Managing Web Site Risks Effectively
Micalyn S. Harris, Winpro Inc.
More and more companies are investing in electronic real estate, also known as
web sites, as a cost effective way to communicate to shareholders, analysts and
potential investors. Dissemination is instant and global, and the potential for
enhanced publicity at minimal cost is hard to resist. But posting information
on a web site is untargeted publication, and in the absence of legal review,
such publication may subject a company to liability suits from the very
audience it is targeting.
It follows that any information placed on an Internet web site deserves the
same level of review as that type of information receives in connection with
its traditional method of distribution. If traditional distribution is limited,
then additional review is advisable, as it is for informational which is "made
public." In additional, categories of information not subjected to legal review
should be clearly defined and materials placed on the web site placed in those
categories, and without legal review, should fall clearly within a defined
category. It is necessary to define clearly those categories of information
that aren't subject to legal review and are included in a web site. Whenever
possible, it's advisable, at least in the beginning and until the parameters of
various categories are clearly established, for legal counsel to review all
materials posted on a company's web site.
Understanding the Risks of Press Releases
Press releases are the traditional means of disseminating information by
publication. Posting them on a web site can be a good way to enhance
dissemination; and particularly effective for small companies whose activities
are not regularly covered in the press. When published in newspapers, press
releases have a limited "life"; dissemination occurs, if at all, within a day
or two of the date of the press release. When posted on a web site, there is no
inherent limit on the duration of dissemination; it remains on the company's
web site until it is removed.
Having a web site means, therefore, not only making a decision as to whether
the company will post all press releases on its web site, but also how long
press releases will be posted, when they will be removed, and on what basis
Whether a policy is established to post all press releases for a certain number
of days and then remove them, make a decision based on the contents of each
release, or establish other standards with regard to web site postings, it is
incumbent on the company to establish some policy for dealing with
posting and removing press releases from the company web site.
Resolving the issue by not posting any press releases has its own risks to the
extent that including them becomes standard either in a company's industry, or
for domestic companies of similar size. Under such circumstances, if a company
has a web site and there are no press releases on it, the absence of press
releases may be seen as indicating there aren't any. To the degree their
inclusion is expected, if they are not included, it may be advisable to have an
affirmative statement that the company does not post press releases on its web
Whatever the specifics, having a web site requires a company to take
responsibility for posting information, removing it in a timely manner, and for
using methods which do not result in the removal itself creating misimpressions
Minimizing the Risk of Class Action Suits Resulting from Web Site Postings
Involving Financial Projections
In recent years, companies have been encouraged by financial analysts and the
SEC to make financial projections. In some cases, projections are required, for
example, to indicate the likely outcome of existing trends. (See e.g. Item 303
of S-K, and instructions for Management's Discussion and Analysis.) In
addition, investment analysts make projections based on company filings,
reports, meetings with analysts and press releases. Forecasts which turn out to
be erroneous, particularly forecasts which turn out to be overly optimistic,
may send the price of a company's stock plummeting, and give rise to
disappointed investors filing class action lawsuits.
Consequently, the risks of web site publication include increased risk of
shareholder lawsuits resulting from publication of allegedly misleading or
inadequate information, particularly in connection with forecasts that turn out
to be overly optimistic.
The increased risks connected to web sites arise in several ways. Included are
intertwining sales and financial information, intertwining financial
information and analysts' reports, and failure to update information which has
become stale or inaccurate due to subsequent developments.
When a company's stock price plummets unexpectedly, plaintiffs' counsel in
such suits is likely to scrutinize the allegedly offending company's web site
for misleading or inadequate information. Attention must therefore be given to
what such counsel is likely to find.
Often, a company will have its most recent SEC filings - reports on Forms
10-K, 10-Q and 8-K 0 - on its web site. A company may also post its annual
report, often carefully not "filed" except for financial statements and
MD&A. Particularly when the annual report is more than six months old, the
CEO's letter to shareholders, and other semi-promotional descriptions of the
company's business and operations, may be overly optimistic or inaccurate due
simply to corporate or industry changes. Products may have been withdrawn, line
extensions may have been added, divisions may have been sold, shrunk or
A web site which includes language separating promotional information from
straight financial information, and clearly distinguishes between them, will
have fewer risks than one which does not. Similarly, a web site which regularly
removes stale information and updates information on its site will increase its
accuracy and thus reduce the risk that its postings will be used against it.
Companies which are followed by analysts may wish to provide links to analysts
reports, particularly favorable analysts reports. Doing so may be seen as
"adopting" those reports with which it links, thus placing the company's
imprimatur on their accuracy and providing a basis for plaintiffs' lawyers to
argue that the company is responsible for a favorable report by an independent
analyst, including any inaccuracies that the report contains.
One solution is to provide links to reports of all analysts who follow the
company, regardless of whether the reports are favorable or unfavorable, with a
caveat that such links are provided for the convenience of persons who may be
interested, that the reports are written by independent analysts, and that the
company takes no responsibility for such reports, including without limitation
any inaccuracies which they may contain. Another solution is to provide a list
of such analysts, but no links, again with warning language advising that the
company provides the information for convenience and takes no responsibility
for their accuracy. A third solution is to provide neither links nor a list.
