Give the SEC a lot of credit…the headline they chose for their press release yesterday about public companies using social media could not have been more clear: “SEC Says Social Media OK for Company Announcements if Investors Are Alerted.”
With those words, and a full report here, the commission has blessed the inevitable modernization of corporate communications. After much of the investment world has already moved to social media, now companies and their officers can feel safe to participate too. In my opinion this was a very sensible and fair decision because nothing can enrich the way information is distributed, or level the playing field for all investors like today’s technology. This decision should be a boon for transparency, and no doubt will have far-reaching implications for companies, Wall Street, and individual investors alike.
The issue came to the forefront last December when Netflix CEO Reed Hastings inadvertently mentioned some company metrics on his Facebook page. Netflix stock made a big move that day, causing some to balk (particularly institutions from what I hear) that his posting was inappropriate and ran afoul of the SEC’s fair disclosure rules. As a result, SEC sent Netflix a warning that it would investigate the matter, prompting most people to presume the agency would censure Hastings and use this as an opportunity to limit the use of social media going forward. I wrote here why I thought that would be a huge step backwards.
However, as is often the case on Wall Street, the smart money turned out to be wrong, and rather than censuring Hastings, today the SEC came down on his side and that of social media.
What The Decision Says
As I interpret the SEC’s report, these are the two key takeaways:
First, social media, like e-mail, can be viewed as an extension of a company’s website and, therefore, is a fair way to disseminate information. In fact, the report examines this issue in relation to extensive guidance the commission had already previously published in 2008 addressing the use of web sites, blogs and RSS feeds by public companies. Today they concluded that the use of social media is not fundamentally different than those things.
Second, in order to comply with the rules, companies need to provide advance notice to the market of each of the channels they plan to use for disseminating information in the future so that all investors will know where to look for it. To use the Reed Hastings case as an example, the SEC appears to be saying that the company simply needs to periodically disclose that Mr. Hastings has a Facebook page, and that he might discuss Netflix’s business there from time to time.
What This Means for Companies
Companies now don’t need to fear social media, they can embrace it. This was a big concern after the SEC sent their warning to Mr. Hastings last December. Since many viewed his Facebook post as
