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News Update: The SEC and Electronic Reporting

Two recent developments suggest a greater commitment by the SEC to transparency via electronic reporting.

All public companies in the US are required to file the bulk of their public reports in electronic format. The repository of these documents (known as EDGAR – Electronic Data Gathering and Reporting) is made publicly available via the SEC’s website. This repository, known as EDGAR (Electronic Data Gathering and Reporting), goes back to 1996. It represents a hugely valuable resource for investors, analysts and corporations themselves and is the largest and most comprehensive such system in the world.1

1. Earlier this month SEC’s new chairman, Christopher Cox, expressed his support for introducing the XBRL2 reporting format more widely: “SEC’s New Chief Has a Thing for High Tech”.

Presently, the SEC only requires that ownership filings on forms 3, 4 and 5 be filed in eXtensible Markup Language (XML) format.

Since the beginning of 2005 the SEC has had in place an XBRL Voluntary Program. It is, as yet, an experiment to determine the costs and benefits of widespread adoption. Companies that wish to do so can file reports in XBRL format, based on US GAAP standards of financial reporting. A handful of companies appear to have experimented with this system in filing some 8-K and 10-Q reports. These remain unofficial, unaudited documents, supplemental to the official documents filed in HTML or text format.

2. On Tuesday the SEC announced that it was proposing a rule change that would let companies and proponents of competing solicitations post their corporate election materials on the Internet: “SEC Plan Would Let Firms Put Ballot Materials Online”.

This rule change supposedly entails reduced costs to issuers as well those mounting challenges to incumbent management. Furthermore, online availability of corporate election materials may increase the efficiency of the communications with beneficial owners via intermediaries, such as banks and brokers.

The Business Roundtable last year proposed rule changes to the current shareholder communications system, particularly with respect to companies’ access to intermediaries’ (such as brokers and banks) beneficial shareholder lists, in order to facilitate more direct communication between companies and shareholders.

This petition has been widely opposed by shareholder democracy advocates as well as smaller companies, mostly with reference to the advantage that this would give larger companies in corporate elections relative to shareholder activists, who would not have access to the same channels of communications or resources to exploit them. It is interesting to consider how the proposed rule change on electronic reporting of corporate election communications relates to these concerns.

Furthermore, the proposed provisions would not be binding – it appears that companies will be able choose whether or not to make use of this rule change. It is unlikely that they would opt-in to such a system where incumbent management fear this could weaken their position in corporate elections.

The important test of this proposal will, therefore, be whether it shifts the balance of control over the shareholder communications process (already skewed against shareholder activists) even more in favour management of public corporations.

The discussion period over the next 60 days will shed some light on the implications for shareholder democracy.


1. The Canadian counterpart of EDGAR, SEDAR (System for Electronic Document Analysis and Retrieval)), is an electronic repository of Canadian public company reports, mostly in Portable Document Format (pdf). It is the project of the Canadian Securities Administrators.

2. XBRL, which stands for eXtensible Business Reporting Language, comprises a set of standards for presenting business and financial information in a XML format using a standard set of tags. This will facilitate automatic comparisons across companies, reporting periods, groups of companies, and even reporting jurisdictions using different accounting standards. XBRL International is the international non-profit consortium that has been driving this process since 1998.

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