Social media can consume more time than many of us would like to admit. We wake up to read the local and national newspapers with apps on our phones and tablets. We keep in touch with friends and family via Facebook. We communicate when we are not with each other through Scrabble-like games such as Words With Friends. We interact with co-workers and colleagues in finance and accounting via Twitter.

Many companies are finding that social media have become important distribution channels for investor communication. An area that has received much attention is how social media interact with securities laws, most importantly, Regulation Fair Disclosure, or Reg FD. Reg FD was adopted by the SEC in 2000, and requires that an issuer not disclose nonpublic information to certain groups, either intentionally or unintentionally, without disclosing the same information to the entire market. The market disclosure is generally made through filing a Form 8-K, Current Report, or by “another method or combination of methods that is reasonably designed to effect broad, non-exclusionary distribution of the information to the public.”

In December 2012, the SEC issued a Wells Notice for violating Reg FD based on a social media communication. Reed Hastings, the CEO of Netflix Inc., posted on Facebook that viewers had downloaded 1 billion hours of streaming video the previous month. 

Netflix’s stock rose following his post, which caught the attention of the SEC. The SEC indicated that this information should have been broadly disseminated, versus selectively disclosed to Hastings’s more than 200,000 Facebook followers. This was posted on a personal page.

Netflix responded to the notice in an 8-K, arguing that distribution to 200,000 followers made the announcement "very public."

The situation opens up the question: Is information more widely or appropriately disseminated on Facebook or other social media than through an 8-K filing with the SEC?

Another concern, also in line with the spirit of the regulation: Are social media sites such as Facebook or Twitter appropriate channels for releasing material information? Some might argue that an investor without a computer, let alone a Facebook account, requires access to corporate information. Indeed, one can still use snail mail to request documents filed with the SEC.

Social media are here to stay, but so far, the SEC has not issued any specific guidance on whether social media networks can satisfy the disclosure requirements of Reg FD. The SEC put out a 2008 interpretive release permitting the use of company websites that are “recognized channels of distribution” to disclose certain types of information. The SEC noted that investors are “turning increasingly to electronic media and to company and third-party websites as sources of information to aid in their investment decisions.” 

The SEC further noted that the “public” nature of company website disclosure would be determined by whether and when (1) a company website is a recognized channel of distribution, (2) posting on a company website disseminates the information in a manner making it available to the securities marketplace in general, and (3) there has been a reasonable waiting period for investors and the market to react to the information. If those three criteria are met, posting of the information on the website may meet the requirement of public disclosure under Reg FD. In recent speeches, some SEC staffers have stated that the guidance is equally applicable in determining whether social media communications can meet the requirements of Reg FD.    

So what can a company do to ensure that it doesn’t ensnare itself with a potential Reg FD issue associated with social media?

1. Have a policy. A clear, consistent social media policy should cover employees’ personal use as well as business use of social media (For example, use of social media at work, use of social media on company-owned devices, personal use of social media, procedures for posting, etc.) and be monitored by legal counsel. Policies need to be broad enough to cover any new channels. Keep in mind that the line between business and personal use is increasingly blurred. Manage potential exposure with training.
2. Use social media as a supplement. Note in all SEC filings, news releases, and the Investor Relations website that the company discloses information through social media, with prominent links. Use social media to supplement other, normal distribution channels (8-K, press release, etc.), not as the communication channel. Establish a pattern of using social media in addition to traditional channels of dissemination. Post the disclosure policy on the website to direct investors on how to receive real-time information via social media channels. (Websites are passive resources that require a user to visit, while social media posting happens in real time and is “pushed” to those who request to receive it). Post cautionary language developed by legal counsel on social media sites.
3. Devise a social media strategy. What do you want to get from social media? Don’t do it ad hoc. Think about it strategically. Have a monthly calendar, and ensure that risk management is considered. Be careful how you link to other social media sites regarding information about your company. For example, if your company Twitter account retweets a positive analyst report, but not a negative one, this can be an obstacle to being an approved distribution channel under Reg FD. Consider different social media accounts for different purposes, such as customer service, investors, etc.
4. Establish governance procedures. Some companies have social media governance committees that consist of legal and marketing. They develop the monthly social media calendar (Twitter, Facebook and LinkedIn) for the company, essentially approving every entry in advance.  Ensure that the board of directors is familiar with the how the company manages the risk associated with social media.

Social media can be a powerful distribution channel for disseminating corporate information for certain industries, if it is managed well and governed appropriately.