PRSA: Welcome to the 21st Century, SEC: How Companies Can Work Social Media into their Disclosure Process
BY JEFF CORBIN
On April 2, the Securities and Exchange Commission (SEC) took an important step into the 21st century when they stated that public companies can use social media as a means to disseminate material information. They did so in the context of exonerating Netflix CEO Reed Hastings of liability based on a prior accusation that the company had violated the regulatory body's Regulation Fair Disclosure (Reg FD) rule.
The question that people in the investor relations industry are now asking is: What should public companies do next? How should companies incorporate social media into existing investor relations programs? Do companies even need to engage with investors via social media?
In this case, there isn't a clear-cut answer to any of these questions that we can draw from the statement that the SEC issued. On April 2, the SEC said that it is acceptable for companies to use social media. It didn't say any more, once again leaving the door open for interpretation.
On July 3, 2012, Netflix CEO Reed Hastings posted a comment to the company's Facebook page which said, "Congrats to Ted Sarandos, and his amazing content licensing team. Netflix monthly viewing exceeded 1 billion hours for the first time ever in June. When 'House of Cards' and 'Arrested Development' debut, we'll blow these records away. Keep going, Ted, we need even more!"
The SEC then sent Netflix a Wells Notice alleging that Hastings' post was improperly disclosed material news and that the Commission was commencing an investigation into whether the company had violated Reg FD. In last week's statement, the SEC rescinded its claims against Netflix and, in doing so, made the following statement: "The SEC's report of investigation confirms that Regulation FD applies to social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."
Other than this statement, the SEC didn't give further guidance or commentary.
This past January, I wrote a letter* to the SEC criticizing its determination to potentially bring a claim against Netflix. I reminded them that it had been almost five years - from August 2008 to the present - since the regulatory body had issued its last bout of guidance. At that time, the SEC condoned the use of corporate websites as an acceptable means to accomplish disclosure of material information.
The world has significantly changed since 2008 from a technology perspective - especially with respect to social media and mobile. Websites were the norm, whereas now, they are somewhat mundane. Mobile devices and social media were nowhere close in development and proliferation to where they are today.
In my letter to the SEC, I stated that they needed to update their commentary on Reg FD so that future Netflix situations would not occur. I argued that new guidance was necessary to allow for the growing importance of social media and mobile technology in public company communications.
From the past two recessions (the recession of 1999/2000 when the Internet bubble burst and the present Great Recession), we saw that lack of clarity and guidance from the SEC is what eventually gives rise to a crisis that the SEC is forced to address from behind the eight ball after the fact.
So, rather than wait for future Netflix situations to present themselves or a future economic crisis to occur, why doesn't the SEC act now and help public companies understand what they can do and what they can't - what they should do and what they shouldn't do with respect to social media and IR communications?
While we wait for the SEC to issue clearer guidance, companies will continue to struggle with how to approach the behemoth that is social media. As companies begin to think about working social media into their disclosure process, I recommend the following approaches:
- Establish a social media policy that guides the company and its employees about who can and cannot communicate on behalf of the company, the tone/messaging of social media usage and the timing of social media engagement.
- Conduct a social media audit to identify which channels can best reach a company's investor base.
- Once the channels are determined, create IR-specific handles and pages to disseminate material news.
- Specify these disclosure channels in an upcoming Form 10-K (or amend an existing Form 10-K) to indicate that these social media channels and other disclosure methods (traditional newswire services, filing of Form 8-Ks, posting to corporate website, etc.) will be used going forward by a company to disclose material information.
- Begin to disseminate all material news specified in the Form 10-K, and continue to adhere to this process until a company decides to change its dissemination procedures in a subsequent Form 10-K.
It is important to keep in mind that the ultimate objective is compliance with Reg FD. Social media is not the end, in and of itself - it is simply a means to this end.
Notwithstanding my criticisms, the SEC's statement in April is a step in the right direction. It makes clear that social media is an important means of communication, that it is here to stay and that companies need to consider how they intend to use it. It confirms that times are a changing and that even bureaucratic organizations are willing to listen and can sometimes be amenable to embracing new ideas and technology.
* For a copy of my letter to the SEC and the SEC's response, please email firstname.lastname@example.org.
Jeff Corbin, CEO of KCSA Strategic Communications, is the author of "Investor Relations: The Art of Communicating Value." The second edition was released earlier this year and includes a chapter directly addressing social media and how to effectively use it to communicate with investors.
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