On April 2, 2013, the Securities and Exchange Commission issued a report that makes clear that companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Reg FD) so long as investors have been alerted about which social media will be used to disseminate the information.
What does this mean for your publicly traded company? It presents great opportunities—as well as noteworthy challenges.
There are many ways to use social media to create authority and influence, and today’s consumers are likely to make investing and purchase decisions based on what they find on social media platforms. A carefully designed social media strategy has become a valuable component to any marketing plan. But keep reading if you find yourself starting to wonder if social media has become the be-all and end-all solution.
Because we live in a wired world, everyone can gather critical information about your company in minutes, instead of weeks or months. The potential pitfalls of using social media include violating Reg FD, disclosing confidential information and risking possible legal action for invasion of privacy or defamation. Add the fact that whatever you decide to post on social media outlets must overcome significant built-in barriers to entry that require your desired audience to set up accounts and agree to “Terms and Conditions” that they may find objectionable. It was only this past summer when Instagram notoriously declared that it owned its users content, and had the right to use this content as it deemed appropriate. After a revolt and mass departure by its users, the company reconsidered this policy, but there are no guarantees that Instagram—or any other social media outlets—might not make similar changes to their Terms and Conditions in the future. If you need more reasons to be wary of the liabilities that come with sailing the treacherous waters of social media, consider security. Pop star Justin Bieber and Louisville basketball player Kevin Ware are just two examples of celebrities who have countless “fake” accounts set up by others. What’s the simplest answer for why this happens? It’s easy. The barriers to enter these sites are low, and likely will not ever be raised because the valuation of social media companies is largely based on numbers of users rather than your content’s security. Another reason is reliability: Outages are common as these systems go down. Just this past week, LinkedIn, the “business” social media outlet, was issuing a stream of apology emails for drops in company updates.
In 2008, the SEC issued another report outlining the limits of sharing information. It put companies on notice that they and their employees will be held liable for the information they post online. Although the SEC continues to refine these guidelines, no public company should adopt a wait-and-see attitude toward the dangers inherent in the use of social media. One irresponsible Facebook post or Twitter comment can result in SEC or shareholder retaliation. Further, it is of utmost importance to note that these are SEC “reports,” not “policy”—which is a safe way for the SEC to take no responsibility for the ramifications, but rather to put the liability in the adopters’ hands, to be tested by the court system. If you doubt this, try calling the SEC offices for clarification of a report. You will be told to consult your own counsel.
The 2008 SEC guidance about dissemination of corporate news on the Internet primarily describes when information posted on a company website is “public” for purposes of Reg FD, along with company liability parameters for information “disclosed” on websites. The SEC recognizes that companies may post information, and have that information be considered “disseminated,” without having to place the same information on a newswire or on a Form 8-K. The SEC guidance also discusses the use of “interactive website features” as a means to disseminate information to the public.
However, five years later, these declarations are still very dicey waters, and prudence is the best policy. CEOs of small cap companies would be wise to recognize that both of these reports represent yet another gross misunderstanding of the unique challenges faced by smaller public companies vs. the Googles, Microsofts and Sun Microsystems (which led the way in challenging dissemination protocol and initiated the creation of all these new social media “reports.”)
As stated above, Reg FD prohibits selective disclosure of material nonpublic information. The two main principles are 1) that companies are required to publicly disclose any material information that they disclose selectively, and 2) selective disclosure of material information that is already public will not violate the regulation. When the SEC first adopted Reg FD in 2000, it acknowledged that companies might be able to rely solely on the web to disseminate disclosure, yet emphasized that web disclosure alone might not be considered sufficient.
The guidance further states, “Since all communications made by, or on behalf of, a company are subject to the antifraud provisions of the federal securities laws, companies should consider taking steps to put into place controls and procedures to monitor statements made by or on behalf of the company on these types of electronic forums.” Corporate policy regarding social media should also outline what should not be discussed or addressed on employee blogs, Tweets or Facebook pages, and should incorporate applicable federal securities law obligations governing the dissemination of information for public companies. Where necessary, they may also require the use of standard disclaimers.
Interestingly, the SEC has its own Twitter account, and encourages companies to communicate to investors via the web. In July 2009, the Commission said companies could disseminate certain information on the web without issuing a news release. Still, companies have been hesitant to jump in and for good reason: There will always be someone waiting to shoot down your management team and your company’s progress, and you don’t want to give them ammunition to claim “inadequate disclosure.”
For informed, up-to-date discussions of the implications of these guidelines, it is wise to regularly search the web for articles on these issues using search phrases like: “Corporate Tweets and the SEC,” “Facebook and the SEC,” “Public Company Disclosure on the Internet” and so forth.
All companies should establish a social media policy before using blogs, Facebook, Twitter, Instagram, LinkedIn, Pinterest or whatever’s next. They also ought to include the standard disclaimers used in traditional communications, and take care not to disclose financial or other information unavailable elsewhere. Not to be foreboding, but who can imagine what the first class-action social media lawsuits will look like as they challenge lack of Safe Harbor Statements or references to the Acts of 1933 and 1934!
Another thing to consider when thinking about starting a corporate Twitter or Facebook page: It can be compared to a conference call Q&A that never ends. Few CEOs would declare their love for the uncertainties that arise during quarterly conference call Q&As. Yet no matter how misinformed and unfair remarks about you or your company might be in these “public” forums, responding in kind is usually the wrong strategy. As tempting as it is, prudent advice is: Don’t jump into the fray. Put out your company news and keep putting it out—but do it via news releases disseminated on respected wire services, post it on your website, and share it in the blogosphere and elsewhere. Then, if you’re so inclined, add it to your social media feeds. Make sure whatever material you put out addresses inaccurate or vitriolic comments and misconceptions, but without quoting the comments exactly—after all, you don’t want to give them unnecessary attention or make them more searchable. And as a final warning: Don’t just post the glory. Lawsuits will certainly arise one day when some group of shareholders says, “I followed the Twitter feed and it was all sunshine and roses!” when in fact, the feed might not have promoted a full mosaic of the company’s strengths and weaknesses in the way that news released via traditional outlets does. It’s very hard to give a complete corporate picture in 140 characters!
Bottom line: It’s very important to have an up-to-date corporate media strategy in place. This strategy must clearly articulate external and internal policy. It should encompass your company’s position regarding external communication to investors and the media regarding your corporate participation on social media sites, as well as internal policy stating parameters of employee participation on social media sites (including your corporate sites), as well as what your employees are allowed to say about your company and your company’s products on their private sites.
Managing a public company is more challenging than at any other time in history. It is of utmost importance to be the controlling force for your corporate reputation and messaging. This is best accomplished by getting to know all the available tools and always choosing the broadest possible dissemination outlets within your budget. When in doubt, get professional advice. And if that advice tells you social media is where it’s at: Proceed at your own peril.