There are many different ways to connect and communicate with shareholders: press releases, SEDAR filings, earnings calls, road shows, the list goes on. Recently, public companies have been utilizing social media sites such as Twitter, Facebook and blogs to communicate information to the public about their business and operations.
Social media continues to be a bit like the Wild West: it is a place of opportunity, but should be entered with caution. The key is to remember that the same rules apply to social media that apply to all corporate disclosure.
The purpose of this bulletin is to discuss the use of social media as a news dissemination tool and shareholder communication means while operating within the securities regulatory framework.
Benefits of Social Media
A study published by the Ross School of Business at the University of Michigan in July 2010 entitled "The Impact of Managerial Dissemination of Firm Disclosure" (the "Ross Study") suggests that social media can help companies overcome a lack of media and analyst coverage while improving liquidity for their stock. With investors wanting real-time access to information as it happens, companies can benefit from harnessing the power of social media to connect with their current and potential investors.
Traditional news sources are limited as to the amount of information they can adequately provide to the public, and therefore tend to focus on larger, more visible companies. Social media, such as Twitter, can be utilized at minimal cost to overcome the dissemination constraints of the news services.
Twitter is one example of a direct access information technology that can distribute real-time information to the public. "Tweets" are not only visible to "followers", but are google-searchable and can be accessed by any member of the public. The findings in the Ross Study showed that the bid-ask spread narrowed and market depths widened when companies tweeted their press releases, suggesting that Twitter use can compensate for lack of sell-side analyst coverage.
Facebook and blogs are slightly different: they are similar to the company's website in that the public must choose to access the site in order to obtain the information. As a result, Facebook or blogs do not disseminate news, but are simply an online source for investors to obtain information about a company. Both sites are a good way for companies to post pictures of their projects or products and connect with the public, but neither are as useful as Twitter as a tool for news dissemination.
Social Media for Disclosure
National Policy 51-201 Disclosure Standards provides a framework for disclosure to investors and to the public. It is fundamental that everyone investing in securities has equal access to information that may affect their investment decisions. Companies must ensure that all material information is "generally disclosed" and must take precautions to prevent "selective disclosure".
Selective disclosure occurs when a company discloses material non-public information to one or more individuals or companies and not broadly to the investing public. Selective disclosure can not only result in insider trading or tipping, but it also undermines a retail investor's confidence in the marketplace as a level playing field.
Electronic Disclosure as part of a Company's Disclosure Record
The Canadian Securities Administrators recognize that the effectiveness of disclosure methods varies between companies and that alternative methods may be appropriate in order to disseminate material information in the manner best calculated to effectively reach the marketplace. Active and effective dissemination, which involves the "pushing out" of information into the marketplace, is central to satisfying the "generally disclosed" requirement under applicable securities laws.
Investor relations information that is disclosed electronically should be considered to be an extension of an issuer's formal corporate disclosure record. Therefore, companies should ensure that information disseminated is not misleading, and does not otherwise contravene the disclosure requirements, including those that apply to offerings of securities to the public.
Method of Electronic Disclosure
Any electronic distribution of material information must be made after the information has been disseminated by traditional methods on a news wire service.
Companies should undertake every effort to ensure that documents distributed electronically are posted in their entirety. Documents can be uploaded in their entirety to Facebook; however, on Twitter, companies should post an excerpt which is not misleading and also provide a link directly to the document within the Tweet.
Companies should put in place a Corporate Disclosure Policy which includes a section addressing how to use electronic media and the corporate website. Any failure to properly disseminate news could result in suspension of trading or delisting of the company's securities.
Posting Information Prepared by Third Parties
Companies should also take care when posting investor relations information prepared by third parties, unless the information was prepared on behalf of the company or is general in nature and not specific to the company. Posting information prepared by third parties could result in an issuer becoming "entangled" with the report and ultimately lead to legal responsibility for the content or to an obligation to correct the information if it becomes misleading.
If a company wishes to post a report prepared by a third party through its Twitter or Facebook accounts or on its blog, the company should first obtain permission to reprint the report, and then should identify it as representing the views of a third party and provide a link to the entire report in the Tweet, Facebook or blog post. Companies should include disclaimers which identify the third party information and state that the company is not responsible for the content, accuracy or timeliness of the third party content.
If a company chooses to post third party reports or media articles through its Twitter feed or on its Facebook page or blog, it must make every effort to ensure that all significant articles concerning the company are Tweeted or posted and that negative and positive articles are given similar prominence. Companies that disclose positive news but withhold negative news could find their disclosure practices subject to scrutiny by regulators.
Technical Information and Forward-Looking Information
A Tweet is limited to 140 characters. As a result, it is difficult to comply with certain mandated written disclosure requirements such as those in National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) in respect of technical mining disclosure or obtain the protection of safe harbour statements for forward-looking information using Twitter.
Best practices would prohibit any disclosure of technical mining information or other information that triggers mandated disclosure in a Tweet. However, if a company wishes to disclose such information, the company needs to consider how to address the mandated requirements, likely through the use of links. For example, if a company intends to disclose technical information through its Twitter account, at a minimum, the name of the qualified person who has prepared the technical information should be included, and a link should be provided to the source of that technical information. Any technical information disclosed on the company's Facebook page or in a blog should also comply with the written disclosure requirements in Parts 2 and 3 of NI 43-101.
Disclosure of forward-looking information through Twitter or on Facebook or a company's blog should also be avoided. If any forward-looking information is disclosed, the Tweet or posting should include a link to the news release or other disclosure document which contains appropriate safe harbour language for forward-looking statements and information.
Promotional or Market-Making Information
Companies should be aware that the delivery by Twitter or posting on Facebook or a blog of new information during a period of distribution may be construed as advertising under National Policy 47-201 Trading Securities Using the Internet and Other Electronic Means and this may be subject to restrictions in certain jurisdictions. The same rules apply to advertising through Twitter, Facebook and blogs as to advertising through traditional print media.
A company proposing a public offering needs to ensure that those individuals responsible for disclosure through social media do not indirectly contravene the pre-marketing prohibition. In addition, tweets or posts during a period of distribution could impact on a company's ability to offer securities into the United States and other foreign jurisdictions. Companies are urged to consult their legal advisors for advice if they wish to use social media during a period of distribution.
Companies using social media for promotional or market-making purposes should ensure that Tweets and postings on Facebook or blogs do not include any misrepresentations and that exaggerated reports or unnecessary details are avoided.
The rules governing proxy solicitation in National Instrument 54-101 Communication With Beneficial Owners (NI 54-101) apply to social media. The term "solicit" in NI 54-101 includes "requesting a proxy whether or not the request is accompanied by or included in a form of proxy and requesting a securityholder to execute or not execute a form of proxy or to revoke a proxy". There is an exception for communicating for the purposes of obtaining the number of securities required for a securityholder proposal under applicable laws.
Companies should ensure that they do not solicit proxies without sending the management information circular to shareholders first.
Although use of social media by companies can assist in communication with shareholders, it is important that social media use operates within the securities regulatory framework.
See Part Two of this bulletin for a discussion of how to use a Corporate Disclosure Policy to control social media use.