Is Social Media the Right Medium for Public Company Announcements?

The SEC thinks it is.  On April 2, 2013, the SEC reported (see: here) that it is okay for U.S. Public companies to use social media to make announcements.  Companies must inform investors that they plan on using social media to do so and which medium they will use.

The SEC announcement stated:

There has been a rapid proliferation of social media channels for corporate communication since the issuance of the Commission’s 2008 Guidance.  An increasing number of public companies are using social media to communicate with their shareholders and the investing public.  We appreciate the value and prevalence of social media channels in contemporary market communications, and the Commission supports companies seeking new ways to communicate and engage with shareholders and the market.  This Report is not aimed at inhibiting corporate communication through evolving social media channels.  To the contrary, we seek to remind issuers that disclosures to persons enumerated in Regulation FD, even if made through evolving social media channels, must still be analyzed for compliance with Regulation FD.  Moreover, we emphasize that the Commission’s 2008 Guidance, though largely focused on the use of web sites, is equally applicable to current and evolving social media channels of corporate communication. The 2008 Guidance explained that issuers must take steps sufficient to alert investors and the market to the channels it will use for the dissemination of material, nonpublic information. We believe that adherence to this guidance will help, with minimal burden, to assure compliance with Regulation FD and the fair and efficient operation of the market.”

The SEC announcement summaries Regulation FD as follows:

Regulation FD and Section 13(a) of the Exchange Act prohibit public companies, or persons acting on their behalf, from selectively disclosing material, nonpublic information to certain securities professionals, or shareholders where it is reasonably foreseeable that they will trade on that information, before it is made available to the general public. The Commission’s 2008 Guidance explained that for purposes of complying with Regulation FD, a company makes public disclosure when it distributes information ‘through a recognized channel of distribution.’”

The SEC’s announcement was part of its investigation relating to a posting by Netflix’s CEO, Reed Hastings, on his personal Facebook page.  Mr. Hasting posted on his personal Facebook page that Netflix streamed 1 billion hours in June.  This caused the Netflix’s stock to rise from $70.45 to $81.72.

The question is whether companies will use social media to make announcements.  The Wall Street Journal (see: here):

Only 14.4% of companies communicate with shareholders via social media, according to a 2012 survey by the Conference Board and Stanford University.”

There are certainly benefits to increasing usage of social media for these types of communications, including general accessibility   People are on social media more and more and are able to view these announcements from their personal computers and mobile devices.  The cons are that the messages may be ignored depending on the users settings and or attention to these important messages.  Historical mediums are changing and companies need to keep abreast of innovative ways to distribute information.  The SEC’s announcement could be indicative of this forward thinking.

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