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Social Securities:How to Make Senseof Reg FD and NewDisclosure ChannelsBy Evan Pondel, PondelWilkinson Inc.with
Social Securities: How to Make Sense of Reg FD and New Disclosure Channels2The trading day is only five minutes old, and w...
Social Securities: How to Make Sense of Reg FD and New Disclosure Channels3To do that, Reg FD states that companies can ma...
Social Securities: How to Make Sense of Reg FD and New Disclosure Channels4About a year ago, the chief financial officer o...
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Social Securities: How to Make Sense of Reg FD and New Disclosure Channels


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Most public companies think in terms of 10-Ks, 10-Qs, and 8-Ks when it comes to disclosure, but the SEC’s recent endorsement of social media marks a key development in the annals of investor relations. Social media outlets like Twitter and Facebook are becoming increasingly accepted channels for material information, and it’s more important than ever to understand best practices in a world of tweets, cashtags and wall posts.

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Social Securities: How to Make Sense of Reg FD and New Disclosure Channels

  1. 1. Social Securities:How to Make Senseof Reg FD and NewDisclosure ChannelsBy Evan Pondel, PondelWilkinson Inc.with
  2. 2. Social Securities: How to Make Sense of Reg FD and New Disclosure Channels2The trading day is only five minutes old, and word is spreadingon Twitter that the FBI is raiding a certain public company. Thecompany’s investor relations representatives soon find themselveson the receiving end of a barrage of calls from frenzied portfoliomanagers attempting to debunk what they just read in 140characters or less.The company’s stock is down 10 percent, Bloomberg reportersare calling for comment, and the said company’s executives haveyet to weigh in on the rumor because they live in California wherestars are still visible in a predawn sky.This is not a hypothetical scenario. It actually happened earlierthis year to a company with a market capitalization of more than$9 billion. The rumor was eventually proven false and the stockcorrected itself in a couple of hours, but such an instance isindicative of the power and influence of social media on capitalmarkets.Now add to the mix the Securities and Exchange Commission’srecent endorsement of social media as viable disclosure channels,and publicly traded companies of all shapes and sizes arebeginning to listen to conversations that can make or break a 52-week high in a nanosecond. Welcome to the world of hashtagsand cashtags, where investors, executives, SEC counsel and IROsare trying to make sense of this new social media soup.“I would not make a blanket statement and say that social mediaare good for all public companies. Rather, I’d say they can beuseful tools,” said Elizabeth Blankespoor, assistant professor ofaccounting at the Stanford Graduate School of Business, whorecently coauthored a study that found tweeting can improvethe liquidity of smaller, lesser-known companies. “But thereare always pitfalls when keeping control of data, and the SEC’sannouncement on social media was pretty cautionary aboutselective disclosure.”And perhaps rightly so. Most public companies think in termsof 10-Ks, 10-Qs, 8-Ks and the like when it comes to disclosure,in addition to issuing news releases on wire services, such asBusiness Wire, PR Newswire, GlobeNewswire and Marketwired.But to understand how social media fit in with these more tenureddisclosure channels, it’s probably useful to revisit the rudimentsof why and how companies began disclosing information in thefirst place.Fair DisclosureThe Securities Act of 1933, often referred to as the “truth insecurities” law, required that investors receive informationregarding securities being offered for sale. That could take theform of a registration statement or prospectus. In 1934, theSEC began requiring companies with more than $10 million inassets whose securities are held by more than 500 owners to file“annual and periodic reports,” which are also known as 10-K and10-Q filings.Stock exchanges also began recommending disclosure channelsto satisfy “immediate release policies.” To this day, the New YorkStock Exchange recommends that companies send press releasesto Dow Jones & Company, Inc., Reuters and Bloomberg to “insureadequate coverage.”Despite these disclosure channels, the SEC grew more suspiciousin the late 1990s that companies were dribbling out “insider”information to analysts and institutional investors. On August 21,2000, the SEC adopted Regulation FD (fair disclosure) against abackdrop of media reports about insider trading scandals. Thecrux of the rule: to ensure that public companies disclose materialinformation to all investors at the same time.
  3. 3. Social Securities: How to Make Sense of Reg FD and New Disclosure Channels3To do that, Reg FD states that companies can make publicdisclosures by filing or furnishing a Form 8-K, or by disseminatinginformation “through another method (or combination of methods)of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public.”Reg FD 2.0Even today, these methods mostly consist of issuing a pressrelease with a wire service, posting information about a conferencecall on a company’s website, and hosting webcasts. But theSEC’s recent announcement regarding social media marks a keydevelopment in the annals of disclosure now that it’s OK to tweetmaterial information, as long as investors are told in advancedthat a company will be doing so.All along, people thought that Netflix CEO Reed Hastings wasgoing to get in big, big trouble for disclosing information on hisFacebook page. Instead, Hastings’ alleged disclosure blunderserved as a catalyst to the SEC’s