Whether the benefits of linking only with favorable reports are outweighed by
the increased risk of shareholder suits if the reports turn out to be overly
optimistic is a decision best made in consultation with securities counsel. If
there is to be linking by the company, a more conservative approach would be to
link with all reports known to be available, emphasize that such linking is
permitted for the convenience of interested persons but that such reports are
made by parties independent of the company and the company takes no
responsibility for analysts' reports, thus permitting web site visitors to
choose which to view and how to evaluate them.
Whether or not a company chooses to provide links to analysts' reports may be
irrelevant to the links being available. Unless a company takes steps to limit
access to its web site, for example by requiring password identification, any
web site may incorporate links to other web sites. Thus, affirmative disavowal
of responsibility for analysts' reports, including any inaccuracies they may
contain, is advisable whether or not the company provides links.
Where forward looking information is included on a company's web site,
inclusion of risk factors is also advisable. If, for example, a company posts
its10-K report on its web site, a reference or link to that section of the
report which discusses risk factors may be advisable. Where the 10-K is not
posted but promotional information is, it may be advisable to consider
including risk factor information from the 10-K, particularly when a company's
stock is known to be high risk, and the company anticipates that it will appeal
to people likely to learn about it through its web site. This includes "high
tech" companies or others who originally offered their stock for sale via a
company web site, or anticipate doing so in the foreseeable future.
Recent informal statements by members of the SEC staff members indicate that
general references to risk factors stated in a 10-K may be insufficient to
bring a company within the "safe harbor" for forward looking statements. Accordingly,
companies will want to consider carefully how to structure specific links and
Web Sites Require Management
Having a web site requires on-going attention to its contents, whether changed
or unchanged. We live in a dynamic world. Information on a web site is
continuously disseminated. Companies which have web sites which disseminate
inaccurate, incomplete or inadequately current information can expect to find
themselves at greater risk of suffering challenge from disappointed
shareholders, prospective shareholders, and dissatisfied customers than
companies which actively and thoughtfully manage their web sites to provide
timely information to interested visitors.
Able management of corporate web sites includes being aware of not only
securities law issues, but marketing issues, customer relations issues and
other legal and related concerns. For example, confidential information which
becomes available on the Web, and thus the Internet, is no longer confidential.
Trade secret protection is not available to information once it is available on
the Internet. On the other hand, publication on the Internet does not mean that
copyright protection is lost.. Copyright laws apply when copyrighted materials
are made available on the web, and thus permission to incorporate copyrighted
materials of others as a part of a company's web site may have to be obtained.
Where a web site includes an interactive facility, enabling visitors to ask
questions about a company's product or services, good customer relations
requires that the company respond promptly to queries and complaints posted at
its site. If a company cannot respond promptly, it may be better not to provide
the facility and avoid the ill will resulting from long delayed responses to
questions and comments.
Some Additional Thoughts on Risk
Additional risks may arise with regard to timing of disclosures, particularly
when a company is in the process of making a public offering of securities. In
this area, it has been suggested that having materials available on a web site
might cause them to be included as part of informational presentations to
prospective underwriters, thus exposing the company to liability for web site
contents in the same way as if they had been made available at the presentation
site. Such a position seems extreme, but to date, there are no formal
guidelines on the point.
Other issues arise in connection with the extra-territorial effect of a web
site. For example, clear guidelines remain to be articulated as to whether, and
if so, to what extent, a U. S. parent company of a foreign subsidiary is
responsible for monitoring the contents of the subsidiary's web site.
Similarly, it is also unclear if a U.S. company makes a securities offering
only outside the U.S., the SEC may take the position that the U.S. based web
site is limited to reporting what could be placed in a U.S. newspaper based in
a country in which the offering was being made. U.S. regulators have expressed
concern regarding effective protection of U.S. investors when information which
would constitute an "offering" in the U.S. is made available from a non-U.S.
web site which can be accessed by U.S. investors, but acknowledge the
difficulties of extra-territorial application of U.S. law. [Note: after
publication of this article, the SEC issued several releases on this subject.
See e.g. Release Nos. 33-7516, 34-39799 and International Series Release No.
In short, a variety of legal issues remain unresolved. The technology is still
evolving, too. The opportunity for assuring instant dissemination of accurate
information relatively inexpensively makes it likely that the use of corporate
web sites will increase. It will be a challenge to web site designers,
corporate and securities lawyers, and more generally, companies and corporate
issuers and underwriters, to utilize the expanding potential of web sites
wisely and well.
This article provides general information, and represents the views of the
author(s). It does not constitute legal advice, and should not be used or taken
as legal advice relating to any specific situation. Brief portions may be
quoted with attribution, including the name(s) of the author(s) and citation to
the publication in which they first appeared.
1997, Micalyn S. Harris; All Rights Reserved. Cite as: Micalyn S. Harris.
"Managing Web Site Risks Effectively." 1 wallstreetlawyer.com No.1,
June, 1997. This version may vary, in minor respects, from the final printed