The recent explosion of social media is increasingly moving beyond our living rooms and finding a comfortable seat in our conference rooms. Gone are the days when Facebook was a relatively unknown website for college kids trying to coordinate their weekend plans or when no one knew just exactly what “tweeting” was. Social media tools, once used only by those considered “tech savvy,” are becoming commonplace across generational lines, and are gradually moving beyond purely social and personal uses to infiltrate the corporate world. Social media tools have the potential to be extremely beneficial to companies that adopt them, but must be implemented with thoughtfulness and due care, particularly when used to communicate with the market. In order for companies to realize the full value of social media, it is important to understand not only how these tools work, but also the regulatory environment in which they operate, potential challenges and evolving best practices.
Tools of the Social Media Trade: Facebook, Twitter and More
A few of the more popular social media and networking websites have successfully crossed over from a purely personal platform and are finding popularity in corporate America, with others not far behind. How these tools are used varies by company and often depends on the size of the company and its target audience. Facebook and Twitter are the front runners, while YouTube, Slideshare, LinkedIn, Tumblr and other websites continue to gain momentum.
Facebook has taken the corporate world by storm. According to a 2010 study of Fortune 500 companies among a wide array of industries,1 56 percent have corporate Facebook pages. While insurance companies held the most corporate Facebook pages, specialty retail stores, drug stores, utility companies and commercial banks were also represented. Companies primarily use Facebook to attract a wider consumer base, address broad consumer issues, provide customer service and support, launch campaigns for new products, and highlight company news and milestones. Facebook provides a new level of engagement and interaction with consumers that many companies have not previously had.
Twitter has dominated the web in recent months and many companies use it as a marketing, advertising and customer relations tool. With a restriction of 140 characters per “tweet,” companies must be careful, deliberate and concise with the information they release through Twitter. According to the same 2010 study of Fortune 500 companies, 60 percent have corporate Twitter accounts with a tweet within the last 30 days.2 Although a significant increase from last year’s 35 percent, even more impressive is the fact that nine out of the top 10 companies have active corporate Twitter accounts.
Getting Started — Should We Be Using Social Media?
Companies considering whether to utilize social media may hesitate due to a lack of resources, compliance concerns or a general lack of understanding of how these websites operate. Incorporating social media into a company’s already established communications plan can be challenging at first. Fortunately, many concerns can be overcome with thoughtful discussion, planning and strategy. Companies should realize that if they decide not to embrace Facebook, Twitter and other social websites, unrelated third parties may create accounts using the company’s name, giving the general public the impression that the company is behind these pages when in fact, it is not. For example, although a company may not have officially created a corporate Facebook page, it should be aware that it may still have a presence on the website through a “community page.” Community pages, created by Facebook administrators, are generic in form and use Wikipedia entries to provide general information to other Facebook users. Companies that are proactive have the opportunity to control their own social media communications, rather than relying on the messages created by these generic community pages. At a minimum, companies should reserve their corporate name on applicable websites. As we can expect use of these tools to continue growing, it is wise for hesitant companies to get involved now, or they will inevitably be playing catch-up later.
Before jumping into the social media game, however, companies should first sit on the sidelines and observe. Consider utilizing free tracking tools like “Google Alerts,” “Social Mention” and “Board Tracker” to monitor conversations about the company on the internet. Observe the practices of companies that already have an established social media presence and research competitors or similar companies and the strategies they use. Once you choose to get involved, do so wholeheartedly. Inactive corporate websites, Facebook pages and Twitter accounts appear stale and may deter the very market and consumer engagement they are designed to foster. Strive to present compelling and interesting content, including news, events, presentations, videos and answers to frequently-asked-questions. Play on the senses — pages should be visually appealing and corporate branding should be an integral part of the page layout and design. Consider starting with one social media tool and implement it really well to avoid taking on too much too soon, which may lead to haphazard and sloppy content. Each social media tool a company uses should be linked to all others it uses. For example, a corporate Facebook page should provide a link to the corporate Twitter account, the corporate website, the corporate blog and any other corporate media sites.
Shifting From Marketing and PR to Investor Relations: The Regulatory Landscape
As companies see success from the use of social media for marketing and public relations purposes, they have begun using these tools to communicate with the market, analysts and stockholders. If thoughtfully implemented, these tools can provide an effective additional means for investor relations professionals to speak to a company’s current and potential owners. Audiences for investor relations information are accessing this information in new ways — moving away from the more traditional wire services and talking with companies directly, right on social media sites. Hundreds of companies have begun to use social media for their quarterly earnings releases, with new companies joining the fray every quarter, and many live tweeting during earnings webcasts and annual meetings.
