On April 2, the Securities and Exchange Commission (SEC) issued a statement that social media is now considered an acceptable means for disclosing material information by public companies
. While this action affirms that the SEC has, in fact, entered the 21st century, further clarification is required before public companies will be comfortable using this new means of communication for purposes of disclosing material news.
Material information is defined as that which the average investor would consider important in determining whether to buy or sell stock in a public company.
Just hours after the SEC issued its statement, KCSA Strategic Communications
conducted a spot survey of more than 25 investor relations professionals and CFOs of public companies. The survey revealed that 77 percent of those interviewed do not think the SEC had given enough guidance on how to use social media to disclose company information, and, as a result, are refraining from using it in their communications.
This isn’t a surprise given how vague the SEC’s statement was. George Canellos, acting director of the SEC's division of enforcement said, “Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don't know that's where they need to turn to get the latest news.”
That’s not saying much. The last time the SEC issued guidance on Regulation Fair Disclosure (Reg FD) was back in 2008 when it condoned the use of a corporate website as a suitable place to accomplish disclosure. Five years ago social media was in its infancy, but has quickly become an accepted and even respectable place to obtain information of all kinds.
Reg FD says that publicly traded companies must disclose material information to all investors at the same time.
The SEC’s latest action was the result of Netflix CEO Reed Hastings revealing via Facebook in December 2012
what the SEC considered to be material company information. Hasting’s Facebook post sparked an SEC probe and prompted the question of how public companies can use social media and remain in compliance with Reg FD.
As a response to the SEC’s action, in January of this year, I wrote the SEC to admonish them on their stance against Netflix given their silence on Reg FD for a period of more than five years. In my letter
, I suggested that the SEC acknowledge that social media can be used as a disclosure source so long as companies continue to adhere to the principles of Reg FD. I suggested that they update their antiquated guidance on Reg FD as follows:
• Require that a company indicate each of the means by which it intends to communicate in its most recent annual report on Form 10-K (for example, state that it will disclose via traditional newswire and/or specify which social media channels, it intends to use.);
• Require that companies file a Form 8-K, and post such information to the investor section of a company’s corporate website, for the dissemination of any material piece of information;
• Make sure companies are consistent and use all of the social media channels and other means of intended communications that are indicated in a company’s Form 10-K.
Of the investor relations professionals surveyed by KCSA, only 38 percent currently use social media in their investor communications. Of the 62 percent of companies that do not use social media, 86 percent indicated they would be willing to if the SEC provided clearer guidance.
While the SEC statement is certainly a step in the right direction, one thing is abundantly clear: The SEC needs to give further guidance and provide greater clarity before investor relations professionals will feel comfortable incorporating this important means of communicating into their IR programs.
Once again, the ball is in the SEC’s court.
Jeff Corbin is CEO of KCSA Strategic Communications.