Many companies seeking to communicate with the public have embraced new communications media, such as blogs, social networking sites and Twitter. Blogs, a word contracted from web logs, offer companies a chance to post information in what could be described as an on-line diary. Social networking sites, such as Facebook, allow a company to create a web presence that is linked to the pages of customers, shareholders or any other member of the social network with an interest in the company. Updates posted by the company may appear on the pages of those linked users, and visitors to the pages of those users will see the users’ affinity for the company. Twitter, which some have described as a combination of social networking and micro-blogging, allows companies to send short messages, or tweets, to subscribers’ computers, cell phones or PDAs. Tweets are essentially text messages, which cannot exceed 140 characters, and are often used as a means of providing real-time updates of what the sender is doing.
While these new communications tools were not designed with corporate communications in mind, they have nonetheless been embraced by a rapidly increasing number of public companies. A company’s first foray into this new world often is a marketing exercise. A company may be looking to get the word out on a new product or to increase its visibility to consumers. For example, new motion pictures and television programs often have Facebook pages created by the production companies. Many technology companies maintain blogs discussing technological developments and new products. Other companies use Twitter to send updates about events taking place at trade shows or other events.
Having established a solid toehold in corporate marketing departments, the notion of blogging, tweeting or Facebooking has begun to spread down the hall to the investor relations department. While using these media for marketing communications does raise certain legal issues (e.g., copyright and trademark laws, truth in advertising requirements, protection of trade secrets), expanding their use into public company investor communications significantly increases the scope of the potential regulatory issues by bringing the public company disclosure framework into play.
The most significant regulatory issues for a public company that engages in blogging, Facebooking or tweeting are Regulation FD and the antifraud rules. Regulation FD requires that a public company avoid selective disclosure of material nonpublic information by disclosing material information in a way that provides access to all interested parties at the same time. The antifraud provisions of the securities laws essentially prohibit companies from making untrue statements of material facts or omitting to state a material fact necessary in order to make the statements made, in light of the circumstances in which they were made, not misleading.
Regulation FD was adopted largely to address the SEC’s concern that public companies were providing information to analysts or other market participants in one-on-one meetings or selective small groups, thus allowing those favored few to trade on that information before it trickled out to the wider market. Under Regulation FD, a public company must make “public disclosure” of material nonpublic information prior to, or simultaneously with, sharing that information with covered market participants. Companies typically achieve “public disclosure” through a press release or an SEC filing, such as a Form 8-K. The SEC issued interpretive guidance in August 2008 suggesting that web site disclosure might satisfy the “public disclosure” requirement of Regulation FD, but that a company wishing to rely on web site posting must evaluate whether and when: (1) a company web site is “a recognized channel of distribution” of information, (2) posting of information on a company web site “disseminates” the information in a manner making it available to the securities marketplace in general, and (3) there has been “a reasonable waiting period” for investors and the market to react to the posted information. The first element depends on the company’s efforts to alert the market to its web site and its disclosure practices, along with the extent to which investors and the market make use of the web site. With respect to the second element, the guidance focuses on the manner in which information is posted on a company web site and whether the information is readily available to investors and the markets in a timely manner. The SEC interpretive guidance goes on to provide a list of specific factors to consider in conducting the required evaluation, including:
- whether and how the company has made investors and the market aware it has a web site and that they should look at the web site for important information, and whether the company has a regular practice of posting that information on its web site;
- whether the company web site is designed for investors and the market to efficiently find and access relevant information about the company;
- the extent to which the market and the media pick up information posted on the web site;
- whether the company utilizes “push” technology, such as RSS feeds or has taken other steps to make information accessible;
- whether the company keeps its web site current and accurate;
- whether the company predominantly uses other methods to distribute information; and
- the nature of the information.
While the SEC interpretive guidance was directed primarily at typical web sites, the same analysis can be applied to disclosure via blogs, Facebook or Twitter. While the numbers of users of these new media has certainly skyrocketed in the last year or two, those users still represent only a fraction of the general public. In addition, it is unlikely that more than a handful of public companies could argue credibly that their blog, Facebook page or Twitter account has developed into “a recognized channel of distribution” of information. Finally, the requirement that users subscribe to become a “follower” of a company’s Twitter feed or elect to become “friends” of a company in order to receive updates via Facebook raises a question as to whether the information is “readily accessible” to investors in the way that a press release or SEC filing is.
To the extent that corporate communications via blogs, social networking or Twitter do not meet the criteria of “public disclosure” for purposes of Regulation FD, there are two important implications for the company. First, if those communications include material nonpublic information and the recipients include covered market participants, the communications would violate Regulation FD unless the information was simultaneously publicly disseminated by a method acceptable under Regulation FD. Second, a company planning to discuss material nonpublic information with covered market participants would not be able to satisfy the public disclosure requirements of Regulation FD by first posting the information solely on a blog or Facebook page or by tweeting the information to followers.
Public companies need to be as mindful of the antifraud rules when blogging, creating a Facebook page or tweeting as they are when issuing a press release. The informal, often colloquial, nature of these communications will not excuse a fraudulently misleading statement. Therefore, it is important that these new media communications go through a formal review process, preferably including someone from the legal department.
One of the biggest challenges in crafting a blog post, a tweet or a Facebook page may be avoiding a misleading omission. These communications tend to be short, especially tweets, and often employ common web shorthand phrases. There may not be room to include the caveats and clarifications that might go into a press release or an SEC filing. As a result, a company should carefully consider whether the proposed communication conveys all of the necessary facts to avoid a misleading omission or whether a more traditional method of communication might be more appropriate.
Forward-looking information is usually communicated with an accompanying statement claiming the safe harbor for forward-looking information and directing the reader to the risk factors in the company’s SEC filings. Information containing non-GAAP financial measures needs to include the corresponding GAAP measures, as well as a reconciliation. While it is feasible to include a statement invoking the forward-looking information safe harbor or a non-GAAP reconciliation in a blog post, it is less feasible to do so on a Facebook page and it is essentially impossible to do so in a tweet, which is limited to 140 characters. Therefore, it is best to leave forward-looking statements and non-GAAP financial measures out of tweets and social network postings.
- Subject blogs, social networking posts and tweets to the same pre-issuance review process as press releases and other corporate communications.
- Limit the people who are authorized to blog, post or tweet on behalf of the company.
- Limit the information conveyed through blogs, social networking sites or Twitter to information that is already public or that is not material.
- Use tweets as a means to direct recipients via Internet link to a press release or SEC filing on the company’s web site. Tiny URLs, which can be generated at, www.tinyurl.com, can be a handy way to make sure that links stay under 140 characters.
- Assign someone to regularly monitor and to update or remove outdated information on social networking sites.
Used with care, new communications media can be valuable additions to a public company’s investor relations program.