Is someone at the SEC really listening? – A significant clarification on the use of social media and Regulation Fair Disclosure for Public Companies

Posted by on April 3rd, 2013

In January of this year, I wrote the SEC criticizing their decision to possibly bring a claim against Netflix (NASDAQ: NFLX) for violation of Regulation Fair Disclosure.  I reminded them that it had been almost 5 years (August 2008 to be precise) since the regulatory body had issued its last bout of guidance.  It was then that the SEC basically condoned the use of corporate websites as an acceptable means to accomplish disclosure of material information.

Well, as we all know, the world has significantly changed since 2008 from a technology perspective – especially with respect to social media and mobile.  Websites back then were the norm – now they are somewhat mundane.  Mobile devices and social media were nowhere close in development and proliferation to what they are today.

In my letter to the SEC, I stated that given what has transpired over the past few years with respect to technology, they needed to update their commentary on Reg FD so that future Netflix situations would not occur. I argued that new guidance was needed to incorporate and allow for the growing importance of social media and mobile technology in public company communications.*

Well, I received a response from the SEC’s Chief Counsel, Thomas Kim, dated February 26 (and surprisingly not a form letter) that said:

“Although the guidance we provided in the 2008 release is principles-based, and therefore applicable to new or different types of social media and mobile technology communications, we appreciate hearing your thoughts on additional guidance that may be helpful in this area.  In the event that we decide to update our guidance, we will consider the information you have provided to us.”

I am not sure what transpired between February 26 and yesterday, but kudos to Mr. Kim and the SEC for really considering the importance of social media to public company communications.  By essentially acquitting Netflix and condoning the use of social media, the SEC is finally working to be ahead of the curve and to strive to prevent the next Internet Bubble from bursting.

The SEC’s statement yesterday said the following:

“The SEC’s report of investigation confirms that Regulation FD applies to social media and other emerging means of communication used by public companies the same way it applies to company websites.”

This is a significant development for public companies and the investor relations industry.  While I don’t want to take credit for this development, I can’t help myself.

What does it mean?  It means that public companies should no longer refrain or be concerned about communicating important information via social media channels like Facebook and Twitter.  It acknowledges that social media is here to stay and that companies should not only acknowledge this but should embrace the importance of this relatively new medium as a way to communicate.  And it confirms that times are a changing and that even bureaucratic organizations like the SEC are willing to listen and can sometimes be provocative and amenable in embracing new ideas.

Notwithstanding this success, additional clarity and guidance is still required. But let’s not look a gift horse in the mouth.  As I did in my letter to the SEC earlier this year, I proffer thoughts on best practices on what a public company should do to ensure compliance with Reg FD when using social media:

  • Indicate each of the means by which it intends to communicate in its most recent Form 10-K.
  • For the dissemination of any material piece of information, file a Form 8-K and post material information to the investor section of its corporate website.
  • Be consistent and utilize all of the social media channels so indicated in its Form 10-K.

While not formalized at this time, what’s to think that the above 3 bullet points might not eventually be incorporated into a future SEC statement?  The SEC clearly considered my thinking in their decision to exonerate Netflix.  To the extent public companies should now embrace social media as part of their IR strategies, they should consider the above as a safe haven when doing so.

* For a copy of my letter to the SEC and the SEC’s response, please email jcorbin@kcsa.com.