Public companies are beginning to cautiously adopt social media as a disclosure channel. This area has experienced substantial changes lately as the SEC moved from a posture of threatening action against Netflix’s CEO for a post he made on his personal Facebook page to adopting a more relaxed and expansive position. This was really just facing reality given the widespread and growing use and acceptance of social media as a communications mode, but I give the SEC credit for recognizing this and moving to a more reasonable and realistic position.
As mentioned in my prior blog post, the SEC recently gave some preliminary guidance for the use of social media as a disclosure method. This guidance can be found in this SEC Press Release and in the SEC’s report on its investigation of the Facebook postings made by Netflix’s CEO. While the SEC’s actions didn’t pave the way for widespread disclosure by social media, it at least provided some guidance in this area and gave social media disclosure an initial level of validation and credibility. It was good to see this change in the SEC’s position after it initially took a rather harsh stance on the Netflix CEO’s Facebook post (see my prior blog post). It’s early in this process, but I wanted to see how companies of different sizes and from different industries were handling this process. The announcements of first quarter earnings and quarterly results for many companies seemed like a good opportunity to get a progress report.
It appears that public companies are initially taking a cautious approach to using social media as a disclosure channel. The companies that I examined seemed to be testing the waters by either using or referring to social media as a disclosure method while still utilizing more traditional forms of disclosure. This is understandable and prudent. Companies are moving slowly here due to the lack of direct guidance and the significant potential downside if a mistake is made. As I mentioned in my prior blog post, Regulation FD still applies to disclosure even when social media is being used. Many companies hedged their bets by using social media while also using conventional disclosure methods as this significantly reduces the risk of a Regulation FD or other disclosure problem.
Based on some examples that I saw, both new economy and old economy companies are using social media to varying degrees as a disclosure channel. In its first quarter Form 10-Q, Netflix listed a number of disclosure channels that investors should use to access its disclosure information: “[w]e will disclose material non-public information through one or more of the following channels: Netflix’s investor relations website (http://ir.netflix.com/), the social media channels identified on Netflix’s investor relations website, press releases, SEC filings, public conference calls and webcasts.” Even an old-line company like General Electric used similar language in its first quarter 10-Q: “GE’s Investor Relations website at http://www.ge.com/investor-relations and our corporate blog at www.gereports.com, as well as GE’s Facebook page and Twitter accounts, contain a significant amount of information about GE, including financial and other information for investors. GE encourages investors to visit these websites from time to time, as information is updated and new information is posted.” GE’s investor relations website also contains a specific page where its social media postings are aggregated. These companies are setting the stage for later (and probably more extensive) use of social media as a disclosure method.
In an interesting social media sidelight, Zillow allowed analysts to pose questions during its recent earnings conference call via Twitter posts. Apparently this worked very well. I expect other companies to try this, and there should be other interesting applications of social media in this context as company executives and lawyers become more comfortable with it. Benjamin Romano posted a good description of this earnings call.
Companies are hesitant to rely too heavily on social media. This is largely due to the lack of specific SEC guidance and enforcement history in this area. Other factors may also be relevant here. Hacking and other misuses of social media happen far too frequently, and the ramifications here can be significant. For example, the Associated Press’s Twitter account was recently hacked. The hacker posted a tweet that described a bombing at the White House in which President Obama was injured. This tweet was quickly discovered and fixed, but the nature of Twitter allowed the false information to be widely distributed virtually instantaneously. These hacking incidents are an unfortunate fact of life for many of us, but in a financial markets contexts the ramifications can be huge. The big fear here is that a false social media disclosure could rapidly lead to massive sales or purchases of a company’s stock based on bad information, with significant associated decreases or increases in the stock price. I’m not sure how (or if) the SEC could even fix a problem like this, but such an event could significantly harm shareholders’ interests.
In a related event, the New York Stock Exchange recently issued a letter to its member companies regarding social media use. More on that in a later blog post.
I am very glad to see public companies beginning to adopt social media as a disclosure channel. It may take awhile, but I strongly believe that this is a positive trend that will greatly benefit shareholders and potential investors. This widespread distribution of company information using a real time source should quickly result in a more efficient marketplace and in more informed investment decisions. Despite this positive outlook, it is prudent for companies to move cautiously in this arena for now. Companies should evaluate moving ahead with social media disclosure while also continuing to use more traditional disclosure methods such as Form 10-Q, Form 8-K, press releases and their websites. Continue to keep Regulation FD in mind with any social media disclosure. Monitor the social media disclosure situation going forward and see how it develops. Evaluate how the SEC handles the problems that will inevitably come up in the social media context and how it treats the companies that experience these problems. The best move for public companies now is to use a wide range of disclosure methods and to adapt and change as more specific information and guidance becomes available.