April 3, 2013

SEC Permits Social Media Use for Corporate Disclosure

On April 2, 2013, the U.S. Securities and Exchange Commission (SEC) issued a press release stating that companies may use corporate social media outlets such as Facebook and Twitter “to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will be used to disseminate such information.”

NIRI members should read carefully the associated SEC documents, share this information with your management, and determine the applicability to your company’s unique situation. This development represents a good opportunity to review corporate disclosure policies, including social media use, and employee communications training.

The announcement was made coincident with the release of the SEC’s Report of Investigation concerning its inquiry into the postings of Netflix CEO Reed Hastings on his personal Facebook page regarding monthly Netflix viewership information. Netflix is a NASDAQ listed Internet television network. The SEC did not initiate an enforcement action or allege wrongdoing by Hastings or Netflix, and used its Report of Investigation to clarify “that company communications made through social media channels could constitute selective disclosures and, therefore, require careful Regulation FD analysis.”

In 2008, the SEC issued an interpretive release (SEC Release No. 34-58288) which acknowledged the use of a company website to satisfy Regulation FD disclosure requirements if the company had ensured that it met certain criteria including:

1. The website is a recognized channel of distribution of information to the market; 2. The website is a source of broad dissemination to the market; and 3. There has been a reasonable waiting period for investors and the market to react to the posted information.

As a result, whether the use of a company website satisfies Regulation FD disclosure requirements is dependent on company-specific facts and circumstances, an analysis that is the responsibility of each company and not the SEC.
The new social media guidance is similar in that the SEC leaves it for each company to decide if the use of social media for material disclosure is appropriate after a careful Regulation FD analysis. The guidance emphasizes the importance of issuers examining “rigorously the factors indicating whether a particular channel is a ‘recognized channel of distribution’ for communicating with their investors.”

Among other important points: “First, issuer communications through social media channels require careful Regulation FD analysis comparable to communications through more traditional channels. Second, the principles outlined in the 2008 Guidance — and specifically the concept that the investing public should be alerted to the channels of distribution a company will use to disseminate material information — apply with equal force to corporate disclosures made through social media channels.”

The SEC also made clear that the personal social media accounts of corporate executives “would not ordinarily be assumed to be channels through which the company would disclose material corporate information.”
Resources:

SEC Press Release:  www.sec.gov/news/press/2013/2013-51.htm

SEC Report of Investigation:  www.sec.gov/litigation/investreport/34-69279.pdf

SEC Interpretive Release on the Use of Websites:  www.sec.gov/rules/interp/2008/34-58288.pdf

NIRI Standards of Practice:  www.niri.org/standardsofpractice. NIRI will incorporate this development into its planned 2013 revision of the “NIRI Standards of Practice – Disclosure.”

Click here for a PDF version of this Executive Alert.
About the National Investor Relations Institute (NIRI)

Founded in 1969, NIRI is the professional association of corporate officers and investor relations consultants responsible for communication among corporate management, shareholders, securities analysts and other financial community constituents. NIRI is the largest professional investor relations association in the world with more than 3,300 members representing 1,600 publicly held companies and $9 trillion in stock market capitalization.