November 8, 2006

Should an SEC Chairman Leave Comments in the Blogosphere?

As widely reported, SEC Chairman Chris Cox posted a response to a letter from Sun Microsystem’s CEO Jonathan Schwartz by leaving a letter in the form of a “comment” on the CEO’s blog. As I blogged a few weeks ago, Sun’s CEO sent a letter – that he posted on his blog – to Cox requesting that the SEC recognize that blog postings were considered “widely disseminated” for Regulation FD purposes.

In his response, Chairman Cox applauds the use of corporate websites as “as a source of information to the market and investors” and is open to the idea of information posted on the Web as potentially being considered “widespread dissemination.” No real surprise here as the SEC has been soliciting comments in various rulemakings for this type of notion for years, even before Regulation FD was born! (eg. May 2000 interpretive release).

Even though Chairman Cox’s “comment” is in the form of a letter, I get a little uncomfortable with the idea that regulators might start leaving comments on blogs. How are we supposed to know that the comment is indeed from the SEC Chairman? Anyone can post a comment and claim they are Chris Cox simply by pushing a button. I think regulators should use more formal channels of communication, partly for their own sake so that they don’t get caught in a heap of bad publicity due to a prankster’s act of impersonation.

As an aside, the Chairman is getting criticism (eg. like this critic) for the content of his letter to the Sun CEO because he didn’t take a specific view. This criticism is unwarranted in my opinion, as I think careful study is necessary before the SEC assumes that we all read the Sun CEO’s blog on a regular basis; read some of the comments submitted on the e-Proxy proposal for conflicting views on the topic (some of which echo the thoughts near the end of this article about the use of established news channels to satisfy Regulation FD).

Disclosure Committees: The Latest Disclosures

In updating our “Sample Disclosures about Disclosure Committees”, we were surprised to see how much information that some companies – including one foreign private issuer we came across – were providing about their disclosure committees in their proxy statements this year. Here are a few of the examples we have posted:

Starwood Hotel’s Proxy Statement filed April 7, 2006: “The Company has a Disclosure Committee, comprised of certain senior executives, to design, establish and maintain the Company’s internal controls and other procedures with respect to the preparation of periodic reports filed with the SEC, earnings releases and other written information that the Company will disclose to the investment community (the “Disclosure Documents”). The Disclosure Committee evaluates the effectiveness of the Company’s disclosure controls and procedures on a regular basis and maintains written records of the disclosure controls and procedures followed in connection with the preparation of Disclosure Documents. The Company will continue to monitor developments in the law and stock exchange regulations and will adopt new procedures consistent with new legislation or regulations.

Harley-Davidson’s Proxy Statement filed March 30, 2006: “Q: Does the Company have a Disclosure Committee?

A: Yes. The Company has a Disclosure Committee comprised of members of management responsible for considering the materiality of information and making disclosure decisions on a timely basis. The Disclosure Committee Guidelines, as amended, provide, among other things, that the Disclosure Committee: (1) has access to all Company books, records, facilities and personnel, as well as the Company’s independent registered public accounting firm and outside counsel; (2) design, establish and maintain disclosure controls and procedures for the SEC reporting process and modify them from time to time, as appropriate; (3) create and review all financial press releases; (4) review SEC filings on Form 8-K, Form 10-K, Form 10-Q and the Company’s annual proxy statement; (5) suggest appropriate disclosures or opine on disclosure issues; (6) evaluate changes in SEC, New York Stock Exchange (“NYSE”) and Financial Accounting Standards Board disclosure rules and make recommendations regarding their impact on the Company; (7) receive and review regular updates from the Company’s management, internal auditors and independent accountants; (8) discuss material items with employees in the internal audit function, independent registered public accounting firm and the Company’s management to ensure appropriate disclosure; (9) arrange for necessary training to ensure effective implementation of the disclosure controls and procedures; (10) periodically review and reassess the performance of the Disclosure Committee; (11) maintain written records necessary to evidence procedures followed in connection with the preparation and approval of any disclosure documents; (12) annually review and reassess the adequacy of the Disclosure Committee Guidelines; and (13) undertake any other responsibilities delegated to it from time to time by any senior officer of the Company to assist that senior officer in fulfilling his or her responsibility for oversight of compliance with the disclosure controls and procedures. The Company formally established the Disclosure Committee in October 2002.

British Sky Broadcasting Form 20-F filed July 31, 2006: “The Company maintains disclosure controls, procedures and systems that are designed to ensure that information required to be disclosed in the reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarised and reported within the time periods specified in the SEC’s rules and forms, and the Company’s UK listing obligations. The Company has established a disclosure committee. The committee is chaired by the Company Secretary and its members consist of senior managers from group finance, legal and investor relations. It has responsibility for considering the materiality of information (including inside information) and on a timely basis, determination of the disclosure and treatment of such information. The committee also has responsibility for the filing of reports with the SEC and overseeing the process for the formal review of the contents of the Company’s Annual Report.”

Don’t forget to take our latest quick survey on disclosure committees!