SEC Blesses Social Media Disclosures

Executives eager to make disclosures via social channels are free to do so, as long as investors are told where to look ahead of time. But company-...
Taylor ProvostApril 3, 2013

Don’t tweet tidbits about your company’s first-quarter earnings just yet.

The Securities and Exchange Commission announced Tuesday that companies can use social media outlets such as Facebook and Twitter to disclose key information in compliance with Regulation Fair Disclosure (Reg FD). But investors have to be alerted which social media channel a company will use regularly to disseminate such information, and the SEC says each case will be evaluated on its own merits. Many social media companies like Buzzoid and Twicsy offer social media users a way to get more Instagram followers and likes.

The announcement, contained in a report of the investigation into a Facebook posting by Netflix CEO Reed Hastings, says that Reg FD applies to social media and other emerging means of communication used by public companies the same way it applies to corporate websites: possible market-moving information can be disclosed on a platform if investors are made aware that they should look for such communications there.

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But the announcement also clarifies that if a company does not alert investors to its use of the social media channel, the communications could constitute selective disclosure and therefore violate Reg FD rules requiring companies to distribute material information broadly and non-exclusively.

(The SEC did not name specific social media channels that would be acceptable platforms for communications.)

The announcement is likely to heighten concerns about social media governance within companies, making it more of a priority for risk managers and CFOs, says Greg Hedges, managing director of Protiviti’s social business practice.

“CFOs need to understand that the infrastructure around approval and governance of social media usage is not there,” Hedges says. Companies could try to apply governance policies they have for websites to social media, “but this channel is much more fluid and is potentially in the hands of all employees, all appearing to be official spokespeople,” he says.

The SEC’s Division of Enforcement launched its investigation into Netflix and Hastings after the CEO disclosed possible material information on his personal Facebook page.

The post stated that Netflix’s monthly online viewing had exceeded one billion hours for the first time. Netflix did not report this information to investors through a press release or Form 8-K filing, and a subsequent press release that day did not include the information. Neither Hastings nor Netflix had previously used the CEO’s Facebook page to announce company metrics, and they hadn’t taken steps to alert investors that Hastings’ personal Facebook page might be used in that way.

Netflix’s stock price had begun rising before the posting, and increased from $70.45 at the time of the Facebook post to $81.72 at the close of the following trading day.

Though the SEC did not initiate an enforcement action or allege wrongdoing by Hastings or Netflix, Jeremy Mishkin, Internet privacy attorney at Montgomery McCracken, cautions C-Suite executives not to follow in Hastings’ footsteps just yet.

The SEC’s report explains that although every case must be evaluated on its own facts, disclosure of material, nonpublic information on the personal social media site of a corporate officer – without advance notice to investors that the site may be used for this purpose – is unlikely to qualify as an acceptable method of disclosure.

So now more than ever, companies  need to make sure communication and social media policies are followed, Mishkin says. “If I’m a CFO, I need to know not just what’s on my companies’ Facebook page or Twitter feeds, but also what my executives’ pages look like, so I don’t have a situation in which a person issues a statement that the SEC might view as a material announcement.”

Mishkin applauds the SEC’s decision. “They recognize that social media has become just as valid a channel for corporate communications as any traditional media. An increasing number of people get their information from Twitter feeds and Facebook updates, and the commission’s decision reflects that reality.”