Remember those three monkeys – see no evil, hear no evil, speak no evil? Well, that’s kind of how the SEC views the internet and social media. Time after time after time, the SEC has cautioned that social media are fraught, to the point that I sometimes wonder if there is a watermark, visible only to securities lawyers, in every SEC pronouncement about the web and social media that says “PROCEED AT YOUR PERIL!” And, unfortunately, many (too many, IMHO) SEC attorneys follow the SEC’s lead and either don’t encourage or actively discourage clients from taking advantage of the opportunities afforded by technology.
An example may be helpful. Several years ago, when I was in-house, we decided to include in our proxy statement a live link to something on our website. When we sent our draft proxy statement to outside counsel for the customary rules check, one of the comments we received was a strong admonition to remove the link or at least not make it “live.” The rationale was that there might be something on our website that we wouldn’t put in an Exchange Act filing and that the link would somehow suck all that bad stuff into the proxy statement and lead to liability.
Don’t get me wrong – first, I am not a wild-eyed fan of social media; in fact, as a general rule I’m not a fan at all. Second, using the web and social media unquestionably carries risk. But avoiding social media like the plague also carries risk. In the example above, the “solution” of keeping the link but not making it live carries the risk of irritating a stockholder by forcing her to copy and paste the link into her browser rather than helping her to access it easily. I suppose that we also could have lifted some wording from our website and put them into the proxy statement. However, that would make the proxy statement longer (particularly for those readers who didn’t care to do a deeper dive) and would have less impact. Of course, we could also have dropped the whole thing, but that would have deprived us of an opportunity to demonstrate that we were doing something good and appropriate.
Beyond that, if there is bad stuff on your website, isn’t the better approach to clean it up rather than hope that it squeaks by unnoticed? What about the fact that the SEC and the courts have often looked at the “total mix of information” about a company to determine whether it has misled investors; does the “total mix” somehow exclude what’s on its website?
Hence my suggestion for the SEC – get over it. Rather than scare companies in a way that avoids technology (and reality) entirely, encourage them to use it wisely, give examples of how that might be done, and get rid of that watermark, visible or not.