Social media shakes up corporate disclosures

With companies using social media to frequently communicate with stakeholders, IR and financial comms executives believe the SEC will soon need to figure out how online platforms fit into its disclosure rules.

With companies using social media to frequently communicate with stakeholders, IR and financial communications executives believe the Securities and Exchange Commission will soon need to figure out how online platforms fit into its disclosure rules.

The issue came to light this month after Netflix revealed the SEC issued a “Wells notice,” or a recommendation to pursue a cease-and-desist action or a civil injunction against the company and CEO Reed Hastings for a Facebook post over the summer.

In July, Hastings posted on his Facebook page, which has more than 200,000 followers, that Netflix members viewed more than 1 billion hours of programming in June. According to the SEC, Hastings' message may have violated “Fair Disclosure” regulations that require companies to share business information with all investors at once. The rule was created in 2000 before the emergence of social media.

Netflix told PRWeek that Hastings' Facebook post speaks for itself, and the company has no further comment.

Edward Adler, partner at RLM Finsbury, says the Fair Disclosure rule may need to be updated for the age of social media since many people get their news on Facebook and Twitter before reading or viewing traditional outlets.

“This case could be very interesting and fascinating in terms of whether or not these [Fair Disclosure] rules are right for the way the world is changing,” he explains.

However, Adler adds that executives need to be aware and cautious of how they disclose information on social channels since the rule is still in play.

Other executives questioned not only the medium that Hastings used to comment on his company's performance, but the impact of his statement. A sticking point in this case is whether the post was “material,” or could have affected stock prices, says Lisa Rose, senior MD at Dix & Eaton and head of its IR practice.

She explains the information seemed to be more of a progress report rather than something material that would affect stockholder decisions, especially since Hastings wrote on a company blog that Netflix was close to reaching 1 billion viewing hours in June.

Part of the Fair Disclosure regulations state that companies can release material information to the press if they choose. Yet after the emergence of social media, the SEC will need to address online platforms in its rules, Rose adds.

“What the SEC has to think about is does Facebook, and increasingly so Twitter, have the reach that is approaching what the media is able to reach? If that's the case, then companies do need some sort of guidance,” Rose explains.

Beth Saunders, chairman of the Americas at FTI Consulting, contends on the other hand that it's important to remember that while one-third of the US is on Facebook, the majority of consumers do not use the social network.

She thinks the SEC may have to examine Twitter in its rules, not Facebook, because Twitter is used more often in corporate capacities and there are ways of tracking its distribution.

If Hastings wanted to put something on Facebook about the billion hours watched, Saunders says he should have filed it in the company's earnings first, then posted it on the social network. The SEC rules for public companies are “pretty clear,” she says. While Hastings said he blogged about it earlier, blog posts are not considered public disclosure under SEC rules.

In terms of the importance of the information he posted, Saunders believes “it was headline enough to move a stock, and accordingly the most conservative counsel would say it is material.”

Since the social space is still fairly new, Denise Garcia, SVP at ICR, says she advises clients to use IR sites as a main hub of information and then link to Facebook or Twitter.

She adds that it's important for companies to establish specific channels as communications platforms for investors. If Neftlix didn't state that Facebook was a place to receive information, then the SEC rule holds because the post was “selective” to the 200,000 people who follow Hastings, she explains.

“The SEC may have to consider different channels and possibly revise,” she notes. “But the biggest part is being thoughtful about your communications and making sure all of your communications platforms are integrated.”

This story was updated on December 14 to correct the title of Denise Garcia, SVP at ICR.

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