Disclosure buzz: thoughts on the SEC's social media rules

The SEC’s new guidance on social media disclosure prompts praise, criticism – and a few shoulder shrugs

The SEC set the investor relations community all aflutter with its guidance in April on corporate disclosure via social media. Following an investigation into a Facebook posting by Netflix chief executive Reed Hastings – at the end of which the regulator declined to take any punitive action – the commission said companies are permitted to use social media to publish material information, as long as they let investors know in advance which channels they intend to use.

‘Companies should review the commission’s existing guidance – it is flexible enough to address questions that may arise for firms that choose to communicate through social media,’ said Lona Nallengara, acting director of the SEC’s division of corporation finance, in a statement.

The news received a mixed reaction from IR professionals and service providers. The SEC won praise from some market participants for tackling the issue of modern channels of communication, but also drew criticism for undermining the principles of ‘fair disclosure’. Some commentators point out that little will change in practice. Here we gather reaction from across the capital markets.

Social nicety: Goldman Sachs tweeted its appreciation for the SEC’s new guidance
Social nicety: Goldman Sachs tweeted its appreciation for the SEC’s new guidance

The IRO: Matt Sonefeldt, head of investor relations, LinkedIn

Not that much has changed, other than that it authorizes the use of social media as a disclosure channel. I think best practice is still going to be just making sure whatever content you share over social media is Reg FD compliant.

For us, the website will continue to be where investors expect information to be, and the blog is an extension of that website. We don’t do a great deal of social media for the investor community at LinkedIn, but we handle any sort of communication through any channel the same way.

Our chief executive’s idea is to be active on social media but not about LinkedIn; he is active about highlighting interesting content, or news articles, or congratulating people, but from a communications perspective we run a pretty tight ship and everyone is encouraged to go to social media training.

Social media are another area of your communication strategy. They give you way more channels, broader channels, but they’re really no different from any other channel you use – they’re still going to be danger zones. Companies that decide to, off the cuff, disclose things in a way that isn’t normal will probably still raise the eyebrows of the SEC.

The lawyers: Jay Herron, partner, and Shelly Heyduk, counsel, O’Melveny & Myers

The SEC’s Netflix investigation report is a welcome development recognizing the growing use of social media. Companies should be thoughtful, however, in how they implement the SEC’s guidance.

While alerting investors is now clearly a prerequisite to Reg FD compliance, companies should also consider other factors mentioned in the commission’s 2008 release addressing the use of company websites to assess whether any particular social media channel on its own is adequate for the dissemination of material information.

For example, the 2008 SEC release suggests that a communications channel can be used to publicly disseminate material information only if it ‘lead[s] investors and the market efficiently to information about the company, including information specifically addressed to investors’ and is also ‘known and routinely used for such disclosures.’

A company’s general Facebook page, Twitter account or company blog often contains significant amounts of information, uncategorized by importance, about company developments, promotions, products and events. An executive’s personal Facebook or Twitter account also often contains immaterial information. The use of these channels to disseminate material information may be akin to asking investors to find a needle in a haystack.

To ensure important information will reach all investors efficiently, therefore, companies should consider identifying and using separate company blogs or Facebook or Twitter accounts that are dedicated exclusively to investor communications.

The IR consultant: Dennis Walsh, vice president and director of social media, Sharon Merrill

It is unlikely companies will start using social media platforms as the sole channel for disclosing material information. It is more likely we will see IR professionals becoming better educated on social media, getting involved in the process at companies with an existing social media presence, and using social media outlets as additional channels to communicate news.

The new SEC guidance provides a safety net for companies in the event information is unintentionally disclosed via social media outlets. Should this happen, the commission will investigate whether the proper steps were taken to inform investors about a company’s plan for using social media channels and whether there was a process in place to determine the materiality of information shared via social media.

Therefore, companies should let investors know about their social channels via the IR website and other public-facing materials, including news releases. It is also important to establish an approval process for what is communicated through social media and include it in your disclosure policy. And, of course, it is essential to provide Reg FD training for those in charge of corporate social media accounts.

