Sun CEO Wants to Blog Freely
Sun Microsystems Inc. Chief Executive Jonathan Schwartz has asked U.S. regulators to relax corporate disclosure rules so he can announce company news on his personal blog.
“If we have material news to disclose, we have to hold an anachronistic telephone conference call or issue an equivalently anachronistic press release,” Schwartz wrote in his online diary Monday. “I would argue that none of those routes are as accessible to the general public as a blog, or Sun’s website.”
Schwartz said he sent a letter to Securities and Exchange Commission Chairman Christopher Cox last month asking the agency to ease its “regulation fair disclosure” rules dating from 2000 that require companies to release news to everyone at the same time.
The rules were passed after investors such as Warren Buffett complained that market-moving information was given to Wall Street analysts, who then shared it only with their institutional clients.
Allowing companies to make announcements in a blog may rekindle concerns that some shareholders are being left out of the loop, said Patrick McGurn, executive vice president at Institutional Shareholder Services Inc.
“Once you start going to unofficial forms of disclosure, you create the risk of giving advantages to certain investors,” said McGurn, whose Rockville, Md.-based firm advises clients on proxy votes. “It would raise the potential that people could be tipped to the impending appearance of the information.”
The SEC requires companies to make announcements about topics including profits, new products and mergers in a filing with the agency or a news release so all investors can learn of news simultaneously. When the proposal was passed, the SEC said in 2000 that posting information on a 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,” the agency said.
Schwartz’s Sept. 25 letter to Cox said Sun’s website should fulfill disclosure requirements because it attracts almost 1 million hits a day.
“You recently challenged us to capitalize on the full potential of the Internet for the benefit of the American investor,” Schwartz said in his letter.
Cox made the comments referenced by Schwartz at a conference the SEC held in June to tout the benefits of interactive software. The agency wants companies to incorporate the technology into their financial reports.
Michael Dillon, general counsel of the Santa Clara, Calif.-based computer company, wrote in a separate blog that the Internet was the most effective means of “timely dissemination of information to the widest possible audience.”
“Disclosing information on the company’s website should be sufficient,” said Michael McCoy, a former attorney in the SEC’s corporation finance division now in private practice at Bryan Cave. “It’s reasonable to assume that an investor in a company would be just as likely to read the company’s website as they would read SEC filings.”
SEC spokesman John Nester declined to comment on Schwartz’s request. Schwartz and Dillon weren’t available to comment, said Sun spokeswoman Dana Lengkeek.
“The company is focused on openness and transparency and utilizing the Internet to get more information to the public,” Lengkeek said. “That’s one of the reasons why Jonathan has a blog.”
Michael Lissauer, a spokesman for Business Wire, the No. 2 distributor of news releases behind PR Newswire, said a blog can’t ensure everyone sees information at the same time.
“You need broad and simultaneous disclosure,” said Lissauer, whose San Francisco-based company was bought by Buffett’s Berkshire Hathaway Inc. earlier this year. “You can’t get it by posting something on your website or by e-mail.”
“Assuming that people who are interested in your stock are going to go to your blog is not a good approach,” said Michelle Savage, vice president of investor relations at PR Newswire. “You’re forcing them to say, ‘I’m going to check out every website of a company I am interested in and I’m going to look at them constantly.’ ”
The SEC said its original proposal attracted 6,000 comment letters, most from individual investors backing the rule.
Buffett said in his 1998 letter to Berkshire shareholders that “many companies matter-of-factly favor Wall Street analysts and institutional investors in a variety of ways that often skirt or cross the line of unfairness.”
Intel Corp., the largest computer chip maker, sought permission to distribute news on its website before the SEC approved its rule six years ago.
Sun could serve as a sample case, testing the SEC’s resolve to bring an enforcement case over online disclosure now that more investors are using the Internet, said David Martin, a Washington attorney and former head of the SEC’s corporation-finance division.
“Is it satisfactory public disclosure? I think it’s a close call,” Martin said. Sun should take the approach of telling the SEC “we are posting. Come get us.”
