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SEC says Internet will make investors equal to analysts
By James Christie
Redherring.com, September 29, 2000

In about three and a half weeks, a new Securities and Exchange Commission regulation will go into
effect that's expected to shake up how public companies disclose information. The new
requirement means corporations must rely on the Internet more than ever to communicate with
shareholders.

The new rule, commonly referred to as "Reg FD," for full disclosure, requires public companies to
disclose "market moving" information to the general public and to Wall Street analysts at the same
time. Its purpose is to help level the playing field between big and small investors.

Ron Gruner, president of Shareholder.com, a provider of corporate communications technology,
says the market for Web-based company information already is taking off. "Some of our larger
email lists, basically for Fortune 100-size companies, have 20,000-plus names," he says. "Some of
these investor relations sites are seeing tens of thousands of hits a day. Three years ago, some of
these Fortune 100 companies may have only been getting a thousand hits a day."

With the emergence of the Web and online investing, Internet investors are proving to be an
insatiable bunch as far as seeking out corporate news. "They're digging into SEC filings, looking at
things like executive compensation and insider trading," Mr. Gruner says. "They're digging into
stock prices and historical stock trends. They're digging into third-party earnings estimates."

Three factors argue for Web technology becoming an even more pervasive way for investors to
seek out company information: falling costs, expanding capabilities, and consumer demand.
Technology now exists that allows corporations to host conference calls involving hundreds of
people. Email and Web sites allow companies to communicate with legions of shareholders.

ANALYSTS AS GATEKEEPERS
The new regulation also means that Wall Street analysts, no longer privy to special company
briefings, will lose a big advantage. Little wonder the Association for Investment Management and
Research, a 43,000-member investment professionals group, called Reg FD too drastic. According
to an AIMR statement, "Financial analysts play a critical role in this market efficiency by 'ferreting
out' and interpreting large amounts of data, which in isolation are immaterial and insignificant."

To be sure, there's a lot of useless information available to investors on the Web. It's not unusual,
for example, for investment message boards to be filled with mindless rants, outright deceit, and
gossip, which provides a strong argument for going directly to a company's Web site for
information. While Reg FD won't stop companies from spinning hopelessly positive news, investors
needn't rely so heavily on the interpretations of analysts.

"The spirit of Reg FD says you've got to proactively push information to everybody," Mr. Gruner
says. In hopes of tapping into the corporate communications market, Mr. Gruner, 53, started
Maynard, Massachusetts-based Shareholder.com in 1992 as Direct Report Corporation. He set up
phone banks for companies so shareholders could access taped recordings of company reports.
The phone banks marked a big jump forward in investor relations at the time. Later, the company
began developing Web-based technology.

"Quarterly reports even then were viewed as junk mail because they'd arrive in mailboxes a month
after the news was out," Mr. Gruner says.

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