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SEC OKs Social Media, but Public Disclosure Is More Than “Likes” and “Tweets”

The big news coming out of the Securities and Exchange Commission’s ruling on April 2 is that it’s OK for a public company to disclose material information solely via social media. That is, as long as the company takes sufficient steps to publicize the channels it will use to disclose such information.

But an even bigger question is: Why would a public company want to take that route?

The SEC’s announcement is not expected to have much impact in the short term. The use of social media has been growing – and will continue to grow – as an integral part of a strategic approach to investor communications that enhances transparency and increases engagement of key audiences.
Still, whether your company is a heavy user of social media or a relative newcomer to the concept, it’s important to understand the SEC’s position and carefully consider whether it calls for a change in strategy.  

By nature, material news is not easy to explain. “Full disclosure” means exactly that – a complete discussion of an event or other news item and its impact on the company’s performance, growth, profitability, strategic execution or related issues. It’s basically impossible to provide that kind of perspective in 140 characters, the maximun length of a post on Twitter.

And what if the news isn’t good? It’s easy to see how trading might be affected by an announcement like the one posted on the Netflix CEO’s Facebook page that the company had surpassed a milestone of streaming 1 billion hours of content to its users in the past month. If the news is not so positive – involving layoffs, closing a facility, missing earnings estimates, the sudden illness or death of a CEO, or countless other examples – the brevity and informality typical of most social media communications could result in confusion, incomplete information, misleading perceptions or a potentially negative impact on a company’s stock price or public debt.  

Control is another key issue. To comply with the SEC’s Regulation FD, companies typically have designated their website or traditional newswires as their “recognized channels of distribution.” These channels are easy for audiences to access and easy for companies to control as effective and accurate conveyors of material announcements. Maintaining or controlling a social media channel can be difficult – especially if it is an individual’s account rather than the company’s official account – and there is always a risk of hackers.

In addition, the company must make sure its audience knows where to look for information. Otherwise, as the SEC notes, “the investing public would be forced to keep pace with a changing and expanding universe of potential disclosure channels, a virtually impossible task.” While social media outlets provide unprecedented pathways for companies to engage actively with investors, the last thing you want to do is make it more difficult for analysts, investors and the media to follow your company. It is also important to remember that, while social media tools are growing in popularity within the investment community, many people are still uncomfortable using them, and some do not participate in social media at all.    

As the SEC recognizes, there are many effective ways for companies to communicate with the public. If you haven’t already done so, now is a great time to set some social media strategies for your company. Here are some steps to help guide that process:

  • Evaluate and evolve your disclosure practices and policies on a quarterly basis through an established corporate disclosure committee.
  • Meet regularly with your board of directors and management team, and make sure they understand both the potential benefits and risks of social media.
  • Create or review your company’s social media strategy and policies to take better advantage of the social media channels and complement existing communications methods.
  • Conduct a shareholder-focused social media audit to monitor conversations about your company, and determine what, if any, social media channels shareholders are currently using.
  • Observe how other companies are using social media, and learn from their successes and missteps. 

The use of social media continues to evolve and accelerate. Now more than ever, it is critical for public companies, their management teams and boards of directors to understand how to use these powerful channels to communicate successfully while avoiding the related risks.

For more information, please contact Lisa Rose at 216-241-4606 or  For additional thoughts on the capital markets and investor relations, follow Dix & Eaton on Twitter.

From Georgeson:

Game-Changer for Shareholder Activists?

The SEC’s recent comments on public companies’ use of social media to disseminate material information may have an impact on communication from other vantage points as well – such as from activist shareholders in a proxy fight. Thus, public companies will need to develop their own strategies in response.

We asked Bill Fiske, senior managing director of Georgeson Inc., a strategic shareholder consulting services and proxy solicitation firm, for his thoughts:

“In my opinion, the biggest impact from the SEC’s clarification on social media’s role in disclosure may be during activist campaigns. Dissidents may see the SEC clarification as a justification for using social media channels more aggressively to promote a wide range of actions, such as exempt solicitations, just-vote-no campaigns, shareholder proposals or full-blown proxy contests.

“The use of tailored websites in these types of contests is already commonplace and some activist shareholders have even used YouTube videos as part of their strategy. Facebook, Twitter and other social media platforms might just be the game-changers in the future of shareholder activism.”

Bill Fiske can be reached at 

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