Be 'best of breed' in governance disclosure: there is great ambiguity in Sarbanes-Oxley not only about what information pertinent to your governance should be distributed but also about where and how to distribute it.

• Author: Ellison, Michael
• Position: Investor Relations - Related article: Your Web site: Investor-friendly Best Practices

IF INQUIRIES FROM our clients are any measure, the recently enacted Sarbanes-Oxley bill (S-O) has certainly put the cat among the corporate pigeons. Much of S-O tells companies what they should do but is silent on just what information should be distributed, and how it should be done. The net result, of course, is corporate confusion.

There are really two issues. The first is corporate governance per se. There is no question that publicly held firms are under greater pressure to govern themselves correctly and honestly, in a way that benefits all of their stakeholders, not just management. Most firms know what they should do, and they should do it.

The second issue, and the one that is of concern here, is that of communication--that is, how should firms release the information that is pertinent to corporate governance?

There is considerable ambiguity about what information should be distributed. For example, S-O requires mandatory rotation of lead partners of a company's audit firm (not the firm itself) every five years. But it does not say whether the remaining term length of the partner should be announced. S-O says that the audit committee should contain at least one financial expert. But again, it is generally silent as to how, or even if, the information about board composition should be disclosed.

The issue of where and how to distribute relevant information is only a little clearer. Most people have inferred that the required information should be posted on the corporate Web site in some fashion. Interestingly, the entire bill mentions the words "Internet" or "Web site" only rarely. Indeed, there is no requirement for a company to even have a Web site. The only requirement is that firms publicly disclose required information on a timely basis in the form of commission filings.

Given the fact that almost all publicly held companies have an Internet site, and given the ubiquitous usage of the Internet, the Securities and Exchange Commission seems to have accepted that disclosure of required information on a company's Web site, specifically the section of the site the company normally uses for its investor relations functions, qualifies as public disclosure.

Off the hook?

Overall, it appears that if companies appropriately complete the various forms that are required (proxies, 10-K, 10-Q, 8-K, etc.) and then provide appropriately labeled hyperlinks to EDGAR, to third-party providers, or to their own site, firms are off the hook as far...