Published on March 6, 2014
Tweets, Likes and Other Disclosures: Social Media and the New Corporate Message A LexisNexis® White Paper
Highlights • An increasing number of public companies are using social media outlets to communicate with their shareholders and the investing public. • The SEC has permitted the use of social media to announce key information in compliance with Regulation FD. • Investors must be alerted to the specific social media that will be used to disseminate corporate information. • What might seem to be a progressive move by the federal securities regulator is making some corporate executives and their legal counsel nervous. • The SEC’s guidance was general, leaving room for error in a rush to communicate with shareholders and potential investors who are eager for information. • Public companies planning to use social media to disclose material information should follow established best practices as part of an overall investor relations strategy. Introduction Marshall McLuhan’s profound observation that “the medium is the message” is often misunderstood. It is assumed the 20th-century communications theorist meant that channels of mass media eventually take precedence over the content they deliver, but that’s not the case.1 McLuhan’s notion of a medium was “any extension of ourselves,” which could easily be a wheel or a Walkman®. The message the medium conveys is found in “the change of scale or pace or pattern” that it introduces into human affairs—in other words, how the medium transforms people. In the mid-1800s, for example, the telegraph transformed the world. By accelerating the pace at which business was conducted, the telegraph (medium) resulted in a populace that came to expect instant gratification in matters of discourse, regardless of distance (message). What today’s Internet is telling us is still unclear, even if we know its message is vastly more complex than the telegraph’s.2 Indeed, that message will likely be at least as far-reaching as the medium itself. And social media are increasingly a part of whatever story is unfolding—as Corporate America is about to discover in ways it probably could have never imagined. A Brave New World In April 2013, the Securities and Exchange Commission (SEC) cleared public companies3 to use social media outlets such as Twitter® and Facebook® 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.” Regulation FD requires companies to distribute material information in a manner reasonably designed to get that information out to the general public broadly and non-exclusively. It is intended to ensure that all investors have the ability to gain access to material information at the same time. “An increasing number of public companies are using social media to communicate with their shareholders and the investing public,” the SEC noted. “We appreciate the value and prevalence of social media channels in contemporary market communications, and the commission supports companies seeking new ways to communicate.” In effect, the SEC recognized that it, too, cannot ignore the growth and power of social media, and it responded by laying out some ground rules. Reacting to the new guidance, the global investment banking and securities firm Goldman Sachs turned to its Twitter account (twitter.com/goldmansachs) and tweeted “thanks” to the SEC. It was a sentiment that many in the business community shared. But what might seem to many to be a progressive move is actually making some other companies nervous. For one thing, the SEC’s guidance was general, leaving room for error. Some executives may be rightfully worried about those in their organizations with “itchy Twitter fingers,” while balancing a desire to communicate with shareholders and potential investors who are eager for information. Tweets, Likes and Other Disclosures: Social Media and the New Corporate Message
Testing the Waters Best Practices for the Social Era In fact, the move to allow social media as a channel for delivering company information was prompted by an SEC investigation into a Facebook posting by Netflix® founder and CEO Reed Hastings.4 In July 2012, Hastings had boasted on his personal page within the social media site that his company had exceeded one billion viewing hours in a month for the first time. The posting was quickly picked up by others and redistributed through various online publications and content aggregators. As a result, the company’s share prices rose. Indeed, social media are essential channels in today’s world, and there is good reason to act prudently when using them to announce financial and other key information to investors. For example, on the same day it issued a quarterly earnings report in early 2013, PepsiCo Inc. sent out more than a half-dozen messages from its official Twitter account (twitter.com/pepsico) and included snippets from profit numbers and dividend payouts as well as comments from the company’s CEO. However, those details were included in a traditional earnings news release issued earlier in the day and the tweets included links to the original document. Such tactics are a good start for public companies planning to use social media to disclose material information. Some law firms, such as Philadelphiabased Pepper Hamilton LLP (pepperlaw.com) recommend other best practices. A commentary posted on the firm’s corporate website shortly after the SEC guidance was released includes several key “Pepper Points” that are particularly instructive.5 For example: • “Disclosure on designated social media outlets should be coordinated as part of a company’s overall investor communication strategy.” • Such disclosures should be “subject to the same rigorous constraints and procedures as disclosures through other public means such as press releases or earnings conference calls.” • “Officers, directors and employees should be cautioned against disclosing any confidential company information...other than through approved channels and procedures.” Netflix CEO Reed Hastings’ July 2012 Facebook post. At the time, the commission indicated that Netflix and its CEO seemed to be acting in a manner that was at odds with the fair-disclosure rules. They hadn’t previously used Hastings’ personal page to announce important company information; moreover, they had not alerted the public that the site could be used for that purpose. Hastings argued that with more than 200,000 followers, his personal page was very much a “public forum,” where it could be reasonably expected he might share Netflix-related details. With the April 2013 ruling, the commission cleared Hastings of any wrongdoing and said it wouldn’t pursue civil charges in the matter. A spokesman for Netflix said afterwards, in a tone that mixed determination with diplomacy, that the CEO “views social media as an important method of communication and, consistent with the SEC’s guidance in this area, will continue to do so.” Those practices, and others like them, will help shape “the message” that will come from corporate use of social media as a platform for dialogue with shareholders and others. What that message will be is anyone’s guess at this point. But the medium is there now. All that remains is to see what is done with it and find its hidden meaning. That will happen—with time. Tweets, Likes and Other Disclosures: Social Media and the New Corporate Message
The Solution for Legal Professionals Through access to billions of SEC documents and records, late-breaking news and analysis of critical developments, and insight and guidance from leading securities practitioners, LexisNexis® Securities Solutions help litigators and transactional attorneys find and access the information they need to handle complex securities matters. To learn how you can stay at the top of your game in the rapidly changing environment of securities law, visit www.lexisnexis.com. For more topics that are transforming the legal industry, visit www.thisisreallaw.com. This document is for educational purposes only and does not guarantee the functionality or features of LexisNexis® products identified. LexisNexis does not warrant this document is complete or error-free. If written by a third party, the opinions may not represent the opinions of LexisNexis. 1 Mark Federman, “What is the Meaning of The Medium is the Message?” McLuhan Program in Culture and Technology, University of Toronto, http://individual.utoronto.ca/markfederman/ article_mediumisthemessage.htm. 3 U.S. Securities and Exchange Commission, “SEC Says Social Media OK for Company Announcements if Investors Are Alerted,” April 2, 2013, http://www.sec.gov/News/PressRelease/ Detail/PressRelease/1365171513574#.UqYWk2RARD8. 2 Tom Standage, The Victorian Internet: The Remarkable Story of the Telegraph and the Nineteenth Century’s On-line Pioneers, http://www.amazon.com/The-Victorian-Internet-RemarkableNineteenth/dp/0802716040. 4 Netflix, Officers and Directors, http://ir.netflix.com/management. cfm. 5 Robert A. Friedel and Andrew D. Kupchik, “Corporate and Securities Law Alert: Social Media Use by Public Companies – The SEC Weighs In,” Pepper Hamilton LLP, April 4, 2013, http://www.pepperlaw.com/publications_update. aspx?ArticleKey=2602. LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license. Other products or services may be trademarks or registered trademarks of their respective companies. © 2014 LexisNexis. All rights reserved. BMH00417-0
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