Caught in the Web.

• Author: Prentice, Robert

Managing financial-disclosure risks on your corporate web site takes vigilance. Are you on solid ground?

The world wide web is a user-friendly platform from which companies may communicate with a large and growing number of financial information consumers. Companies connect with current shareholders and potential investors in ways undreamed of a few years ago. However, some experts believe presenting financial and other information via corporate web sites may increase a company's litigation risk. Our survey of the financial content of over 400 such sites finds some companies indeed engage in potentially risky practices.

Labyrinth Possibilities

Federal securities anti-fraud rules, especially Section 10(b) and accompanying Rule 10b-5 of the 1934 Securities Exchange Act, shape corporate disclosure and dissemination of information. They impose obligations of accuracy and completeness, and dictate the content and timing of disclosures. And the SEC has made it clear that existing securities laws apply to electronic disclosure.

Legal theorists say the safest policy for corporate web site disclosure is to post only information previously or simultaneously released through traditional outlets. Assuming such information has been vetted for release through an established internal review process, using a corporate web site as an additional venue for dissemination shouldn't increase an issuer's liability risk in a significant way. However, creating web-specific content or adapting existing documents for web presentation may increase a company's exposure.

We searched the Internet for web sites for 490 companies, and found 402 (82 percent). These companies represent a variety of industries, corporate size and profitability. We catalogued the financial content of each site to gauge the relative prevalence of benign and potentially risky practices.

Fortunately, most of the items at the majority of the sites appear to fall into the relatively innocuous category of exact replications of previously released information. By far, the most common are financial news releases (at 80 percent of the sites). Other common items are stock price links (57 percent), quarterly reports (54 percent), links to EDGAR (50 percent) and annual reports (45 percent). However, some companies present information in ways that may increase their litigation risk. Here are five.

1 Annual report excerpts

Seventeen percent of the companies present only selected portions of their annual...