Cox Puts More Tech Into SEC
For Number-Crunching Investors, It May Become Easier to Compare
Results of Companies and Funds
By Kara Scannell
The Wall Street Journal
Wednesday, March 22, 2006
WASHINGTON – The Securities and Exchange Commission, at the
urging of new Chairman Christopher Cox, is pursuing a series of
technology initiatives that could transform how public companies
and mutual funds disclose financial data.
The proposals build on the SEC's longstanding mandate to foster
better disclosure. But they are tweaked to reflect Mr. Cox's
free-market view that financial markets armed with information
can discipline companies, an alternative to government
Among the measures, he is:
• Offering incentives to companies to disclose financial
information in a way that tags various pieces of data -- such as
revenue, profit margins and reserves -- so that investors can
compare companies against each other and across industry groups.
• Weighing the creation of a new benchmark that would allow
investors to evaluate mutual funds' performances after taxes and
fees, akin to the auto miles-per-gallon results calculated by
the Environmental Protection Agency.
• Proposing to allow companies to bypass paper forms entirely
for shareholder votes -- unless specifically requested by an
investor -- and to post proxy statements and the like on a Web
While Mr. Cox strongly supports the initiatives, any rules that
would change how companies report information to shareholders
would require majority votes by the full five-member commission.
The approach reflects the emerging leadership style of Mr. Cox,
who took the SEC helm last August: He seeks to build a
consensus and generate enthusiasm for change without mandating
it. It is a delicate act of not upsetting corporate groups but,
instead, allowing them and investor advocates to ease into
changes while leaving the door open for tweaks and refinements.
Some of those groups believe the new moves could reduce costs by
allowing for electronic communication with shareholders. Others
-- especially on the business side -- are more skeptical. They
are worried about the expense of adding new technology, and some
don't like the idea of giving investors an easy way to compare
financial results of companies.
"Modern technology -- specifically interactive data -- has the
potential to tap the awesome number-crunching and analytical
power of today's computers to make SEC reports vastly more
useful to investors, analysts, companies and, not least of all,
the SEC," said Mr. Cox in a recent speech. "Think how much
better life will be when you can not only rely on the accuracy
of the numbers, but you can instantly slice 'em and dice 'em
exactly as you please."
The various proposals aren't mandatory yet, but Mr. Cox is
clearly making them a hallmark of his tenure. He pushes the
idea of beefing up interactive data at every opportunity and has
himself talked to software companies about developing products
to analyze financial information.
"In his own quiet way, I think he's trying to revolutionize how
companies are regulated, but we won't know how this plays out
for some time," said John Endean, president of the American
Business Conference, which represents chief executives of small
and midsize companies. "The implications of it, in terms of
getting more information out there, can be profound."
Among the most sweeping proposals -- and one that would be
difficult to achieve -- is getting companies to adopt a software
standard known as eXtensible Business Reporting Language, or
XBRL. The program is designed to make it easier for investors to
"The objective is to make it easier for ordinary investors,
consumers, to make better financial decisions. Computers and
technology can help there," Mr. Cox said in a recent interview.
Mr. Cox's biggest push is to get mutual funds on board so
investors can better compare funds. On Monday, the Investment
Company Institute, which represents the mutual-fund industry,
signed on and announced an initiative to adapt and develop
tagging data for mutual-fund disclosures.
Currently, analysts or investors seeking to compare data must
pull up filings on the Internet and do their own side-by-side
comparison. Using XBRL, a company would tag each financial data
point, such as revenue, reserves or net income, with a special
code that would allow investors to compare companies without
guesswork. Ideally, software will be developed to let anybody
type in various stock symbols and parse data, however desired.
The SEC is offering faster reviews of annual reports and
registration statements to companies that volunteer to start
tagging data, but so far only nine companies -- mainly tech
companies that may have an interest in selling the software or a
piece of the business -- are filing documents in XBRL format.
Without more subscribers, few software providers are lining up
to write programs to make the technology more widely usable.
Many companies are bristling at the prospect of adding burdens
as they are still conforming to the requirements imposed by the
2002 Sarbanes-Oxley corporate-governance law. Others say they
oppose making data available for easy numbers-crunching -- just
as consumers say they don't like credit-scoring companies
manipulating their financial information.
If the SEC moves ahead with coding for just top-line numbers,
such as revenue, that may ease some concerns. If every possible
item that goes into a financial statement is tagged, it would
make it harder for companies to hide information, but it would
conform to suggestions made by some analysts' groups.
Write to Kara Scannell at