The SEC Has Opened the Social Media Door; Should You Walk Through?
On April 2, 2013, the Securities and Exchange Commission (SEC) issued a report that outlines how companies can use social media outlets to disclose information and remain in compliance with Regulation FD. The report was the result of the SEC’s investigation of statements made on Facebook and Twitter by Netflix CEO Reed Hastings, where he announced a “viewing” milestone for his online movie and TV rental company. While the investigation centered on whether Hastings violated Regulation FD, Hastings has maintained that his disclosures were neither material, nor exclusive.
From my vantage point, while the SEC’s new report opens the door for companies to disclose information via social media, it’s only propped open a crack and not enough that I’d encourage every company to use social media for this purpose. For one thing, a company is compliant only if it has previously communicated to investors that it plans to use certain social media outlets for news and information, and if access to these social media outlets is unrestricted. Following is more information about the report, what it means for your company, and what the risks are for communicating material information via this means:
What has changed?
The use of social media outlets is now included in the SEC’s interpretive release (34-58288), which in 2008 allowed company websites to be used to make disclosures under Regulation FD. The appropriate use of social media, like websites previously covered under this release, is the responsibility of the company. Websites and social media must be used according to the following rules:
- They must be recognized as a channel of distribution of information to the market
- They must be a source of broad dissemination to the market
- There has to be a reasonable waiting period for investors and the market to react to any posted information
What does it mean for your company?
The new rules offer more options for distribution of material disclosures to the investment community. Now you can use social media channels like Facebook and Twitter to reach out to investors. Because you can move beyond the press release for disclosures, the SEC ruling marks an important step toward incorporating social media outlets as a way to disseminate material information effectively.
What are the risks of using social media this way?
As I mentioned above, the SEC sees social media use as an extension of its previous rulings on company website use; however, you still need to avoid selective disclosure pitfalls:
- Companies should clearly define how they will use each social media platform, including identifying the people allowed to post information. They also should put procedures in place to ensure information on social media platforms is issued at the same time it is available on the company’s website, press release, etc. Social media should not be used as a primary channel, or as an “early warning” system for material news.
- Your company must alert the market about which social media outlets it plans to use for disclosures, and state specifically what types of information will be disclosed there. This plan should be posted on your company’s investor relations website. Before posting, however, you’ll need to decide which social media outlets are right for your company—one size does not fit all.
- Careful consideration should be given to the faster pace of information flow in the “world of social media.” While social media outlets provide the ability to disseminate material information to the investment community quickly, a thoughtful, strategic and measured approach to sharing important news is the preferred approach in most cases.
While we view the SEC decision as positive—as it expands your ability to disclose information in a rapidly growing area, it is still not clear how many investors actually use social media to get news on public companies. Institutional investors, in particular, still appear to be more reliant on traditional disclosure sources (e.g., press releases, SEC filings). We advise our clients to view social media platforms as an extension of their overall IR activities, and not as a primary channel to communicate with investors.
At Westwicke, we help our clients develop and enhance their investor relations disclosure programs, including strategies that include optimization of your investor relations website and social media channels. Contact us for more information that can help with your IR decision making, and sign up for our newsletter to learn more about this and other IR-related topics.
Mike Piccinino is a Managing Director on Westwicke's medical technology and diagnostics teams. He has extensive experience in the buy-side investment process. He has a BA from James Madison University.
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