Follow-Up: Of Course, Helping CEOs Understand "What's Considered SEC Material" Is All The Trick

It should be clear that -- for just over 80 years now -- perhaps the single biggest task an experienced SEC lawyer faces with a newly-public CEO (and truth told -- many veteran ones, too!) is instilling the sense that what's in their own head no longer belongs. . . solely to them, as to their impressions of, and insights into, the businesses they run.

The public shareholders "own" those thoughts and perspectives too -- at least the material ones. So no "App" is going to tell the CEO which tweets to "star". S/he must do that on his/her own. And that will be quite a feat of client management (and education), in many cases.

This is why simultaneous dissemination (via formal SEC filings) is the rule of law here in the US. The public trading markets rely on it. And if the CEO is not also an SEC lawyer. . . well, having a law department help make these calls is probably a very wise course. I'm all for free-wheeling discussion of emerging material business trends -- by the CEO -- at all public companies. I just should not have to subscribe to a social media outlet to get the feed. I already own it, as a public shareholder, ab initio. And still, "letting" CEOs tweet wantonly opens the board and company to liability for the CEO's wrong guesses about whether saying "next quarter's backlog is HUGE!" is material inside information (if no company official has as yet press released that information/gloss, for example).

So, as it was in 1934 -- so it is. . . today: helping CEOs know when to "clam up" is an art -- more than a science -- and it matters only scantly that the problem is between the thumbs of the CEO's texting hands -- and no longer so much over wine, in a five star restaurant. The problem is the same. Only the medium of transmission differs. And in some ways -- it is more shapeable. Because it will be. . . in writing. And thus it may be quickly flipped into an SEC Reg FD disclosure filing. [Clearly all SEC counsel ought to follow their client CEO/CFO and CIO Twitter feeds.] Heh.

SEC Law Backgrounder: Nothing In Reg FD Prohibits Continuous Disclosures By '34 Act Registered Company CEOs -- NOTHING.

Since it remains a sluggish post-holiday news week for Whitehouse Station, I thought I'd spend a bit or two here -- on something I've been following in the background for a minute. The theme most recently re-surfaced in the NYT's "Dealbook -- DealProfessor" blog, this morning -- but originally caught my eye some two and a half years ago, at IR Web Report.

It seems that tweeting public company CEOs find it. . . inconvenient to file SEC Forms FD when they leak material information via social media. Yawn. Please cue some tiny violins.

It would be trivial to write an app for the CEOs' phones -- one which takes any tweet s/he marks with a star, for example, and immediately prior to transmission -- slaps the same tweet into a standing electronic SEC Form FD (256 bit public/private key pair encrypted); signs it, and files it at the SEC EDGAR desk -- then tweets it out. In fact -- (Hold the Phone!) there is a DotCom 2.0 billion dollar idea. "You are welcome, Gen Y slackers. . . ."

More seriously, the SEC could make an easy interface to do much the same -- but why? A private sector solution will likely always be more elegant -- and user friendly. What is silly though, is the notion that Reg FD is not needed. It is needed more than ever -- the case of Reed Hastings, and the graphic at right, attest to this. I should be able to rely on a company's PUBLIC filings to glean all material public information -- not have to subscribe to each CEOs' social media accounts. That seems simple enough. But all these writers get it backward -- as though there is some "right" of high insider executives -- to share material company information with a select audience (and then see the select audience trade on it). That is called insider trading, folks. Plain and simple.

No, by far the better solution is to auto-post via Form FD -- the starred tweets of certain especially chatty CEOs -- via a Twitter ad on. Word. Here are two bits, from the opinion pieces that led to this little rant:

. . . .[Deal Professor:] The regulation [Reg FD] was pushed by two S.E.C. chairmen, Harvey Pitt, and his predecessor, Arthur Levitt. The proposed rule generated 6,000 comment letters. To some, the idea that all shareholders should have equal access to information was as natural as that Whitney Houston lyric that “children are our future.” These advocates argued that everyone should have all information released by the company, leading to better investing outcomes for all. It would also end the sense of unfairness that Mr. Levitt described in 1998 when he stated that “auditors and analysts are participants in a game of nods and winks.” Mr. Levitt argued that material information was being disclosed to these Wall Street analysts to guide stocks and manage earnings predictions. . . . [Editor's Note: This was certainly the case -- experience talking here.]

[IR Web Report:] Rather than discouraging executives from using new media, regulators should be encouraging them to make a more concerted effort to use these new channels. Social media are both technologically superior to current disclosure systems and provide greater transparency into the personalities and perspectives of executives. . . .

Meckler’s tweets [Ed.: at right] may seem highly unconventional [read: unlawful] and certainly challenge prevailing approaches to disclosure laws, but since when was it a bad thing for all investors to have real-time, public access to information from the most-informed sources of information about public companies — their CEOs?

Ahem. IR Web Report's Dominic Jones asks (in my experienced view) exactly the wrong question, there, at the end. [To be fair, his views may have evolved over the last two and a half years. I dunno.] Access is great -- but I should NOT have to subscribe to each CEO's Twitter feed. Full stop. He/she should be REQUIRED (if it is material) to ALSO file it as an SEC Form FD or 8-K disclosure, as he tweets it -- so I get it automatically. In fact, that is the present state of the law. And it is the way Chairmen Levitt and Pitt thought it out.

Said slightly more tartly: some times it may seem a tad inconvenient to public company CEOs -- to have the world's best, deepest and most liquid capital markets, right here -- on tap -- 24 X 7 X 365. But that is a privilege -- not a right. One they may just as easily forego, and run their companies with. . . access to only meager private capital. Sheesh. [I'll likely have followups here, in the coming days. Much more nuance here -- soon.]