DECEMBER 18, 2006
Viewpoint
By Mike Dillon
A New Standard for Transparency
Mike Dillon, Sun's general counsel and corporate secretary, wants to work with the SEC on delivering info over the Web
Editor's note: This is the second of two perspectives on the risks and rewards of corporate blogging (see BusinessWeek.com, 12/14/06, "Corporate Blogs: Handle with Care").
A few eyebrows were raised and more than a few stories written following Jonathan Schwartz's October blog post suggesting that the spirit and letter of Regulation Fair Disclosure, or Reg FD, could be addressed exclusively via the Internet. As chief executive of Sun Microsystems (SUNW) and an early advocate of executive blogging, Schwartz believes in the efficacy of the Internet as a means of driving openness and transparency throughout the corporation.
As Sun's general counsel and corporate secretary, I strongly support this view—and beyond just executive blogging and investor transparency. Openness and transparency are critical to conducting business in today's global marketplace. Markets are conversations. Openness and authenticity are vital factors in the sales cycle and in bringing products to market.
Transparency is paramount in attracting and retaining the best talent, in growing and cultivating a partner and customer base, in demonstrating a commitment to the environment and the community, and, in the post-Enron era, in reinforcing confidence among investors and analysts.
Destroys Barriers It's easy to talk about transparency. The reality is that it takes effort, planning, and courage to open your corporation to outside scrutiny and, in the case of the technology industry, to unveil the inner workings of critical products and make that knowledge freely available for use by all—what we call open source.
Somewhat counterintuitive, this free distribution of intellectual property in no way diminishes revenue opportunities but rather destroys the barriers to adoption, which in turn leads to a higher volume of products in the market. And volume drives value for customers, partners, stockholders, and employees.
Unfortunately, making the design and development of products transparent is not as easy as flipping a switch or making a board decision. There are enormous legal hurdles to be cleared before software can be released in open source.
Agent of Change Companies must be able to deliver software free of royalties and free of impediments to global adoption and deployment. Software must be broadly accessible to developers but also available with the protection of intellectual property indemnification for our commercial customers. Accomplishing this is a huge legal task (and, frankly, one that swims upstream against traditional corporate legal thinking).
In many large corporations, the legal department has the reputation of being the "no, I'm sorry but you can't do that" department. But if openness and transparency, in terms of technologies or business processes or investor access, are the goal, then the legal experts must help lead the charge, not hold the business back.
This is an enormous shift in corporate culture and one of the reasons I decided to start my own blog. I not only want to participate in the market conversation but also to demonstrate that our legal department is an agent of change and advancement in today's evolving market.
Which leads me back to my opening question: How can corporations use the Internet to provide even more openness and transparency to investors? The Internet is the most powerful democratizing force the world has ever witnessed. It permits free, open, instantaneous access to information regardless of geography or position.
Tens of Millions We find the Internet represents a far broader user base than those subscribing to traditional forms of media. As such, it is our opinion that easily accessible CEO blogs and company Web sites provide simple and broad access to information and should be recognized as satisfying the objectives of Reg FD.
For those unfamiliar with blogging and other new media techniques, this assertion may be received with skepticism. To the tens of millions of people actively engaged in business and information gathering on the Internet, it certainly isn't.
In conjunction with Schwartz's blog post on Reg FD, a letter was sent to Christopher Cox, chairman of the Securities & Exchange Commission. Chairman Cox has long been regarded as a supporter of the Internet and a leader in the drive towards bringing greater transparency and access to information for individual investors.
Therefore, it came as no surprise that Chairman Cox replied to Schwartz's letter as a comment on Schwartz's blog. "Among the questions that would need to be addressed is whether there exist effective means to guarantee that a corporation uses its Web site in ways that assure broad non-exclusionary access, and the extent to which a determination that particular methods are effective in that regard depends on the particular facts," Chairman Cox wrote.
These are questions that we believe can be addressed to permit corporations to drive greater transparency through use of the Internet. We are eager to work with Chairman Cox and the SEC on this issue and wholeheartedly encourage other interested parties to join the discussion. As Justice Brandeis famously stated, and as investors certainly know, "sunlight is the best disinfectant."
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