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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 regulation.

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 site.
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 compare companies.

"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