What the SEC ruling on disclosure means for IR

For years, savvy investor relations professionals have asked, "Why is publishing information on the most open and persistent information resource yet devised — the Web — somehow not considered "good disclosure?'"

For years, savvy investor relations professionals have asked, “Why is publishing information on the most open and persistent information resource yet devised — the Web — somehow not considered “good disclosure?'”

In 2006, CEO Jonathan Schwartz of Sun Microsystems (now part of Oracle) publicly asked a similar question on his blog. The following year, he and Sun legal counsel Mike Dillon tested this disclosure-on-the-Web thesis by publishing the company's earnings results on its Web sites and feeds 10 minutes before it crossed the wires. The US Securities and Exchange Commission formally responded a year after that with Commission Guidance on the Use of Company Web Sites — a noble attempt that offered as much confusion as context within its 47 pages.

On April 2, 2013, (a date perhaps chosen to avoid a misunderstanding), the SEC issued clarification about social media's role in disclosure. This was in response to a controversial Facebook post by Netflix CEO Reed Hastings, who posted the achievement of a business milestone on Facebook. This sparked renewed debate about the topic of what constitutes “disclosure” on the social Web.

Simplifying, the rule – as outlined yesterday – states that the SEC considers the transmission of material information over social media “disclosure” so long as investors have been well-informed that the social media platform used will be employed for that purpose.

Here is my take:

  • Social media for investor relations is moving from marginal to mainstream. Until the SEC's announcement, investor relations officers could not only ignore social media, but would often lean on the specter of regulatory pressure as a reason for not prioritizing it. Not anymore.
  • The imperative for smart storytelling is now far more vital. Smart companies use their sites to show, not just tell, how their business affects customers and generates revenue. Smart IROs will recognize that the content that corporate communications groups create is enormously helpful in conveying their corporate story.
  • The SEC isn't the only regulator warming-up to social media. Companies must consider the rules outlined in FINRA 10-06 (PDF) and 11-39 (PDF). Financial institutions must also pay attention to the Federal Financial Institutions Examination Council's proposed regulations, which seek to require many social media related processes and documents that banks have, to date, found optional.
  • The means of distribution will continue to change in IR as social media changes. The conversation today is around Facebook and Twitter, but that is just the starting point. Fortunately, the SEC's guidance is relatively platform-neutral.

Amid all of the excitement and interest about this topic, there are still too many unanswered questions:

  • Notification: What is the best practice for informing investors that material information will be distributed via social media? Johnson Controls, for example, put out a brief press release last month to announce its IR-focused Twitter account.
  • Uniformity: If identified as channels for material information, must a company be uniform in terms of transmitting all news across all platforms simultaneously? If Twitter followers get better or more frequent information than Facebook users, does it create a Regulation FD problem?
  • Paid media: Updates to a company's Facebook page reach about 8%-10% of subscribers' news feeds without the benefit of a paid relationship with Facebook. How does this affect how “disclosure” is evaluated?
  • Multimedia storytelling: Well and good for an IR professional to put material information in a YouTube clip. Are they then obligated to provide a transcript in order to make it searchable? Is it “disclosure” if no transcript is provided yet material information is presented 40 minutes into a CEO's speech?
  • Data retention: What, if any, are a company's new responsibilities in terms of data retention, not only on its own social media properties, but in investor-relevant conversations across the Web?
  • The new investor newsroom: To this point, companies have been obligated to build one-stop-shops for investor information. Has this now changed?

The SEC announcement has only just been made and the issue will continue to evolve.  Even Facebook the company hasn't decided whether to use Facebook to distribute its material corporate information. As this unfolds, we will keep you posted on additional developments.

Phil Gomes is SVP of Edelman Digital. 

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