The newswire executive: Neil Hershberg, senior vice president of global media, Business Wire

The SEC’s report on the possible use of stand-alone social media platforms to meet disclosure runs contrary to the original intent of Reg FD, which sought to create a level playing field that enabled all investors to have equal, unrestricted access to market-moving information. The report’s unintended consequences threaten to affect market fairness, security and stability, further undermining investor confidence in an increasingly fragmented marketplace.

Social media should be viewed as a supplement to – not a substitute for – simultaneous, real-time distribution that services such as Business Wire already provide. In addition to our service’s ubiquitous reach, additional benefits include an audit trail in the event of a regulatory investigation, an editorial review that routinely catches client errors, and network security and redundancy, which are subject to rigorous validation audits in multiple jurisdictions.

It is vitally important not to lose sight of what Reg FD is all about: creating a disclosure model where all market participants have equal access to actionable corporate data, and promoting an environment where material news is freely available equitably and inclusively to the entire investment community.

The website and app developer: Darrell Heaps, co-founder and CEO, Q4 Web Systems

When the SEC release came out, a lot of people focused on the black-and-white issue of whether companies would use social media exclusively for disclosure rather than using it as an added component of disclosure. Although interesting, I believe this misses the point. I think the important thing about the SEC release is less about the black-and-white disclosure issue and more about the commission’s support of social media use in the market.

A case in point is the inclusion into Bloomberg of Twitter as a news source, which I think will have a bigger impact on the market than the SEC release. Integrating Twitter into Bloomberg means companies now have a direct connection to institutional investors, as they’ve never had before. This is part of an overall trend with social media being integrated into institutional desktops and decision making. Bloomberg is the leader: all other desktops will follow.

The reason public companies should be using social media has never been stronger: combining the awareness and liquidity benefits with a direct connection to the institutional desktop, it is clear social media for investor relations are here to stay.

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  1. CollinsIR

    Until Social Media has the same focus and broad access as other modes of communication, it is just not ready to be the initial source of material disclosures. For instance, a good % of firms prohibit employees from accessing key social media channels - making such channels less than ideal for meeting Reg FD compliance. And the needle in the haystack analogy is woefully insufficient in describing what you are up against as this Washington Post article reports that users send 400M twitter messages PER DAY. http://articles.washingtonp... How can you thread that needle to find key market and stock moving information? Seems like step backward rather than a step forward.

    But social media can be a "force multiplier" in getting your message in front of a broader base of potential viewers - through Facebook, Twitter, StockTwits, SeekingAlpha and an array of other sources. Further, the use of # hash tags and standardized stock symbol nomenclature ($symbol) helps to categorize content for easier access/discovery. And once your social media activity is known and followed, it will be increasingly effective at reaching your investor audience.

    Given that existing disclosure distribution (via Edgar & wire services) methods are robust and instantaneous, social media seems to have more relevance for getting your story in front of those who have never heard of your company before or those who are not actively tracking your progress.

    That the SEC has condoned the practice is a great step forward, as it should help ease the paralyzing fear many companies have about trying anything new. One issue that could use some resolution by the SEC in our view is the Safe Harbor for forward looking statements - and the requirement that the Safe Harbor appear along with the forward looking statements (and be updated to reflect the current risks and uncertainties relative to the information being reported) in order for the statements to be included within the safe harbor. I think this relates more to the Class action activity around corporate communications than it relates to SEC enforcement - but not being an attorney I'm not certain. Bottom line, most such safe harbor paragraphs are mind numbing assaults on one's intelligence that come as close to a Monty Python comedy routine as we've every seen.

    To solve this issue (and reduce the cost of disseminating disclosures!) we strongly urge that the SEC consider altering its rules to allow companies to maintain their safe harbor discussions at some central location or locations such as their website and/or within their SEC filings or in a specific Edgar page (if not dropped all together!).

    That way the Safe Harbor can be referenced and found without it having to be repeated each time or included as a link on each social media post that includes forward looking statements.

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