Digitally savvy corporations can finally stop worrying that their last Tweet or Facebook post might have inadvertently disclosed material information to investors. The Securities and Exchange Commission recently issued a new “Guidance Update” that provides welcome direction on when and how social media may be used by publicly traded companies while remaining in compliance with federal regulations.
The SEC has long been concerned with timely disclosure of company information to the public. In 2000, the agency promulgated Regulation FD in an effort to prevent earnings and other important information from trickling out to investors and the public at large. Through the use of the SEC’s online filing system, EDGAR, and the processes set forth in Reg FD, timely notification could be made. The problem? Reg FD does not address the digital world we now live in.
Facebook’s one billion users and Twitter’s 500 million users have the capacity to share information faster and more widely than the wire service. For example, the passing of former British Prime Minister Margaret Thatcher generated 900 comments per minute on social media during the first three hours of the news being released.
There is little doubt that social media will have an important place in the future of information and news gathering, yet the SEC has been slow to reach that conclusion. The SEC’s decision was a long-time coming, but it seems to have been expedited by a Facebook post by Netflix CEO Reed Hastings last July. In the post, Hastings touted the success of the company’s streaming option, which resulted in the SEC issuing both he and Netflix a Wells Notice advising of a pending investigation into their social media activities.
Still, SEC decision-makers had become aware of the digital behaviors of corporate leaders as early as 2006. Then, Sun Microsystems CEO Jonathan Schwartz publicly questioned the inability to announce material information on corporate websites and blogs. Schwartz appealed to the senses of SEC Chairman Christopher Cox, pointing out that a company Web site was likely more accessible to the public than a teleconference or press release. Two years later, the SEC agreed and issued the 47-page Commission Guidance on the Use of Web Sites.
Four years later, public companies were still stuck operating under regulations promulgated in 2000 and mildly amended in 2008, and that still did not address the growing use and adoption of social media. Taking a page from Sun Microsystem’s playbook, Netflix appealed directly to the SEC. Nine months later, the regulatory body dropped its claim against Hastings and Netflix while also issuing the “Guidance Update” permitting the use of Twitter, Facebook and other social media. The only caveat? Companies must tell investors which sites they will use to issue their material disclosures.
Corporations, which have actively taken to using social media to disseminate information of all kinds, now face a new frontier and the difficult task of determining how much disclosure is enough in the eyes of the SEC. The new guidance may raise more questions than it answers. Corporations will now have to consider the following when contemplating social media use for company announcements:
- Will Facebook’s new rules requiring brands to pay to reach more followers result in fewer followers seeing announcements?
- Must a company disseminate information across multiple social media platforms, or is a single platform enough?
- Should all company information disseminated via social media also be filed with the SEC, to ensure compliance with Reg FD?
As social media continues to evolve, continued guidance from the SEC will be necessary. Hopefully, it will recognize its goal of timely disclosure is helped, not hurt, by the use of social media.
Mickey G. Nall, APR, Fellow PRSA, is 2013 Chair and CEO of PRSA.