SEC Finally Allows Companies To Use Social Media, But…

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netflixBy: IT-Lex Intern Eric Everson (LinkedIn)

Perhaps you remember Netflix’s recent run in with the SEC, where company CEO Reed Hastings faced action over a Facebook post wherein he bragged about how the sites “members had enjoyed over 1 billion hours in June”.  The SEC took exception with the CEO’s post to his 200,000+ followers, seeing it as a violation of Regulation Fair Disclosure (Reg FD). This regulation requires that when a company discloses something of material importance (in other words, anything that could affect the stock price) that the information be sent to everybody at once.  In a report that demonstrates the SEC’s attempt to catch up with technology, they recently decided that investor relations disclosures can be distributed via social media… so long as the investors have been alerted about which social media will be used to disseminate such information. 

This is not the first time in recent months that the SEC has encountered new technology law hurdles, as they have recently ironed out reporting requirements for cyberattacks.  Developments in technology notoriously push the boundaries of securities regulation, which often forces the SEC to respond to new technology uptake ahead of other federal agencies.  Interestingly enough, I read about the SEC’s decision via Twitter first so they too have turned to social media as a viable platform for sharing information. 

This announcement is one that has been much anticipated by the investor relations community and clears the way for a proliferation of social media adoption by America’s publicly traded companies (as if they had not already been using social media).  Moreover, it is a decision that is welcomed by shareholders everywhere.  As a longtime occasional day trader, I cannot remember the last time I physically attended a shareholder meeting, but I’m certainly looking forward to the blow-by-blow via the TweetDeck from many such meetings to come.  From an executive management perspective, this decision also loosens the reins on the use of social media as a medium of sharing the latest happenings.  One executive who certainly leverages Twitter on a regular basis is Kim Stevenson, VP and CIO of Intel; her followers (all 1400+ of us) stay up to speed on the latest through her use of social media.  

An issue that this decision raises are executive’s communications from their personal accounts versus those from the official company social media account.  In its report, the SEC did not make a definitive statement as to whether the Mr. Hastings’ post was of material importance, however indicated that company communications made through social media channels could constitute selective disclosures and, therefore, require careful Regulation FD analysis.  As a cautionary measure, this gray area further supports the importance of companies developing comprehensive social media policies.  A social media policy is a way that companies can hedge giving social media freedom to employees and can be an executive’s tool for managing brand marketing (and social media eDiscovery). 

The SEC will continue to enforce Reg FD as it applies to social media and other emerging means of communication used by public companies the same way it applies to company websites.  Ok executives, time to get the social media marketing machine warmed up!

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