Tweets, Likes and Other Disclosures: Social Media and the New Corporate Message

Posted on 07-22-2013 by
Tags: Real Law

Brought to you by the Real Law Editorial Team

Marshall McLuhan’s profound observation that “the medium is the message” is often misunderstood. It is assumed the 20th-century communications theorist meant that channels of mass media eventually take precedence over the content they deliver, but that’s not the case.

McLuhan’s notion of a medium was “any extension of ourselves,” which could easily be a wheel or a Walkman®. The message the medium conveys is found in “the change of scale or pace or pattern” that it introduces into human affairs—in other words, how the medium transforms people.

In the mid-1800s, for example, the telegraph transformed the world. By accelerating the pace at which business was conducted, the telegraph (medium) resulted in a populace that came to expect instant gratification in matters of discourse, regardless of distance (message).

What today’s Internet is telling us is still unclear, even if we know its message is vastly more complex than the telegraph’s. Indeed, that message will likely be at least as far-reaching as the medium itself. And social media are increasingly a part of whatever story is unfolding—as Corporate America is about to discover in ways it probably could have never imagined.

A Brave New World

In April 2013, the Securities and Exchange Commission (SEC) cleared public companies to use social media outlets such as Twitter® and Facebook® to announce key information in compliance with Regulation Fair Disclosure (Regulation FD), “so long as investors have been alerted about which social media will be used to disseminate such information.”

Regulation FD requires companies to distribute material information in a manner reasonably designed to get that information out to the general public broadly and non-exclusively. It is intended to ensure that all investors have the ability to gain access to material information at the same time.

“An increasing number of public companies are using social media to communicate with their shareholders and the investing public,” the SEC noted. “We appreciate the value and prevalence of social media channels in contemporary market communications, and the commission supports companies seeking new ways to communicate.”

In effect, the SEC recognized that it, too, cannot ignore the growth and power of social media, and it responded by laying out some ground rules. Reacting to the new guidance, the global investment banking and securities firm Goldman Sachs turned to its Twitter account and tweeted “thanks” to the SEC. It was a sentiment that many in the business community shared.

But what might seem to many to be a progressive move is actually making some other companies nervous. For one thing, the SEC’s guidance was general, leaving room for error. Some executives may be rightfully worried about those in their organizations with “itchy Twitter fingers,” while balancing a desire to communicate with shareholders and potential investors who are eager for information.

Testing the Waters

In fact, the move to allow social media as a channel for delivering company information was prompted by an SEC investigation into a Facebook posting by Netflix® founder and CEO Reed Hastings. In July 2012, Hastings had boasted on his personal page within the social media site that his company had exceeded one billion viewing hours in a month for the first time. The posting was quickly picked up by others and redistributed through various online publications and content aggregators. As a result, the company’s share prices rose.

Netflix CEO Reed Hastings’ post on Facebook in July 2012

At the time, the commission indicated that Netflix and its CEO seemed to be acting in a manner that was at odds with the fair-disclosure rules. They hadn’t previously used Hastings’ personal page to announce important company information; moreover, they had not alerted the public that the site could be used for that purpose. Hastings argued that with more than 200,000 followers, his personal page was very much a “public forum,” where it could be reasonably expected he might share Netflix-related details.

With the April 2013 ruling, the commission cleared Hastings of any wrongdoing and said it wouldn’t pursue civil charges in the matter. A spokesman for Netflix said afterwards, in a tone that mixed determination with diplomacy, that the CEO “views social media as an important method of communication and, consistent with the SEC’s guidance in this area, will continue to do so.”

Best Practices for the Social Era

Indeed, social media are essential channels in today’s world, and there is good reason to act prudently when using them to announce financial and other key information to investors. For example, on the same day it issued a quarterly earnings report in early 2013, PepsiCo Inc. sent out more than a half-dozen messages from its official Twitter account and included snippets from profit numbers and dividend payouts as well as comments from the company’s CEO. However, those details were included in a traditional earnings news release issued earlier in the day and the tweets included links to the original document.

Such tactics are a good start for public companies planning to use social media to disclose material information. Some law firms, such as Philadelphia-based Pepper Hamilton LLP, recommend other best practices. A commentary posted on the firm’s corporate website shortly after the SEC guidance was released includes several key “Pepper Points” that are particularly instructive. For example:

  • “Disclosure on designated social media outlets should be coordinated as part of a company’s overall investor communication strategy.”
  • Such disclosures should be “subject to the same rigorous constraints and procedures as disclosures through other public means such as press releases or earnings conference calls.”
  • “Officers, directors and employees should be cautioned against disclosing any confidential company information…other than through approved channels and procedures.”

Those practices, and others like them, will help shape “the message” that will come from corporate use of social media as a platform for dialogue with shareholders and others. What that message will be is anyone’s guess at this point.

But the medium is there now. All that remains is to see what is done with it and find its hidden meaning.

That will happen—with time.

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