.  Also, included is guidance on linking to third party information without having to “adopt” such information.  How companies can provide historical data without it being considered “republished.”  Clarification of how anti-fraud positions apply to postings my by the company or on behalf of the company in blogs and forums.
  • Clarification of which information is not generally subject to the Sarbanes-Oxley Act regarding “disclosure controls and procedures.”
  • Clarification that information may not need to satisfy the “printer friendly” standard in some cases, which would free companies to use “dynamic” technologies.
The full interpretive release is to be published on the SEC website “as soon as possible,” and will take effect upon publication in the Federal Register.

SEC Press Release 2008-158

Getting More Information on Your Investor Relations Page

Ask around as to what improvements you could make and you are likely to get the same answer regarding your Investor Relations page, give us more information.  Of course, that is easier said than done.  Sure you’ve got acres of files and terabytes worth of email, but what can you actually publish?  With the current regulatory environment, other legal considerations, competitive issues and trade secrets, not to mention the efforts of the public relations and marketing departments, the information that gets put on the Investor Relations page needs to be carefully chosen and reviewed.  So, then, the questions becomes how to get more information on the Investor Relations page in a reasonably quick fashion?

Pre-Approved Materials

Once good place to start is with the plethora of pre-approved materials that most companies already have available in other formats or locations.  For example, many companies provide links to their SEC filings.  While this is effective, it is not very user friendly as the SEC website is setup to be a repository with large amounts of data and not to be a user friendly experience.  This is fine for analysts and other investment professionals, but what about Main Street investors?

Retail investors want much of the same information that is in a 10-Q filing, without the overhead of all the legally required breakdown.  To this end, the Boeing website provides links to the company’s earnings press release and a Financial Presentation for those results.

The press release is often more helpful to retail level investors.  Instead of wading through the standard format 10-Q, the investor can jump right into the numbers they find interesting.  In addition, this type of release affords the company an opportunity to highlight positive information as well as explaining numbers that may appear troubling at first glance.

Even more user friendly is the Financial Presentation linked from Boeing’s IR page conveying many of the important numbers in graphical format.  While hard core investors may snub such information as watered down, providing both the SEC filings and the more accessible items allows the Investor Relations page to service multiple levels of investors.

Since both of these items have been previously vetted through the proper channels for distribution to the public, placing copies on the Investor Relations website provides investors with some of the additional information they clamor for, while placing no extra burden on the approval process.

Other Approved Materials

In addition to publications, a way to view or listen to previously held conference calls can also be a solid method to increase the amount of information available on the Investor Relations page.  Both retail investors and professional investors whose other responsibilities don’t allow them to listen to the call live will appreciate the quick and easy access to the replay.  Of course, such links and subsequent playbacks require all the same disclosures of the original event, plus another which informs investors that the call is not live.  However, such inclusion is relatively easy if the decision to provide such information occurs before the original call.  Then, it is simply a matter of saving all the disclaimers and disclosures.

Another useful source of additional investor information are executive presentations to industry groups or trade shows.  Technology companies in particular seem to use such events to give the public a taste of where the company is going. Obviously, some events are more tailored to specific audiences than they are the general public, but for those where the presentations have broad appeal, a look at the presentation materials or even a recording of the presentation itself can provide an investor with a look at company strategy.  The email at Corporate Eye suggests that many investors are looking for just such a peek at company strategy.  These presentations have also generally been approved by the necessary parties, so only minor additional disclosures should be necessary for their inclusion on the Investor Relations page.

Go Further

The above suggestions can help round out an anemic Investor Relations page, but they are by no means extraordinary.  To move toward an outstanding Investor Relations page, look for what your company produces that is unique and fully approved by the legal and compliance departments.  Does your company produce a newsletter for circulation among non-licensed professionals?  Could such information find its way onto your site?  How about non-confidential internal communications or certain press releases?  Do any marketing materials or techniques belong on your Investor Relations page?  While the Investor Relations page doesn’t sell your company’s products, it does sell your company’s prospects, and those are usually tied pretty closely to its products.

Show a little creativity and let others in your organization know that you would like to see whatever they produce that comes fully vetted.  You’ll have to do a little sifting, but the reward could be a stronger Investor Relations page.