@SEC Embraces Social Media for Communicating with Investors

The U.S. Securities and Exchange Commission has recently issued guidance on use of social media by corporations as a means to communicate with investors. But the guidance is receiving mixed reviews and, as Fortune magazine put it, received a definite “dislike” from many investors.

The SEC addressed the role of social media in investor communications in response to an
investigation into information released by Netflix (NFLX) CEO Reed Hastings on Facebook. In July 2012, Hastings used his personal Facebook page to announce that Netflix had streamed 1 billion hours of content in the month of June. Neither Hastings nor Netflix had previously used Hastings’s personal Facebook page to announce company metrics, and Netflix had not previously informed shareholders that Hastings’s Facebook page would be used to disclose information about Netflix. The post was not accompanied by a press release, a post on Netflix’s own website or Facebook page, or a Form 8-K; the post did, however, send the firm’s share price higher.

This week, the SEC issued guidance approving the use of social media sites to broadcast market-relevant corporate news, saying social posts are as legitimate means of disclosure of information as news releases and company websites as long as companies inform investors in advance which social media outlets they intend to use.

So why the distaste by some stakeholders over the SEC’s embracing of social media?

  • Investors of “a certain age” may not use social media, and those who do will need to be mindful of company announcements about where to find information they will release through social media;
  • A survey conducted by financial consulting firm KCSA found that 77 percent of CFOs and investor relations professionals at major companies do not think the SEC provided enough guidance; and
  • BusinessWire, which distributes news releases, said the SEC is hurting investors by “threatening increased fragmentation of price-sensitive information.”

Despite these concerns, the consensus seems to be that the SEC’s embracing of yet another communications channel is a generally positive thing overall. Companies embracing the new guidance will want to be sure to update their social media policies to include the social media accounts that will be identified to investors as channels for disseminating company information and other guidance for employees responsible for those accounts.

Which reminds me, is your social media policy up to date?

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