The Triple Bottom Line Blog

Almost three months ago, SEC chairman Christopher Cox gave a little-noticed speech about the evolving state of play in the world of shareholder rights. Among other topics, Cox discussed how the SEC is urging public companies to use electronic technology to accelerate and broaden public disclosure of crucial company data:

From the forms issuers file to the accounting standards they use, the SEC is waging an all-out war on complexity. And in this effort we're tapping the power of technology to bring higher-quality information to investors more quickly and more easily than ever before. Our new e-proxy rules will soon make it possible for investors to realize the full potential of interactive data. And in a related area, our ongoing conceptual work to update the proxy rules could pave the way for an Electronic Shareholder Forum in which investors could securely and anonymously share information about their company. That cutting-edge thinking is already spurring private firms to invest in creative new ways for shareholders to use the Internet to communicate with one another.

But of course the world of the Internet is one in which power is decentralized and the ability to drive the agenda can be centered anywhere--not just in a federal agency in Washington or even in a corporate office. As today's New York Times reports, independent groups are already driving the creation of online shareholder forums, where the focus will be determined not by corporate executives but by institutional investors, shareholder activists, and outside watchdogs:

Examining insider stock transactions has always helped investors gauge managers’ confidence in their own company’s prospects. Shareholders who hear an executive boast of a grand strategic plan while dumping piles of his own stock have a right to be dubious. Actions speak louder than words, after all.

Now, a group of investors is arguing that an analysis of a company’s pay practices can provide similar insights into managerial confidence, and they have established a shareholder forum to demonstrate how such an assessment might be made. The forum, set up last week, will use Verizon Communications as a test case. . . .

"No analyst or investor is going to understand the market conditions associated with achieving objectives as well as a manager does," said Gary Lutin, an investment banker at Lutin & Company, who is chairman of the shareholder forum. "So the key is to find out whether the manager is betting his pay on reaching those objectives."

Perhaps understandably, Verizon is hedging its bets as to whether and how it will participate in the online forum:

Robert A. Varettoni, a Verizon spokesman, said that the company was evaluating the invitation to communicate with shareholders in the forum, but that it would wait until the Securities and Exchange Commission has issued guidance about online exchanges before it partakes.

"The S.E.C. has explored many aspects of shareholder communications, including online discussions," Mr. Varettoni said. "The S.E.C. has indicated that it will issue proposed rules on this topic in the coming months, addressing some of the questions raised, including selective disclosure of nonpublic information and a company’s liability for content posted in a forum by third parties."

But Mr. Lutin said that forum programs he had run in the past had no unusual online aspects and had simply followed old-fashioned meeting processes for which S.E.C. rules are well established.

Executives at public companies will want to follow this unfolding story closely. With the old model of top-down corporate communications crumbling, companies' ability to control the conversation about shareholder rights is a thing of the past. They'll need to move quickly and flexibly if they expect to remain a credible part of the discussion in the months and years to come.

Labels: Christopher Cox, Finance and Investment, SEC, Verizon