However, like any corporate communication, the use of social media should be a coordinated effort between investor relations professionals and counsel and considered in light of the applicable regulatory framework. Social media should be considered simply another means of corporate communication, subject to the securities laws, including Regulation FD, Rule 10b-5, Regulation G and the proxy solicitation rules, among others. Accordingly, IR professionals should consider social media communications in light of these rules, none of which are new to them. The Securities and Exchange Commission’s 2008 release, Commission Guidance on the Use of Company Web Sites,3 provides a solid starting point from which companies can shape their policies and practices with respect to their use of social media. While the release focuses primarily on corporate websites, much of the guidance is applicable to other websites, including Facebook, Twitter, YouTube, Slideshare and corporate blogs. An investor relations professional considering using social media would be wise to become familiar with this guidance, in particular the discussions of Regulation FD and corporate liability for third-party statements, both of which are summarized below. Most importantly, Facebook pages, blogs and Twitter accounts should supplement or complement already established channels of distribution, rather than replace them. Additional tips and best practices for navigating the regulatory requirements appear at the end of this article.
Regulation FD prohibits the selective disclosure of material nonpublic information to certain market participants. The SEC’s guidance addresses whether information posted on a corporate website‚ or corporate-sponsored websites such as a Twitter or Facebook, is public such that a subsequent selective disclosure of that information would not be a Regulation FD violation.
The SEC provides a three-pronged analysis for determining whether information a company posts on its website is “public” for purposes of Regulation FD: (i) is the company website a recognized channel of distribution; (ii) does posting on the website disseminate information in a way that makes it available to the securities marketplace generally; and (iii) has there been a reasonable waiting period for investors and the market to react to the posted information? This analysis will be different for each company and will depend upon the company’s efforts to maintain its corporate website as an active area for information. According to the SEC, items to consider when determining if a company’s website is a recognized channel of distribution include the steps the company has taken to alert the market to its website, relevant disclosure practices, actual use of the website by investors and the company’s intended user base. In determining whether posted information is made available to the securities marketplace generally, a company should consider whether its website is designed to lead the market efficiently to company information, including that addressed specifically to investors, the extent to which information posted on the website is regularly picked up by the market and reported by the media, the extent to which the company informs the media about such information, the company’s size and its market following, and whether the company uses other, more predominant communications methods.
Equally important to the analysis is whether there has been a reasonable waiting period between posting information and a subsequent selective disclosure, such that the market has had time to react to the posting. There is no pre-determined amount of time that the SEC deemed sufficient between a website posting and a subsequent selective disclosure; rather the SEC urged companies to consider their own circumstances.4
Overall, the SEC guidance seems to suggest that information posted on an active, well-maintained corporate website that is regularly visited by the market will likely meet the “public” threshold for Regulation FD purposes. However, ultimately, “it remains the company’s responsibility to evaluate whether a posting on its [website] would satisfy this requirement.”5 In practice, very few companies have taken the position yet that their website posting is tantamount to a public disclosure. The analysis is further complicated when companies post information on a corporate Facebook page and tweet information from corporate Twitter accounts. Although Facebook, Twitter and YouTube are beginning to have a very visible presence in investor relations, these websites are not necessarily accessed by the general public in a manner sufficient to be considered a recognized channel of distribution. In fact, there remains a substantial generational gap between those who consistently use such tools to receive information and those who still rely on printed materials or who have merely become comfortable perusing the company website. Solely disclosing information via any of these (relatively) new social media tools would undoubtedly exclude a substantial number of people and very possibly implicate Regulation FD if it contains material information not deemed publicly disclosed, or if a subsequent selective disclosure occurs. Further, since these websites are designed to provide short “tidbits” or “snapshots” of information, they do not necessarily provide the proper forum for the robust disclosure that may be required with sensitive investor relations material.
Securities Liability for Third-Party Statements
The SEC’s guidance also addresses when statements made by third parties may become attributable to the company and subject to liability under the securities laws. In this age of evolving use of social media, unintentional attribution and the company liability it may carry are legitimate areas of concern. This issue arises when companies republish analyst reports or information through their own social media sites, for example, which can be a violation of company policy, as well as a liability concern under the federal securities laws. According to the SEC, whether third-party information is attributable to a company such that the company is liable for the posted information is based on: (i) the company’s actual involvement in the preparation of the information; and (ii) whether the company explicitly or implicitly endorsed or approved the information.6
In the context of a corporate website, the SEC suggests that when a company provides a hyperlink to a third-party website or information, the company should explicitly state that the hyperlinked information is not the company’s and that the company in no way explicitly or implicitly adopts it. However, the SEC goes on to state that disclaimers alone will not shield a company from liability for hyperlinking to information it knows to be materially false or misleading. Accordingly, a company should carefully review all material before posting it, and should consider providing explanatory language as to why the hyperlink is being provided “in order to avoid the inference that the company is commenting on or even approving its accuracy, or was involved in its preparation.”7 Companies should also be careful about providing links of only positive information when there is an equal dose of negative information in the marketplace, which, in itself could result in providing materially misleading information.
