What you need to know:
The SEC recently stated that companies can use social media to make announcements without violating Regulation FD—if investors, the market and the media have proper prior notification regarding which outlets the company plans to use or what they need to do to be in a position to receive this information.
What you need to do:
If your company intends to use social media to disseminate material information, notify investors in advance on the company website, and make sure social media announcements go through the same review and approval process as other public announcements.
Communications through social media outlets require the same Regulation FD analysis as disclosures made through more traditional channels. The SEC recently stated that social media outlets can be used to make announcements without violating Regulation FD fair disclosure requirements, so long as investors, the market and the media have been alerted as to which outlets a company intends to use to disseminate such information or what they need to do to be in a position to receive this information.
If your company intends to use social media, such as a company Facebook page or Twitter account, to disseminate material information, notify investors in advance by specifically identifying the social media outlets on your company’s website. Disclosure should be coordinated in the same fashion as other public announcements, and go through the same review and approval procedures, including with respect to Regulation FD compliance. Company insiders should avoid disclosure of material company information other than through the publicly designated forums—for instance, by using personal social media accounts or other outlets to which access may be restricted—and should continue to be mindful that while social media may be an acceptable channel of communication, the informality of social media does not eliminate the need for the formal controls that should govern company communications to investors generally.
Social Media and Regulation FD
Under Regulation FD, companies must distribute material information in a manner reasonably designed to reach the general public broadly and non-exclusively, so that all investors have the ability to gain access to such information at the same time. In 2008, the SEC issued guidance relating to the use of website disclosure to satisfy Regulation FD, and indicated that a posting on a company’s website may be Regulation FD compliant if the website is a “recognized channel of distribution,” the website posting disseminates the information to the securities marketplace in general, and there has been a reasonable waiting period subsequent to posting of the information. The SEC’s recent announcement clarifies that communications through social media are subject to Regulation FD in the same manner as information posted to company websites, and directs companies to review the SEC guidance on the use of company websites issued in 2008 in determining whether a company’s proposed use of social media will comply with Regulation FD.
Applying the 2008 guidance to communications through social media outlets, companies should ask the following questions in determining whether a particular communication is Regulation FD compliant:
- Is the social media outlet a recognized channel of distribution for investor communications? To establish a particular outlet as a recognized channel, a company should regularly inform its investors of how it uses social media and which outlets it intends to employ. Companies can do this by posting social media practices prominently on their websites, disclosing such information in periodic reports filed with the SEC and/or including the information in press releases.
- Has the information provided through the social media outlet been widely disseminated in a manner that makes it available to the securities marketplace generally? To ensure wide dissemination in a manner that prevents material information from being lost in the shuffle, a company can use “push” technology, such as posts on investor relations-dedicated Facebook pages or Twitter feeds.
- Has a reasonable amount of time passed to allow the market to react to the posted information? As with website posts, what constitutes a reasonable amount of time will depend on the accessibility of the information, the complexity of the disclosure and the size of the investor base. For instance, a company that has reason to believe its Twitter account enjoys a wide following among investors may be comfortable that the market has digested posted information more quickly than a company with relatively few Twitter followers.
Practical Guidelines to Minimize Risk in the Use of Social Media
The following steps and practices should be considered as ways to minimize the risks of using social media outlets:
- Adopt a company policy for the use of social media that includes Regulation FD compliance considerations. Such policies should also make it clear to employees that using their personal social media accounts to disclose material, non-public information about the company likely runs afoul of Regulation FD (unless the company has notified investors that the account will be used in such a fashion). Companies should be mindful that while social media may be an acceptable channel of communication, the informality of social media does not eliminate the need for the formal controls that should govern company communications to investors generally.
- Consider traditional disclosure along with social media disclosure. Similar to the common current practice of using a press release or Form 8-K to supplement website disclosure, companies may consider supplementing social media disclosure.
- Provide full context whenever material company information is conveyed. While it is tempting to only post or tweet highlights given the nature of social media, communications should be balanced to avoid material misrepresentations or omissions. Where giving context necessary to a complete understanding is not possible, due to posting size limitations or otherwise, make sure to provide access to and/or later communicate the full context. For instance, when using non-GAAP financial measures in a social media posting, a company could include a link to GAAP reconciliation.
- Include or link to forward looking statements disclaimers as appropriate. These can take an abbreviated form as compared with, for example, disclaimers in full earnings releases.
- Be aware of and assess potential liabilities in linking to third-party content. A company may be liable for third party content if it was involved in preparing the content or if it explicitly or implicitly endorses or approves the content.
- Be prepared to address leaks of material information. When a leak occurs, a company should issue a public statement and file or furnish the statement with the SEC on Form 8-K.
- Be aware of and comply with applicable listing exchange rules with respect to the disclosure of material information, including notification requirements.