Hellen Siwanowicz, McMillan LLP
With the increasing use of social media by companies and their executives, Canadian reporting issuers should be mindful of applicable Canadian disclosure requirements.
Following an investigation into disclosure posted by the CEO of Netflix Inc. on his personal Facebook page, the Securities and Exchange Commission (“SEC”) clarified that in certain circumstances, public companies in the United States may use social media to disclose material information so long as investors have been alerted about which social media will be used to disseminate such information. The SEC had previously issued guidance regarding the circumstances in which disclosure of material information on a company website could satisfy applicable United States public disclosure requirements.
Canadian securities regulators have not adopted rules or provided guidance that specifically address the use of social media to disclose material undisclosed information by Canadian issuers and the use of social media to disclose such information may violate applicable disclosure requirements. The content of the national policy governing disclosure, National Policy 51-201 - Disclosure Standards (“NP 51-201”), is more than a decade old.
Under applicable Canadian securities laws, except for ‘material changes’, which issuers are required to disclose by way of a press release, an issuer is not required to disclose all material undisclosed information. Subject to certain limited exceptions, Canadian securities laws prohibit issuers from making selective disclosure; that is, disclosing to a person or company material information that has not been ‘generally disclosed’.
Pursuant to NP 51-201, issuers may satisfy the ‘generally disclosed’ requirement by using one or a combination of the following disclosure methods: (a) news releases distributed through a widely circulated news or wire service; and (b) announcements made through press conferences or conference calls, if the issuer provides the public with appropriate notice of the conference or call by news release and includes certain prescribed information, such as the date and time of the call. The disclosure of material undisclosed information via social media may result in selective disclosure, in that only those persons accessing the social media used by the issuer would receive the information.
Given the current regulatory framework in Canada, issuers should ensure they have policies and procedures in place in order to reduce the risk of selective disclosure by an issuer and its executives through social media.
NP 51-201 also states that posting information to an issuer's website will not, by itself, be likely to satisfy the ‘generally disclosed’ requirement and that effective dissemination involves the ‘pushing out’ of information into the marketplace.
In addition to the restrictions on selective disclosure noted above, issuers should also consider other applicable requirements when disclosing information via social media or on their websites.
For example, issuers are required to identify forward-looking information and include cautionary language when disclosing material forward-looking information. The Canadian securities regulators, and more recently the Ontario Securities Commission (“OSC”), have identified deficiencies with respect to compliance with these requirements and note that they will continue to assess this disclosure in their review programs. Compliance with the forward-looking information requirements is important for issuers since proving compliance can provide a defence against a civil action for a misrepresentation in the forward-looking information. As another example, issuers are also required, among other things, to provide specified cautionary language when disclosing non-GAAP financial measures. Compliance with these requirements may be difficult when disclosing information using certain social media, such as messages sent using Twitter, which are limited to 140 characters.
Mining issuers are also subject to disclosure requirements set out in National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”). NI 43-101 generally requires issuers to include mandated disclosure when disclosing scientific and technical information. These requirements apply to disclosure made through social media or on an issuer’s website and the securities regulators do review issuers’ website and social media disclosure for compliance. In its 2012 Mining Report, the British Columbia Securities Commission (the “BCSC”) found that voluntary disclosure in issuers’ websites, investor relations materials, email promotions, social media sites, and corporate presentations was generally less compliant with NI 43-101 than required disclosure, such as news releases, technical reports and MD&A.
In addition, staff at both the OSC and BCSC have noted that the requirements of NI 43-101 apply to media coverage and analysts’ reports posted to or linked on an issuer’s website or through its social media. Accordingly, issuers should be cautious in including links to or posting third party disclosure on their websites or in social media, as the regulators may hold the issuer responsible if such disclosure is not compliant.
The reporting of mineral resource and reserve estimates by issuers in corporate presentations and fact sheets can be an area of deficient disclosure. With the intent of creating concise disclosure to be posted on an issuer’s website or provided through social media, an issuer may aggregate measured and indicated resources, or proven and probable reserves, in order to disclose only a few figures rather than the more fulsome reserve and resource disclosure normally found in a press release or other continuous disclosure documents. While issuers are permitted to cross-reference information in a previously filed disclosure to comply with certain of the requirements of NI 43-101, it requires that each category of mineral resources and mineral reserves be reported separately. The regulators have suggested that a summary table of estimates be prepared that may accompany the disclosure of the resource and reserve estimates to ensure compliance with NI 43-101.
In Canada, the disclosure requirements for issuers and the technology available to them to disseminate information have not advanced at the same pace. Issuers should continually monitor their disclosure through social media, websites and any future disclosure methods to ensure compliance with the current disclosure requirements.
Hellen Siwanowicz is a Partner at McMillan LLP and gratefully acknowledges the assistance of David Mendicino, an Associate at McMillan LLP, in preparing this article.