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Lawyers Share Thoughts on SEC's Social Media Guidance
The Securities and Exchange Commission last week gave its quasi-blessing on disclosure through social media, but lawyers who counsel companies on disclosure of material information say it's unlikely to quickly change the way most companies do so.
The SEC said companies can use websites including Facebook and Twitter to disclose information as long it is in compliance with Regulation Fair Disclosure and that investors know ahead of time where to look. That last part, said Thomas Ivey, a corporate and securities attorney with Skadden, Arps, Slate, Meagher & Flom, will be a challenge. "It will be difficult to train investors to look beyond the usual spots for disclosure."
While it is unlikely that companies will replace traditional disclosure channels with social media anytime soon, the new guidance will provide attorneys with an opportunity to help companies formulate new policies for communicating with investors.
There are practical considerations that go beyond what is technically allowed, Ivey pointed out. "Twitter is not a format for disclosure, it's too casual in its content."
Others see more evolving disclosure practices. "The 8-K is still the gold standard for Reg FD, but I think that the standards will change," said Horace Nash, who chairs the securities and corporate finance group at Fenwick & West. "This gives us a good opportunity to help clients think about how they interact with investors. It will be happening a lot around the Valley."
Regulation Fair Disclosure, or Reg FD, essentially stipulates that all investors have access to the same information at any given time and as quickly as possible. This has traditionally been done through press releases and 8-Ks, the SEC form used for general disclosures including earnings, executive departures and any other news deemed "material."
In 2008 the SEC issued guidance on how companies can disclose information on their websites in compliance with Reg FD, but could not have possibly anticipated what shape that would take today.
The impetus for the newest SEC guidance is Netflix Inc. and its CEO, Reed Hastings, who last summer posted on his personal Facebook page that the company had exceeded for the first time 1 billion monthly hours of customer viewing, adding "we'll blow these records away."
The SEC elected not to go after Hastings with an enforcement action, and instead decided to clarify its position on social media disclosures. "The SEC said that social media is OK, but it did not give companies carte blanche to say whatever they want. It will have to be a thoughtful, measured program. Companies will need to decide which channels they want to use and then alert everyone to those specific channels," said William Freeman, a securities litigator with Jones Day. Not everyone thinks the SEC was that clear. A survey done by investor relations firm KCSA Strategic Communications a couple of days after the SEC announcement found that "77 percent of CFOs and investor relations professionals at major public companies do not think the SEC has given enough guidance on how to use social media to disclose company information."
A former in-house counsel at one social media company added that social media financial disclosures may not be a good idea. "It's important to guard against PR people and executives posting indiscriminately on social media. We had enough issues around our IPO that we were always very conservative around social media."
Nash said his advice will vary with each client. "There is a spectrum, from conservative, to very social media friendly."
This article originally appeared in The Recorder.