ASX has recently reissued Guidance Note 8 to deal with the impact of social media on continuous disclosure obligations.
Directors and senior executives of companies listed on the Australian Securities Exchange (ASX) are now required to pay closer attention to what is being said about their company on the world wide web.
It is critical that companies both understand the online channels where other parties are discussing them, and have in place a response plan that can be implemented quickly should information be leaked to the market prematurely via social media.
Monitoring of Social Media
On 1 May 2013, the ASX reissued its Guidance Note 8, which generally deals with listed entities’ continuous disclosure obligations and is governed by ASX Listing Rule 3.1. The updated version expressly deals with the monitoring of social media by listed companies.
ASX Listing Rule 3.1 requires a listed entity to immediately notify ASX once it becomes aware of “any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities”.
The updated Guidance Note “strongly encourages” an entity that has a pending market sensitive announcement or is close to finalising a market sensitive transaction to monitor “any investor blogs, chat-sites or other social media it is aware of that regularly include postings about the entity…for signs that the information in the announcement may have leaked”.
ASIC has recently endorsed the changes to Guidance Note 8. A speech delivered by Belinda Gibson, Deputy Chairman, and John Price, Commissioner, in April 2013 noted: “We consider it to be good practice for entities, as part of their already existing investor relations activity, to consider monitoring wellknown social media feeds on a regular basis. This can help flag whether a false market might be developing in the entities’ securities, as well as indicating a leak of confidential information. For larger companies this means monitoring major sources of news and information, on mainstream outlets and significant social media sites. Smaller companies at the very least need to monitor the regular postings by regular commentators – such as brokers that research the company.”
While the updated ASX Guidance Note acknowledges the risk of social media for companies, it stops short of suggesting a general obligation on companies to regularly monitor social media feed about the company, or indeed the social media created by the company.
However, a number of recent decisions by the Federal Court and the Advertising Standards Bureau relating to accountability for posts by third parties on businesses’ social media pages infer an obligation on large organisations to conduct regular and frequent monitoring.
At a basic level, if a third party (such as a consumer) posts a comment on a businesses’ social media page that breaches a consumer law, advertising standard or similar, then the business will be liable for those comments if the business does not actively remove them fast enough.
In response to the recent cases, the ACCC has said that it expects big companies which use Facebook to promote themselves to take down inappropriate comments within a day. Commissioner Sarah Court said ‘’If you are a big corporate player with lots of resources that’s putting a lot of effort into social media then it wouldn’t have to be too long. Perhaps 24 hours or less…A court would have to be satisfied that a big company had somehow become aware and ignored [the comments] … If you knew about them … and left them there, then I don’t think you could say: ‘It isn’t our fault and therefore it isn’t our responsibility’”.
Although these comments are not binding, it is clear that in the future the ACCC will take a dim view of companies that use social media as a promotion tool but fail to monitor the pages adequately and take action to remove inappropriate content.
Proactive use of social media as a channel for company information
The update to Guidance Note 8 also clarifies that first disclosure to the market must be made through the ASX’s Market Announcements Platform, as required by ASX Listing Rule 15.7. Under Listing Rule 15.7, an entity must not release information that is for release to the market to anyone else, unless and until it has been given to ASX and the entity has received an acknowledgement from ASX that the information has been released to the market. This includes releasing the information to the media, even on an embargoed basis. The reason for this is to make the Market Announcements Platform the central collection and dissemination point for market sensitive information.
Therefore, although the ASX acknowledges in its revised Guidance Note 8 that social media is having an increased impact on the way companies manage disclosures, it has not yet accepted social media as a platform for making initial disclosures to the market.
Developments in the US
In the United States there has been a shift in this viewpoint. Controversy was sparked recently by the CEO of Netflix, who announced on his personal Facebook page that Netflix’s monthly online viewing had exceeded 1 billion hours for the first time. That claim was not repeated in a regulatory filing or company press release the same day. Netflix’s share price jumped almost 16 per cent in the next 24 hours. The US Securities and Exchange Commission (SEC) did not commence enforcement proceedings as expected, but instead issued a report saying that companies could use social media platforms such as Facebook and Twitter for regulated disclosures, including financial updates and announcement of material transactions (although it did suggest that a company’s social media site or profile would be more appropriate than an executive’s personal page).
This follows the SEC’s indication in 2008 that websites could be used to distribute information to investors, as long as investors had previously been told where to look. The SEC generally encourages companies to seek out new forms of communication to connect better with shareholders, so the latest guidance may simply reflect the SEC’s view that a company’s retail shareholders would be more likely to subscribe to its Facebook page or Twitter feed than the SEC database of regulatory filings.
This perspective carries an inherent risk that computer-literate, tech-savvy investors will gain privileged access to information over the less sophisticated investor. The ASX has so far been perceptive to the changing trends in the way people, and in particular investors, seek, consume and discuss information. However, it is unclear whether the ASX will follow the lead of the SEC and open up social media as a potential avenue for announcements as well as a danger to be monitored during market sensitive periods.
Companies and investors in the US are already getting comfortable enough with social media to channel market communications in real time – Dell and eBay are among large companies already using Twitter to announce financial information to investors. US and other investors in Australian companies may even begin to expect social media disclosure as is permitted in the US.
What does this mean for listed companies?
In the Social Media age, listed entities need to:
- Know the territory: develop a greater understanding of social media, knowledge of online audiences, and awareness of who discusses an entity online and where. This may require workshops for those who are digitally challenged.
- When a market sensitive announcement is pending, or when a market sensitive transaction is close to being finalised, monitor social media for signs that a transaction may no longer be confidential. Additional regular monitoring may also provide useful, although not specifically required by the ASX.
- Prepare and implement a robust continuous disclosure policy so that trading halts and compliance with Listing Rule 3.1 are efficient and effective. Be prepared to make the call that the company should apply to the ASX for a trading halt to be executed. Prepare a standard draft letter to the ASX requesting such a trading halt and a draft announcement about the transaction, ready to send to the ASX in case any details are leaked.
- Implement a Social Media Risk Management Strategy which identifies the risks which social media presents for the company, and a strategy for dealing with those risks. That Strategy should include a detailed Corporate Social Media Policy, including instructions on how directors, executives, and general staff members use and monitor social media.