- Corporate Disclosure Through Tweets and Facebook? Not So Fast.
- April 4, 2013 | Authors: Susan Stoops Ancarrow; Larry A. Cerutti; W. Brinkley Dickerson; Eric A. Koontz; David I. Meyers
- Law Firms: Troutman Sanders LLP - Richmond Office ; Troutman Sanders LLP - Irvine Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Richmond Office
After a lengthy investigation into a posting by Netflix's CEO on his personal Facebook page - a possible violation of Regulation FD - on April 2, 2013, the SEC issued a Report of Investigation1 on its findings. The essence of the Report is that if investors expect disclosure of important information to be made through a channel such as Facebook or Twitter, and if investors have access to that channel, disclosures of material information through that channel are permitted. This is entirely consistent with the SEC's 2008 Regulation FD guidance on website postings2.
Already, most commentary on the Report focuses primarily on what a company must do in order to create the required level of expectation to use such channels for communication of material non-public information3. We believe a different focus may be appropriate. Should companies really be relying on non-traditional communication channels for the disclosure of important information - information that is material and non-public? While there may be some instances where it may be appropriate, we believe that the vast majority of the 13,000+ public companies should steer clear of this approach, at least for now.
Disclosure of material non-public information is all too often a liability creating event. A misstatement, or even a slight overstatement, can provide the poisonous quote essential to a class-action attorney's condemnation of a company and its management or the invitation for a SEC investigation. Disclosure of material non-public information must not be cavalier; it must be the product of careful thought and review by appropriate accounting, finance and legal functions. Indeed, many public companies have disclosure committees for this very purpose. Through a thoughtful process, risk can be controlled and companies can make good and timely disclosures without undo cost or effort. Most importantly, through this process companies can mitigate against these potential costly and time-consuming strike suits and investigations.
We certainly can imagine exceptions. Facebook and other advocates of evolving technology have a vested interest in using the newest communications channels as widely as possible. Similarly, a well-disciplined CEO who either carefully crafts his posts (and has them appropriately reviewed) or posts items prepared for him can control the process well enough so that it should not generate unreasonable exposure. (Query, where do you put any needed “safe harbors”?) But we believe these should be the exceptions, not the rule. Our experience is that most management-Facebook postings and tweets are spontaneous and often are by the person in every organization whose enthusiasm is the hardest to contain, the CEO. This is understandable given that the nature of these communications channels invites off-the-cuff disclosures. For this reason, these disclosures often do not include a balanced presentation with appropriate caveats. Most likely, they are not reviewed by others. In fact, they usually violate the cardinal disclosure rule of “never be wrong alone.”
For now, we urge companies to stick to tried-and-true IR practices. Broadly disseminated announcements and presentations that are Regulation FD-proof remain the best forums for communicating prospects and recent results. Company IR policies should continue to contain appropriate limitations on the use of social media. Perhaps in time, social media will have its due, but for most companies that time is not yet here.
1 Release No. 69279 (Apr. 2, 2013), Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc., and Reed Hastings.
2 Release No. 34-58288 (Aug. 7, 2008), Commission Guidance on the Use of Company Web Sites.
3 This actually is an easy issue. All that a company has to do is to prominently disclose its intent to use a particular disclosure channel in an earnings release or other broadly disseminated document, and then to use that channel regularly for that purpose.