Social Media Financial Disclosure – New SEC Guidance Opens It Up, Kind Of
If you’re an SEC geek like me, the developments over the past few days concerning social media and simultaneous disclosure have been fascinating. This new SEC guidance, triggered by something Netflix CEO Reed Hastings did last July 3, has resulted in a short SEC document that is actually reasonably easy to understand (not always the case). This is a topic that often comes up with publicly traded companies so I’ll summarize it here, and include a few related links on the topic as well: the NYT Dealbook story and the CFO magazine story, as well as the SEC document (above).
(Caveat: I’m not an SEC or Reg FD specialist, but I’ve followed this for years and I play one on TV. NOTE: we are not an IR firm and we cannot give binding advice about regulated financial matters.)
So here’s a summary. In 2000 the SEC updated its ancient (1934) rules regarding disclosure of information that could impact trading of public company equities. This was a 584-page document usually referred to as Reg FD, or “the aircraft carrier.” With the rise of blogs and social media the SEC updated some of this in 2008 to address the trend of companies using online communications to convey material information. This was referred to as the Commission’s 2008 Guidance. This helped, but social media has evolved at a furious pace since 2008.
Then, in July 2012, Netflix CEO Reed Hastings used his personal Facebook page to brag that Netflix had provided one billion hours of streaming content in the month of June. This represented an enormous increase in Netflix streaming, and because previously Hastings had said that hours of streaming was a good metric for the company’s performance, the SEC viewed the Facebook posting as a potentially non-simultaneous disclosure of a key material fact. Hastings has 200,000 Facebook followers but the information took a few hours to spread and the stock rose 13% during that time. Netflix did not make an SEC filing of this information. So the issue was: did this violate SEC rules by being non-simultaneous, or is social media now so widespread that you could view this Facebook posting as simultaneous disclosure of material information?
On April 2, 2013 the Commission’s Division of Enforcement issued an eight-page report that reviewed all of this. To boil it way down: social media channels like Twitter, Facebook and company blogs are now acceptable ways for a company to disclose this type of information, but there’s a big “If.” Which is: a company must announce its social media disclosure strategy, specifying the channels it may use, so investors will know how to follow the company’s announcements. Also, a company must be consistent in using these channels, and if it changes its approach it must announce that change. Basically, if a company says something like: “we might use our Facebook page, Twitter or blog to announce material information” then interested investors can follow all those channels and the disclosures will be simultaneous.
Interestingly, the wire services that distribute press releases are all making the case this week that disclosure through social media is still is still too spotty and inconsistent, and there’s nothing like the good old-fashioned press release. They’re probably right, but now the SEC has cleared the way for companies to make social media channels a key element of their financial disclosure strategy.
Here are two useful sections from the Commission’s April 2 finding:
Specifically, in light of the direct and immediate communication from issuers to investors that is now possible through social media channels, such as Facebook and Twitter, we expect issuers to examine rigorously the factors indicating whether a particular channel is a “recognized channel of distribution” for communicating with their investors. We emphasize for issuers that the steps taken to alert the market about which forms of communication a company intends to use for the dissemination of material, non-public information, including the social media channels that may be used and the types of information that may be disclosed through these channels, are critical to the fair and efficient disclosure of information. Without such notice, the investing public would be forced to keep pace with a changing and expanding universe of potential disclosure channels, a virtually impossible task…
There has been a rapid proliferation of social media channels for corporate communication since the issuance of the Commission’s 2008 Guidance. An increasing number of public companies are using social media to communicate with their shareholders and the investing public. We appreciate the value and prevalence of social media channels in contemporary market communications, and the Commission supports companies seeking new ways to communicate and engage with shareholders and the market. This Report is not aimed at inhibiting corporate communication through evolving social media channels. To the contrary, we seek to remind issuers that disclosures to persons enumerated in Regulation FD, even if made through evolving social media channels, must still be analyzed for compliance with Regulation FD. Moreover, we emphasize that the Commission’s 2008 Guidance, though largely focused on the use of web sites, is equally applicable to current and evolving social media channels of corporate communication. The 2008 Guidance explained that issuers must take steps sufficient to alert investors and the market to the channels it will use for the dissemination of material, nonpublic information. We believe that adherence to this guidance will help, with minimal burden, to assure compliance with Regulation FD and the fair and efficient operation of the market.
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