By Dennis Walsh, Vice President & Director of Social Media
The SEC finally has provided guidance on the use of social media for investor relations. The guidance came in a report on its investigation to determine whether Netflix CEO Reed Hasting had violated Reg FD. In a Facebook status update on his personal account, Hastings said Netflix had streamed 1 billion hours of content in June 2012, calling into question whether the post was selective disclosure of material information.
In its report, the SEC clarified that companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Reg FD. It’s the moment we’ve all been waiting for, but with some key caveats.
By way of background, the SEC issued 2008 Guidance primarily directed at the use of websites as well as blogs, forums and RSS feeds. But the guidance did not address social media outlets such as Twitter, Facebook and LinkedIn. The SEC’s main point was that a company must demonstrate that it has taken steps to establish an outlet as a recognized channel of distribution before it can use that outlet to announce material disclosures. Since that time, social media has become nearly ubiquitous. But in the absence of guidance from the SEC, the IR profession has generally shied away from using it.
What IR practitioners were waiting for, was for someone to push the social media envelope a bit too far, and in a way that would force the SEC’s hand to come out with definitive guidance. Reed Hasting emerged as that someone.
So where does this leave us? The SEC encourages companies to “seek out new forms of communication to better connect with shareholders,” including social media. They remind us, however, that the “analysis of whether Regulation FD was violated is always a facts-and-circumstances analysis.”
Two things must be considered, the SEC states:
1) Companies should have a thorough process in place for determining whether an announcement is material and if the disclosure method meets Reg FD requirements; and
2) Companies have a duty to alert the investment public to the channels of distribution (including social outlets) they will be using to disseminate material information.
The SEC report also makes clear that, although no action will be taken against Hasting, they would not have considered the disclosure in question to have been made within the confines of Reg FD. Although more than 200,000 people subscribe to receive Hasting’s Facebook status updates, the SEC would be unlikely to deem it a qualified method for disclosure.
In light of this guidance, public companies should take four steps if they plan to build social media into their IR strategy:
- Update the corporate website, including the IR section, by providing links to any social media outlet on which the company plans to make announcements about recent developments.
- Alert investors to the corporate social media accounts in all public communications. This can be as simple as telling investors to follow the company on Twitter/StockTwits, Facebook, LinkedIn etc. in the “About the Company” section of each news release. Some companies have issued news releases to announce their social media for IR programs.
- Establish an approval process for all communications on social media and include it in your disclosure policy. Be sure to provide education and training on Reg FD to the employees in charge of the corporate social media accounts and confirm that they understand and agree to comply with the disclosure policy.
- If the strategy includes engaging with investors via social media, let them know during quarterly conference calls. Some companies, including FedEx, allow investors to submit questions via Twitter. They provide instructions on how to do so at the beginning of each quarterly earnings call.
For now, public companies should still continue to adhere to traditionally accepted methods of disclosure for all new material information, including filing an SEC Form 8-K and/or issuing a news release. Overall, however, if used properly and in compliance with Reg FD, social media can serve as a valuable extension to an IR program by creating new opportunities to connect with existing and potential shareholders.
Dennis Walsh is Vice President & Director of Social Media at Sharon Merrill. He counsels clients on a broad array of investor relations and corporate communications issues such as market research, competitive intelligence, earnings announcements, investor targeting, roadshow planning and social media. Dennis oversees Sharon Merrill’s Socialize IR consulting service, which is designed for public companies that recognize the benefits of incorporating social media into their shareholder engagement program.
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