endorsement of social media.So what does this mean for the investor relations community?What it does not mean is that executives, IROs, chief marketingofficers, and anyone else who represents a public company anddabbles in social media should start tweeting market-movinginformation. “It’s a matter of common sense and consistency,”said Howard Lindzon, founder and chief executive officer ofStockTwits. “Reed Hastings took a lot of arrows for doing whathe did.”The challenge for public companies is finding the right personto manage social media. Understanding the basics of Reg FD,as well as having the ability to drum up catchy and informativetweets is not easy. Lindzon said companies should assess socialmedia as a plumber would assess the piping in a house. “Simpleand efficient plumbing is key. But you first have to learn how touse the products,” he said.Lindzon offered the following tips when testing the waters withsocial media:• Do not engage social media because you think it could make your stock price go up;• Share links and track those who read them;• The “when” and “where” isn’t as important, as how you do it and consistency;• Allocate the right amount of time; and• Diversify your use of channels.Targeting the Right AudienceOne of the biggest draws of social media is that they are essentiallyfree distribution channels, which is enticing when companiesspend several thousand dollars a year in wire distribution fees.But experts say companies shouldn’t be so quick to relinquishtraditional means of issuing news releases.“The mistake people are making about social media is that thesechannels are somehow a replacement for our old establishedsystem,” said Bradley Scott, senior product manager at SNL IRSolutions. “Unless you are completely confident as a companythat everyone will want to ingest your social media, you need tothink about social media as an ‘and’ not an ‘or.’”Many would-be consumers of social media are unable to viewcertain websites because their employers block them. Institutionalinvestors aren’t always inclined to habitually check Twitter forcompany news, either. A buy-side portfolio manager who runs ahalf-a-billion dollar hedge fund and prefers to remain anonymoussaid he seeks out information from social media only when astock is moving.“Anyone who trades simply because of a bunch of hooey on Twitterisn’t a very sophisticated investor,” said the portfolio manager,who uses his Bloomberg terminal to access companies’ tweets.Bottom line: Companies must know their target audience whenusing social media, and Bradley Scott at SNL recommends thefollowing to ensure companies are getting close to the bull’s-eye:• Listen to where social media conversations are happening;• Ask your investors what social media channels they are using;• Make sure your company is ready to commit to social media;• Be consistent with access to social media links throughout a company’s website; and• When you implement a social media policy, stick with it.Instituting a Social Media PolicyAs far as communications policies go, the subject of socialmedia has yet to receive as much attention as, let’s say, crisiscommunications. Less than half of employers have formal socialmedia policies, according to a survey of 470 companies releasedlast year by the Society for Human Resource Management. Butas more employers engage in social media, instituting a policyof what can and can’t be said on Twitter, Facebook and otherchannels is absolutely imperative.
  4. 4. Social Securities: How to Make Sense of Reg FD and New Disclosure Channels4About a year ago, the chief financial officer of a fashion retailerwas fired after tweeting the following about his company’s boardmeeting: “Board meeting. Good numbers=Happy Board,”according to the Wall Street Journal.“Trying to stop social media is like trying to stop the ocean’s tidesfrom coming in, so you have to figure out how to use it responsiblyand safely,” said Hillel T. Cohn, a partner at law firm Morrison &Foerster. in Los Angeles, who specializes in securities regulatorymatters. “First and foremost, companies have to consider whethersocial media fit the nature of their business.”And if they do, Cohn recommends the following:• Set up a social media policy that permits official corporate communication to be conveyed through specified social media accounts, not personal accounts;• Ensure that social media communications are consistent with other public statements;• Determine whether disclaimers are necessary, such as forward- looking statements;• Identify someone who will monitor social media communications; and• Avoid misleading language.That isn’t easy when a social media account has been hacked. Thefalse Associated Press tweet that sent the Dow Jones IndustrialAverage plunging in April is a harsh reminder that the threat ofbeing hacked may outweigh thebenefits of engaging in social media.“The reality is, most companieswill just have to accept the risk ofhacking and be prepared to deal withthe consequences,” Cohn said.Technology heavyweight Dell hasbeen proactive in its embrace ofsocial media. The company publishesits “Global Social Media Policy”on its website with the followingprincipals: “Protect Information; BeTransparent and Disclose; Follow theLaw, Follow the Code of Conduct; BeResponsible; and Be Nice, Have Funand Connect.”Ultimately, the onus will increasingly fall on investor relationsprofessionals to determine whether engaging in social media isworth the risk, but it is difficult to resist the temptation whenWarren Buffet, a.k.a. the William Shakespeare of shareholderletters, opens a Twitter account and tweets, “Warren is in thehouse”.Evan Pondel is president of PondelWilkinson Inc., a Los Angeles-based investor relations and strategic public relations firm. Hecan be reached at SNL PlazaCharlottesville, VA Century Park EastSuite 350Los Angeles, CA