Electronic Shareholder Forums: Web 2.0 Technology Is Encouraged by the SEC

In this world of blogging, My Space, Facebook, LinkedIn, etc. it seems Web 2.0 technology is creeping into all facets of our lives. But in the Investor Relations world companies are communicating to constituents "same as it ever was". Dell's IR team has implemented the only noteable IR blog, but it has little participation (http://dellshares.dell.com/) so far from shareholders. Other companies have been slow to embrace new technologies to communicate with shareholders. That may be about to change.

In November the SEC voted to adopt amendments to the federal proxy rules to facilitate the use of electronic shareholder forums: http://www.sec.gov/news/press/2007/2007-247.htm. And in January they released the 35 page final rule release for shareholder forums. Noteable in the final ruling is that 1) Amended Rule 14a-2 provides that participation in an electronic forum will not constitute a "solicitation subject to the proxy rules" and 2) Amended Rule 14a-17 provides that a shareholder or company (including 3rd party provider) that operates an electronic forum "will not be liable under the federal securities laws for any statement or information provided by another person participating in the forum". The effective date was February 25, 2008.

What does this all mean? It means that the Securities and Exchange Commission is encouraging (but not mandating) companies to embrace Web 2.0 technology (specifically Electronic Shareholder Forums) as a means of better communicating with shareholders, analysts, and other constituents.

What is an Electronic Shareholder Forum? First, it is NOT a message board or chat room. An effective Electronic Shareholder Forum should be a site where investors can come to interact with other shareholders, company management, and directors to ask questions and engage in dialogue. Company management can get a pulse on what investors are thinking, and by doing it in a company sponsored forum it will have much more credibility than any chat room or message board (especially if the Electronic Shareholder Forum is the only place where management and directors respond to shareholder inquiries). But much like a conference call, not everyone can necessarily ask questions, and not every question/comment will get addressed. This is necessary to ensure the forum does not deteriorate into a message board where anything goes.

"Today's action is intended to tap the potential of technology to help shareholders communicate with one another and express their concerns to companies in ways that could be more effective and less expensive," said SEC Chairman Christopher Cox. "The rule amendments are intended to remove legal concerns, such as the risk that discussion in an online forum might be viewed as a proxy solicitation, that might deter shareholders and companies from using this new technology."

At this point in time the SEC has not mandated how these forums should be used, so as to encourage experimentation by issuers and vendors. It'll be interesting to see who the early adopters are, and how quickly other companies jump on the Electronic Shareholder Forum bandwagon.