In view of the ever-increasing use of social networking sites as a form of general communication, such as Facebook and Twitter, the SEC recently forewarned public companies that corporate communications policies and procedures need to encompass disclosures that may occur in the social media realm. According to the SEC, these kinds of communications must be monitored for compliance with Regulation FD’s restrictions on the disclosure of material non-public information.
A company’s social media policy should address, among other things, who is authorized to use the company’s social media channels, whether company communications on social media channels are required to be preapproved by persons from the legal and/or communication departments, any guidelines that could impact the personal use of social media by company employees and whether material nonpublic information about the company will first appear on company social media channels. The SEC has stated that a company may satisfy its Regulation FD public disclosure requirement through any method of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public. Whether social media channels qualify as a broad, non-exclusionary distribution of information to the public is critical to assessing Regulation FD compliance.
Companies should also take care not to use social media or other written communications in a manner that could be viewed as the solicitation of a proxy. As defined in the SEC proxy rules, a “solicitation” includes, among other things, the furnishing of a communication to shareholders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy. In an era in which shareholder communications and increased disclosure and transparency are encouraged, companies should choose their means of communicating, as well as the timing and content of their communications, with care in light of this broad definition. For example, a tweet or other communication from the CEO discussing the current economic climate and its impact on the company’s business, would not ordinarily be a solicitation. On the other hand, a communication urging shareholders to support an anticipated company-sponsored proposal could be a solicitation because it seeks to influence the outcome of an anticipated vote.
Practical Considerations. Disclosure on designated social media outlets should be coordinated as part of a company’s overall investor communication strategy. Companies should consider the following, among other issues, in connection with the recent guidance of the SEC in this regard:
- Companies should consider whether disclosure in addition to or instead of conventional means (such as a press release or Form 8-K) would be advantageous to them and then develop a policy establishing one or more social media outlets through which it would disclose material nonpublic information, who would be responsible for posting information, how the information would be posted and indicating that disclosure of material nonpublic information relating to the company in other social media outlets is prohibited.
- If a company determines to use one or more social media outlets instead of conventional means for disclosing material nonpublic information, it should identify these social media outlets and the means for accessing them in the company’s periodic reports, press releases and on the company’s website in order to alert investors to watch those social media outlets for important news and information about the company.
- Any social medium used must disseminate the information in a manner that provides unfettered access by the public to the information by subscribing to, joining, registering with or monitoring the social medium.
- Companies utilizing social media for corporate communications should implement controls to ensure that all social media communications on behalf of the company are true and complete and that the company controls the timing to comply with Regulation FD and to avoid premature disclosure.
The central focus of the SEC’s guidance in this area is whether the public company has made investors, the market, and the media aware of the channels of distribution it expects to use with respect to the dissemination of material information about the company, so that these parties know where to look for this information or what channels to monitor for announcements and developments.