The CEO of Sun Microsystems has asked the SEC to address the issue of whether blog postings can constitute the public dissemination of information necessary to comply with SEC Regulation FD. It's a timely issue, and the legal impact of this vehicle for shareholder communications needs to be addressed by the SEC as more and more CEOs take to the blogging world. The letter to the SEC is here.
Here's the dilemma: Reg FD was drafted to prevent selective disclosure and ensure a level playing field for all types of investors. At the time it was drafted, the SEC was concerned that analysts were privy to information before it reached most other investors. FD attempted to correct this by requiring simultaneous dissemination of information of material information to all investors. Many companies accomplish this through earnings calls that are now open to the public and the filing of press releases on a Form 8-K.
Because Reg FD does not address a shareholder communication vehicle like Jonathan Schwartz's blog, many CEOs are reluctant to use blogs to communicate with shareholders. It doesn't make much sense to file an 8-K every time your CEO posts a blog entry.
I can see a few problems with allowing blogs to be considered compliant with Reg FD, but there may be ways around the problems. Here are some of the issues the come to mind:
1. How will investors know whether a blog is legitimately the CEO's blog?
2. How can the CEO's blog (which would perhaps be deemed Reg FD compliant) be distinguished from the software engineer's personal blog that also addresses company issues?
3. Are RSS feeds reliable enough for journalists and serious investors?
4. What is the security of the blog? Could others access the CEO's blog in some way and post messages there?
5. What if "false and misleading information" is posted in a blog? Who, besides the CEO, would have liability for the information? The audit committee might review 10-Qs prior to filing; it would have neither the time nor the inclination to review blog postings.
6. If the information is truly material, it seems that one way for the company to flag this is to make a filing on a Form 8-K. Otherwise, investors just have to guess about whether the information is material.
7. If CEOs take to blogging, they may have to give up one of the most attractive features of blogging -- the ability to sort of think outloud in a candid manner. After all, an unguarded comment of the type that we bloggers make from time to time, could be career limiting.