SOCIAL MEDIA AND IR

April of this year saw a landmark development in the social media realm as it pertains to investor relations: The U.S. Securities and Exchange Commission (SEC) released a report outlining its position on the use of social media platforms such as Facebook and Twitter to disclose material information.

And to demonstrate the point, in May Yahoo (NASDAQ: YHOO) CEO Marissa Mayer announced  the company’s acquisition of Tumblr, on her own, newly created Tumblr page.

The guidance was nine months in the making and was in fact precipitated by an incident that occurred in July 2012. You may recall that Netflix Inc. (NASDAQ: NFLX) CEO Reed Hastings suddenly found himself the subject of an SEC investigation because of information he had selectively disclosed on his personal Facebook page.

At issue was the fact that Mr. Hastings had decided to share with his friends that Netflix had streamed one billion hours of content that month. This was a milestone achievement by the company’s internal measures. It also resulted in a 6% bump in Netflix’s share price on the day of his Facebook post. His actions were seen to be in violation of the SEC’s Regulation Fair Disclosure (Regulation FD) section of the Exchange Act which “prohibits public companies, or persons acting on their behalf, from selectively disclosing material, non-public information to certain securities professionals, or shareholders where it is reasonably foreseeable that they will trade on that information, before it is made available to the general public”. In other words, the SEC thought he should have disclosed through the normal 8-K filing or press release channels.

In the end the SEC decided not to pursue an enforcement action against Mr. Hastings but instead opted to address the questions raised as a result of what had occurred.

Key points of the ruling

The SEC’s Report of Investigation, issued on April 2, 2013, confirmed that social media and other emerging communications technologies are subject to Regulation FD and therefore can be used to disseminate information to investors. However, two key provisions must be met:

• Investors must be told where to find the information – the ruling states that social media tools such as Twitter and Facebook are considered perfectly acceptable as disclosure tools, but investors must be made aware what channels they should be monitoring;
• Access must not be restricted – one set of shareholders must not be allowed to get the jump on another, so careful analysis of each tool under consideration must be done. The tool cannot be selective, have permissions or other barriers in place that would block general access (e.g. you must be my ‘friend’ to be able to see the information).

Basic guidelines

It was only a few short years ago, in July of 2008, that the SEC ruled that websites had become an acceptable distribution mechanism for public information – if investors have been made aware that's where to look for it.

Does that sound familiar? This latest disclosure ruling is consistent in tone and content.

In the SEC's report on its ruling, Lona Nallengara, Acting Director of the SEC’s Division of Corporation Finance, stated, “Companies should review the Commission’s existing guidance – it is flexible enough to address questions that arise for companies that choose to communicate through social media, and the guidance does so in a straightforward manner.”

What lies ahead?

What we need to recognize is that neither of the SEC’s decisions were really about disclosure, be it via websites or by using social media channels. Rather they were intended to acknowledge the ongoing evolution of investor audiences.

As the boomer generation settles into retirement and generation X and Y give way to the millennials, you can easily argue that there has never been such a diverse group of people to keep happy and informed – from the ones who don’t even own a computer to the ones who are connected 24/7.

The SEC’s rulings were made to ensure that companies will have the flexibility to meet the information needs of their owners.

"An increasing number of public companies are using social media to communicate with their shareholders and the investing public," the SEC noted in its report. "We appreciate the value and prevalence of social media channels in contemporary market communications, and the commission supports companies seeking new ways to communicate."

The fundamentals haven’t changed

In the end, stakeholders continue to want what they have always wanted – accurate, timely and comprehensive information from acceptable sources, with the shortest possible delay. But considering that today’s technologies allow for information dissemination at a rate that was unthinkable just 20 years ago, it is wise for IR professionals to keep abreast of trends in disclosure and material releases.

We will always need to reach all stakeholders; the question is, how are they consuming information now?

Related Resources:

SEC Press Release dated April 2, 2013: SEC Says Social Media OK for Company Announcements if Investors Are Alerted

http://www.sec.gov/news/press/2013/2013-51.htm

SEC Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc., and Reed Hastings

http://www.sec.gov/litigation/investreport/34-69279.pdf

SEC Press Release dated July 30, 2008: SEC Provides Guidance to Open Up Use of Corporate Web Sites for Disclosures to Investors

http://www.sec.gov/news/press/2008/2008-158.htm

Tumblr + Yahoo! — It’s Officially Official.

http://yahoo.tumblr.com/post/53441093826/tumblr-yahoo-its-officially-official 

Sonja Galton is Web and Communications Specialist at Agnico Eagle Mines in Toronto.