Material Disclosure via Social Media: A Win for Investors, Markets, and Public Companies Alike
Last week, the U.S. Securities and Exchange Commission (SEC) issued guidance that allows public companies to publish earnings and other material information via social media channels, such as Facebook and Twitter, as long as investors have been notified beforehand that material disclosures will be made on those platforms.
The policy shift comes as part of the Commission’s efforts around a Facebook post published by Netflix CEO Reed Hastings in July 2012. The concern was that Hastings’ 43-word word post that one billion hours of video had been accessed by subscribers in the prior month ran afoul of Regulation Fair Disclosure (Reg FD) rules, which seek to enhance market fairness by ensuring that all investors get the same information at the same time. Wide-ranging discussions ensued about what really constitutes a public disclosure in the age of social and digital media. After all, if a Facebook post accessed by 245,000 followers doesn’t meet the SEC’s definition of “public,” then what does?
With the SEC’s latest action, public companies can now make material disclosures via their social media properties, provided investors know where to look. It’s a smart move on the SEC’s part – given that it faced a potentially embarrassing loss if Netflix had chosen to fight and because it helps to reverse perceptions that the Commission has been too slow to respond to market realities and too reticent to embrace technology’s impact in the marketplace.
The decision is also a big win for investors. This is a pro-disclosure development that will put more information in front of investors and result in better informed investment decisions. In turn, more information (and transparency) will also build trust and confidence in the markets themselves at a time when many investors remain skeptical and on the sidelines.
Another investor benefit is found in the fact that social media platforms aren’t megaphones; they are two-way communications vehicles that enable even the smallest investors to contribute to – and perhaps sway – public conversations about the companies they own.
In the end, the SEC’s decision provides public companies that embrace Facebook, Twitter, and other platforms for disclosure purposes with the opportunity (and challenge) to listen to the refrain they hear, and then act accordingly. That’s a compelling statement in today’s financial environment – but one that can only be made by those companies that are adequately prepared to engage in the conversations of the future.
Michael W. Robinson is an Executive Vice President at LEVICK, Acting Chair of the firm’s Public Affairs Practice and a former Public Affairs and Policy Chief at the SEC.