The Securities and Exchange Commission issued guidance yesterday that permits public companies to disclose material information such as earnings through social channels — such as Facebook and Twitter – as long as investors have been alerted about which social media will be used to disseminate such information. The SEC guidance related to an investigation that it has completed concerning a post by Reed Hastings (Netflix’s CEO) on his personal Facebook page that contained material information regarding Netflix’s performance.
So, is the SEC guidance a good thing or a bad thing, and what is impact do we expect this guidance to have on disclosure and the investing public?
We believe fact that the SEC is embracing social media and encouraging companies to use social channels to disseminate information is a very good thing. Companies benefit by disclosing information as broadly as possible. Using social channels in addition to company websites and press releases to distribute material information ensures more engagement with a broader audience. In fact, PR Newswire is encouraging our customers and other public companies to complement their disclosure of material information by using social channels in addition to press releases, their websites, emails, etc.
That said, similar to the guidance that the SEC provided regarding web disclosure back in 2008, yesterday’s statement by the SEC was ambiguous and could be read to permit disclosure of material non-public information solely through social channels. This would not be a good thing for companies, investors, capital markets, analysts, traders, journalists, or anyone else with a stakes in public companies. We believe it is highly unlikely that companies will use social channels as their sole means of disclosing material information. Doing so would limit severely limit the audience.
What does this mean for our customers?
The SEC has clearly stated that the purpose of Regulation FD (Fair Disclosure) is to promote broad and simultaneous disclosure of material information. Investors should have an even playing field. Selective disclosure is not a good thing and is prohibited by Reg FD. Given that the internet and social channels have become a central part of everyone’s lives, the SEC wants to encourage companies to use their web sites as a core part of their overall disclosure strategy and this now extends to social media.
Companies that use their websites as the sole means of disclosure run the risk of uneven disclosure that disadvantages certain types of investors. The SEC has been clear that the idea that investors might have to go and look for the information rather than getting it through a broader distribution is far from ideal. The SEC has also previously noted that some investors don’t have easy access to the Web. Additionally, law firms have consistently been advising their clients that the only way that such clients can be certain that they are meeting their disclosure obligations is to push the information to investors using press releases and other online distribution.
For more on the implications and risks of this ruling for the financial markets and investing public, please see Scott’s discussion on the Building Investor Compliance blog titled, “PR Newswire applauds SEC guidance on social media.”