Social Media For The CEO: Lessons Learned From The Netflix/SEC Tussle And Reg FD

by Gray Reed & McGraw
Contact

Yes, you can use social media to make material public disclosures.  The SEC did not punish Netflix CEO Reed Hastings.  The reality is, however, the SEC gave a warning to executives: we are not going to do anything this time because our rules weren’t clear, but now you are on notice.  

The Netflix CEO Facebook Post

On July 3, 2012, Hastings posted on his personal Facebook page:

Congrats to Ted Sarados, and his amazing content licensing team.  Netflix monthly viewing exceeded 1 billion hours for the first time ever in June . . . Keep going, Ted, we need even more.

The Problem

Generally speaking Reg FD prohibits selective disclosure of material information.  We don’t want a select group to get information ahead of the general investing public.  Therefore, material information must be publicly disclosed.  My original post on the SEC investigatation is here.  Reg FD focuses on the terms “public” and “material.”  To comply, most companies issue press releases or make SEC filings to announce material milestones and financial results.

Public?

Yes, Hastings’ Facebook profile was open to the public and he had more than 200,000 friends, many of whom were the same journalists who would have received a press release. 

Material?

Materiality generally means it is reasonably foreseeable a person may make a trade based on the information.  For the 30 hours after the Facebook post, the Netflix stock rose almost 16%.  Earlier in 2012, Netflix had touted the number of streaming hours as an important metric of user engagement and therefore an indication of value.  The news was picked up by the mainstream press and analysts.  There was, however, also a Citigroup research report touting the stock just prior to Hastings’ post that also likely affected the stock price.

The SEC Speaks

So last week, the SEC decided they needed to provide guidance on the use of social media.  You can read the report here.  To summarize, the SEC authorized companies to use social media to announce material information, BUT only if the company has notified investors that the company intends to use specific identified social media channels.

Hastings escaped an enforcement action because the SEC realized the novelty of the issue and the absence of clarity.  The next guy may not be so lucky.  The SEC wrote:

Neither Hastings nor Netflix had previously used Hasting’s personal Facebook page to announce company metrics, and Netflix had not previously informed shareholders that Hastings’s Facebook page would be used to disclose information about Netflix. The page was not accompanied by a press release, a post on Netflix’s own web site or Facebook page, or a Form 8 K.

A Few Lessons

Train.

Obviously, disclose what social media channels you intend to use.

Just because it is possible, it does not mean publicly-traded companies should exclusively rely upon social media channels to make material disclosures.  Should a company supplement the traditional approach with social media, the company needs to disclose what social media platforms it will use.  This announcement needs to be done often and through the more traditional channels giving investors time to find and set up their access to these outlets.  No magic language is required, something like:

We routinely post information that may be material investment information on our Investor Relations tab on our website found at ______, on our Facebook page found at __________ and on our Twitter account at @________.  We encourage you to visit these sites and follow them regularly.

Make sure people know where to go so they can register, subscribe or do whatever is necessary to get the information without forcing them to “like” or “friend” any company or individual.  If your company account has very few readers, then it probably would not qualify as a “broad, non-exclusionary distribution of . . . information to the public.”  Build your profiles before you use them to make disclosures. 

Use Official Company Accounts.

Official company channels are preferred over individuals.  Presumably, the people authorized to use the official channels have some training and are more equipped to know the limits.  Your investor relations, compliance and legal teams should be involved and monitor the official social media channels.  During the training for the social media team, the adage that if you have to hesitate and ask yourself whether this is material information that could affect our stock price, it probably is, or at least it should be vetted through the entire team.  When it comes to material information, the same rules would apply to Facebook or 140 characters on Twitter that would apply to the more formal press releases.    

By using the official company account rather than the individual CEO account, you also keep it easier to separate what accounts belong to the individual and which belong to the company

Wouldn’t it be easier to ban the executives from discussing any business on social media?

This is the safe way out.  Let the executives talk about their personal life, but don’t let them say anything about the business.  I am guessing that some of my non-legal readers are pulling their hair out and screaming that you have to have your CEO engaged in social media.  David K. Williams and Mary Michelle Scott opined in this Harvard Business Review blog post ”that using social technologies to engage with customers, suppliers, and even with their own employees enables their companies to be more adaptive and agile.”

Regardless of your engagement strategy, even blanket prohibitions against discussing business can create some confusion.  Would commenting that you are on the way to the company Christmas party to celebrate the best year yet violate a blanket ban on business talk?  Would that violate Reg. FD?  Even if you take the more cautious approach, your executives need to be trained on the rules.  

Train.

So, does legal have to review every post or Tweet before it goes out?

After all, press releases are closely reviewed before they go out.  This approach goes too far.  The better practice is provide adequate training and implement policies on the front end.  The company policy should allow investor relations/legal/compliance to monitor executive social media accounts. 

Do we need to train everyone including the new intern?

Everyone should be trained, or at least aware of the social media policy.  Reg FD really applies only to persons acting on behalf of the issuer or company which includes ”any senior officer of the issuer or any other officer, employee, or agent of the issuer who regularly communicates with securities market professionals or with security holders.”  These folks also need to be aware of the company’s Reg FD policy and training. 

Train.

Should we just identify all official channels and the social media profiles of the top executives?

To be safe, a company could identify all of the various social media accounts of all the people listed above.  This would not be a good idea because it make proper disclosures meaningless if you make the information difficult to find.

The identified channel needs to be “a recognized channel of distribution.”  The company Facebook page may apply.  Your CFO’s Pinterest page full of recipes probably does not.  If the disclosures are sporadic, the account won’t garner the broad audience for financial information required by the SEC.  Moreover, to qualify, the account must allow for unfettered access and your executives may not want to open their Facebook accounts.

Train.

Fix it.

Monitoring is important because companies can try to fix mistakes that fall through the cracks.  Reg FD allows for a process of “prompt” disclosure for non-public inadvertent disclosures.  When in doubt, call your lawyer. 

Train.

Did I say something about training?

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Gray Reed & McGraw | Attorney Advertising

Written by:

Gray Reed & McGraw
Contact
more
less

Gray Reed & McGraw on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.