The years since the U.S. Securities and Exchange Commission introduced Regulation FD have been marked by remarkable developments in technology. Between 2000 and the present, investors have logged onto Facebook and Twitter, called-in trades on smartphones, and checked quotes on tablets. Publicly traded companies have embraced technology. Most corporate web sites include an investor relations page ((Jakob Nielsen, Investor Relations (IR) on Corporate Web Sites, Nielsen Norman Grp. (May 25, 2009), https://www.nngroup.com/articles/investor-relations-ir/.)) that includes information such as press releases, filings, and upcoming earnings release dates.
In recent years, as social media has become more pervasive, many companies have attempted to move beyond their own web sites to engage directly with consumers (and potential investors) – through outlets such as Facebook, Twitter, and LinkedIn. The SEC’s Adopting Release indicates that it predicted increasing use of technology in developing Regulation FD. ((See Sec. & Exch. Comm’n, SEC Final Rule: Selective Disclosure and Insider Trading, Release Nos. 33-7881, 34-43154, IC-24599, 17 C.F.R. Parts 240, 243 & 249 (2000) at II.A.1.)) And the SEC’s subsequent guidance on Regulation FD has encouraged issuers to use online channels of communication. ((See Sec. & Exch. Comm’n, SEC Guidance on the Use of Company Web Sites, Release Nos. 34-58288, IC-28351, 17 C.F.R. Parts 241 & 247, at 4 (2008); Sec. & Exch. Comm’n, SEC Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc. and Reed Hastings, Exchange Act Release No. 69279 (2013) [hereinafter “SEC 2013 Report”]; Press Release, Sec. & Exch. Comm’n, SEC Says Social Media OK for Company Announcements if Investors Are Alerted (April 2, 2013) [hereinafter “SEC Social Media Press Release”].))
Two years ago, the SEC re-articulated its stance on the use of social media to communicate material information. In 2012, Netflix CEO Reed Hastings used his personal Facebook account to announce news about one of the company’s key metrics. ((SEC 2013 Report at 1.)) The Commission subsequently issued new guidance. Publicly traded companies may use social media outlets such as Facebook and Twitter to announce key information under Regulation FD – “so long as investors have been alerted about which social media will be used to disseminate such information.” ((SEC Social Media Press Release.)) The SEC noted that “public companies are increasingly using social media to communicate with shareholders and the market generally,” and that, “[l]ike web sites, corporate social media pages are created, populated, and updated by the issuer.” ((SEC 2013 Report at 6.)) A social media channel may be used for investor communication if it is a “recognized channel of distribution” and if issuers “alert the market about which forms of communication” are to be used to disseminate material information. ((SEC 2013 Report at 7.))
The SEC’s social media policy with respect to Regulation FD seems to have been motivated at least in part by the ongoing change in consumers’ information consumption habits as online channels of communication continue to grow in popularity. And companies can benefit by maintaining a strong and savvy social media presence. ((See Richard Levick, The Impact Of The SEC’s Social Media Pronouncement, Forbes (May 15, 2013), http://www.forbes.com/sites/richardlevick/2013/05/15/the-impact-of-the-secs-social-media-pronouncement/.)) But even though announcing material information on social media is permitted, the risks of publishing on social media first may outweigh the benefits.
One risk of publishing material information through social media first is failing to reach investors who are not regular consumers of social media. According to the Pew Research Center, 72% of adult internet users use Facebook; 25% use LinkedIn; and 23% use Twitter. ((Maeve Duggan, The Demographics of Social Media Users, Pew Res. Ctr. (Aug. 19, 2015), http://www.pewinternet.org/2015/08/19/the-demographics-of-social-media-users/.)) There may well be a population of investors that is uninterested in obtaining information from social media. And although it might not be necessary to become an active user of a social media site in order to view information posted by a company, an investor who does not regularly use social media might be turned-off by the idea of monitoring one feed or another in order to learn about a company’s material news. Furthermore, as noted in a recent article on declining use of investor relations-specific social media accounts, many companies do not permit employees to access social media while at work ((See Garnet Roach, Are IROs unfollowing social media?, IR Mag. (Nov. 26, 2015), http://www.irmagazine.com/articles/social-media/21112/are-iros-unfollowing-social-media/.)) Since many material announcements – for example, quarterly earnings – take place during the standard workday, publishing on social media first means that at least some investors will not always have immediate access to this information. A company’s own web site – rather than its social media feeds – seems the most logical and intuitive online location for announcements that might impact investors.
A second risk relates to companies’ lack of direct control over third-party social media sites’ security protocols. Whereas a company ostensibly will have control over most aspects of its own corporate web site, instructing investors to follow a given social media account for announcements might expose both the company and the public to additional security risks. For example, a cyber-criminal might create a copycat account or and publish false information that misleads investors. Or a hacker might target a company’s social media account. One might assert that any online communication risks exposure to cybercrime; however, even the perception of greater risk can impact behavior. Companies should consider both third-party internet security risk and perception of such risk in online investor communications.
Social media is a powerful tool with tremendous potential to increase transparency and dialogue between companies and investors. But with respect to announcing material developments, a company might be prudent to publish first on its own web site – and second on social media.