The issue of attribution, like many other issues, can get complicated in the context of social media websites. Companies must understand exactly how these tools work and the implications of what may seem like an innocent click of the mouse. For example, consider the Facebook “like” button, which users can click to indicate that they like a certain user status, picture or other posting. Users can even “like” a comment made by a third person in response to a separate posting or picture. Companies should be very wary of “liking” anything on Facebook, which could be considered as adopting or implicitly endorsing third-party information. Corporate Twitter users run a similar risk. A Twitter subscriber who reads a particular tweet from a third party can “retweet” the original tweet from their own account. That retweet could be viewed as an endorsement of the information, including any hyperlinks within the tweet, all of which could ultimately be attributed to the company. “Liking” on Facebook and “retweeting” on Twitter are common, often casual, practices by lay persons, but have the potential to carry significant risk when done by a company or company representative.8
Other Legal Considerations
In addition to ensuring that information is not selectively disclosed and taking care to minimize liability for third-party statements, companies must ensure that their social media disclosures comply with the more specialized securities disclosure rules and should consider other legal ramifications. For example, if the communication includes a non-GAAP financial measure, Regulation G would likely apply, which requires that the GAAP financial measure be provided with equal or greater prominence, accompanied by a reconciliation of the two measures. Likewise, if the communication is made in connection with a stockholders meeting, for example, to explain to investors the merits of a particular company proposal, the communication may constitute soliciting material under the proxy rules, which would be subject to liability and required to be filed with the SEC. If a communication is made in connection with a securities offering, it could be considered a written offer in violation of the prospectus delivery requirements. Finally‚ companies should be mindful of data protection and privacy issues and the potential waiver of attorney-client privilege for posted information.9
Tip for Social Media Success — How to Navigate the Regulatory Challenges
In order to successfully realize the many benefits of using social media without unnecessary risk, companies must be willing to devote adequate personnel and financial resources to their social media programs. Many companies have employees who are solely responsible for the social media component of a company’s communications. These employees must be an integral component of the public relations, marketing and investor relations functions and should work with counsel to implement content control and review processes for proposed posts. It is advisable to have one “point person” (and perhaps one back-up person) responsible for physically posting on social media sites. This practice will promote streamlined content and will minimize the potential for posting misinformation. In addition, companies should be proactive about protecting themselves as much as possible from issues arising out of their employees' use of social media. The popularity of these websites and their easy access can create an environment where people, including a company’s own employees, may post sensitive information without thinking carefully about the repercussions. Adopting internal protocols will help to avoid inadvertent postings by employees that could compromise the company’s business, whether by increasing liability or by sharing confidential information. Revising disclosure policies, as well as specifically creating policies and training programs governing employee use of social media, are necessary precautionary steps. Because social media tools themselves, as well as how they are used, are constantly evolving, companies should revisit their policies frequently, update them as necessary and provide regular training updates to employees.
As noted earlier, an IR approach in which social media supplement or complement already established channels of communication is the best way to balance the risks and rewards of social media. Some additional tips for effectively communicating investor relations information on social media sites include:
Is it Working?
Even companies that invest the appropriate resources to create a strong social media presence and that follow best practices may ultimately find it difficult to measure the actual value to the company. A common concern, particularly among investor relations professionals, is a perceived lack of real end-user engagement on a company’s social media pages. Most agree, however, that success should not be measured by the number of “fans” on Facebook, “followers” on Twitter or “subscribers” on YouTube. Nor should companies measure success by the number of posts, comments or responses by other users. Users may frequent different pages without becoming an official fan or follower and may be prohibited by their own employers from posting or commenting. While it may be difficult to gauge the value of incorporating social media into a company’s overall communications strategy, most commentators agree that, at the very least‚ companies have the opportunity to thoughtfully reach a broader audience by tapping into a new and relevant resource.
Social media websites are a modern and creative way for companies to tap into a new and broader audience. Their influence on the marketplace will likely continue to gain momentum. However, as with all new things, the use of social media requires thoughtful planning and regular monitoring. Striking a balance between the light-hearted and casual nature of social media with the important and sometimes sensitive information released through these means demands an advance strategy and a coordinated effort among marketing, public relations, investor relations and legal personnel. Carelessness and lack of resources to manage these websites can lead to, at best, a boring and useless product, and at worst, serious and costly liability. Somewhere in between is the risk for serious reputational damage. However, if implemented with due care, social media platforms have the potential to be valuable additions to any company’s communications plan.
For additional information concerning this alert, please contact your regular Bingham corporate contact or the following lawyers who authored this alert:
1 Nora Ganim Barnes, The Fortune 500 and Social Media: A Longitudinal Study of Blogging, Twitter and Facebook Usage by America’s Largest Companies, Center for Marketing Research, UMass Dartmouth, (2010), available at http://www1.umassd.edu/cmr/studiesresearch/2009F500.pdf.
3 Commission Guidance on the Use of Company Web Sites, Release No. 34-58288, IC-28351. (August 1, 2008), available at http://www.sec.gov/rules/interp/2008/34-58288.pdf.
4 Id. at 45868.
6 Id. at 45870.
7 Id. at 45871.
8 The SEC cautions that employees acting as representatives of the company who use these interactive websites cannot avoid responsibility by purporting to speak in their “individual” capacities.
9 A thorough discussion of these issues is beyond the scope of this article.