Public Companies Must Provide Timely Information to Private Investors (4/1)

Public Companies Must Provide Timely Information to Private Investors

With the proliferation of online brokerage services like E*Trade and Quote.com, investing is not just for Wall Street any more. Private individuals are playing the market in larger numbers, hoping to catch on to the next hot option. As the street continues to gain easier access to the stock markets, companies are facing new challenges from the Securities and Exchange Commission (SEC) to assure the fair distribution of information that might affect the trading decisions of private individuals.

"We have made it plain to companies throughout the country that those companies which treat institutions or others preferentially, giving them information before they give it to individuals, are ones that we are going to take a very serious look at," states Arthur Levitt, chairman of the SEC.

Levitt, like many other national leaders, is calling for a leveling of the playing field by issuing market-moving information to securities analysts, institutional investors and individual investors simultaneously. Currently, analysts and institutions gain more timely access to such information, and this knowledge can influence stock prices before the private individual is ever privy to the data, placing him or her at an unfair disadvantage.

"The individual investor has re-emerged in great numbers, largely through online trading, with demands for equal and timely access to all material information from public companies," says Ron Gruner, president of Direct Report Corporation, a shareholders communications firm based in Massachusetts. "It is in the best interest of companies to provide individual investors with important financial information at the same time that it is made available to others."

However, meeting the increased demand for this data by individual investors is creating significant challenges for many investor relations (IR) departments. In addition to time spent answering the increasing requests, there are significant financial costs involved in the process of publishing and distributing the information in a timely fashion. This growing need for information has started a new trend in service providers: the electronic shareholder communications firm.

This new breed of service firms assumes the burden of leveling the playing field for all investors, regardless of size, by distributing information to all interested parties over the Internet via e-mail and Web sites, as well as more traditional methods, like 24-hour telephone operators, recorded messages, automatic fax-back and fulfillment mail services. Many services, like Shareholder Direct and Bowne & Co., are even providing electronic annual meetings and electronic proxy voting services to shareholders.

A recent Down Jones survey indicates that more than 30 percent of active investors are using the Internet to collect investment information and research - and that number is expected to double during the next two years. Gruner says investors are literally massing in cyberspace -- circling and clicking through the Internet looking for the best place to land interesting and relevant information on their investments.

"These investors expect and demand financial news and information on their investments that is absolutely up to date, is easy to access and digest, and is presented in a relevant and compelling context," says Gruner. "The smart IR department will understand that if its corporate site does not present financial content that is timely and complete, that the investor will be just a click away to a site that is."