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The Securities Edge Securities Blog for Middle-Market Companies

Careful with that tweet! Social media considerations for public companies

Posted in Disclosure Guidance, Technology Company Issues

How public companies should handle social mediaSocial media use has experienced a meteoric rise. According to Tweetsmarter (a social media blog), the top five social media sites (Facebook, Twitter, LinkedIn, Google+ and Pinterest) have 1.8 billion users. Many companies have also embraced social media use as a cheap and efficient channel for the dissemination of information. Good examples here include Best Buy’s Facebook page and Whole Foods’ Twitter account.

While social media is a very powerful force in marketing and branding, public companies face significant potential problems from its use.  A public company’s posting of information on a social media site is equivalent to any other written information that is disclosed by other means. If material nonpublic information is disclosed via a social media channel, the company will face the same securities law issues that it would face from any other disclosure made through other means. Accordingly, public companies must consider the possible impacts of social media use and take steps to control and mitigate the potential negative effects of social media use.

While there is no perfect solution to the potential problems that social media use creates for public companies, I have assembled the following list of guidelines and best practices for public companies in the social media area:

Social Media Policies and Procedures 

  • Develop your company’s position on social media
  • Have a written social media policy in place
    • This policy should address public company considerations and issues
    • Create a system for monitoring and complying with these social media policies
    • Update these policies regularly because social media changes and evolves rapidly
  • Conduct ongoing social media training sessions for employees
  • Create more detailed training for senior management and for employees who will have responsibilities that impact the company’s social media use
  • Create a clear system of communication, review and authorization for social media postings
    • Ensure that all participants who have a review or compliance function have both social media and securities law expertise
  • Educate all senior employees and management members that their individual social media postings may be attributed to the company
  • Carefully integrate and coordinate all company social media postings with all conventional disclosure channels – both in content and timing
  • Be very careful of association with a third party’s views or positions
    • This can be problem with “liking” a post on Facebook or LinkedIn, retweeting a tweet on Twitter or including a hyperlink to a third party site on your site or in your postings

Securities Law Considerations and Best Practices 

  • Review company’s existing disclosure guidelines (e.g., insider trading, corporate communications, Regulation FD) to determine if they need to be updated to reflect social media concerns
  • If your company is in a regulated industry (e.g., health care; financial services; investment advisory services) you will be subject to even more restrictions and potential problems (SEC National Examination Risk Alert: Investment Adviser Use of Social Media (January 4, 2012)
  • Keep good and detailed records of social media postings
    • post a prominent statement that the company has no duty to update or correct prior posts
  • Use common sense and employ traditional disclosure knowledge
  • SEC has not yet published any general guidance on social media use by public companies, so traditional disclosure analysis applies
  • Regulation FD:  prohibits selective disclosure of material information (this is a real risk since social media by its nature is not accessed by all parties)
  • Rule 10b-5:  prohibits the disclosure of materially misleading information (or the omission of information that is necessary to avoid being misleading)
  • Regulation G:  requires a reconciliation under GAAP if non-GAAP financial information is disclosed
    • If non-GAAP information is posted (e.g., in a live Twitter post of earnings during an earnings call), have the GAAP reconciliation posted on the company’s website and disclose this in connection with the Twitter post
  • JOBS Act:  proposed new rules for communications and the offering of securities
  • Proxy solicitations
    • Avoid any social media disclosure that might be deemed to be a proxy solicitation or an attempt to influence a shareholder’s vote on a proxy item
  • Avoid prohibited general solicitation of investors
  • Ongoing securities offerings
    • Social media postings should be carefully scrutinized in connection with the possible inconsistent disclosure of information during an offering
  • Use conventional disclosure channels (e.g., Form 8-K; press releases) first for important disclosures
    • Don’t make an important announcement first via social media, but ensure that social media disclosure follows immediately and is totally consistent
  • Ensure that social media content is balanced (i.e., don’t leave out the bad stuff)
  • Use the company’s website for lengthy disclosure items
    • Since social media channels are normally restricted in length (e.g., 140 character limit on Twitter)
    • Use the social media post to focus on the relevant items but include a link back to the appropriate place in the company’s website for detailed information