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In Social Media, The SEC Protects Investors and Companies by Removing “Relations” from IR

What follows is the unedited version of my post on TechCrunch, “Corporate Tweets and the SEC: Sometimes It’s Better To Keep Your Mouth Shut.”

Credit: Daniel Y. Go

Last year, I covered the landmark SEC decision to recognize corporate blogs and potentially other forms of Social Media as a recognized form of meeting public disclosure requirements under Regulation FD (Fair Disclosure) – in some cases. It was a significant validation of a widely recognized medium for facilitating information between companies and stakeholders. Jonathan Schwartz, CEO of Sun, among many others, successfully lobbied over the years for official recognition of blog and the SEC finally took notice.

The real question is, did other public companies and their communications and IR teams take notice?

Just under a year later, all was quiet on the social IR front until recently. Questions are swirling. Initial waves of examples are poised for documentation and analysis. Success stories, mistakes, and lessons are imminent.

While PR, marketing, advertising, branding, HR, and customer service are rapidly adopting participatory methodologies, IR has wisely observed the landscape to ascertain risks and opportunities present within the new SEC guidelines.

It’s time to bring this discussion into the public spotlight again in order to connect IR, PR, and legal in the dialogue that will prompt new policy and regulation to better serve investors, customers, and influencers.

Recently, I hosted a discussion on this very topic at the NewComm Forum in San Francisco. I assembled an expert panel that included those active in covering and defining the world of corporate disclosure in the era of the social web, including: Richard Brewer-Hay of Ebay, Bryan Rhoads of Intel, Tom Foremski of Silicon Valley Watcher and ZDNet, and David Gelles of Financial Times.

The experiences and lessons shared in this discussion brought to light the real world internal concerns, challenges, and possibilities for integrating blogs, Twitter, and other social networks into the portfolio of disclosure tools.

In reality, social media is reshaping disclosure and the practice of investor relations. As the social web begets a human voice and genuine transparency, it also raises the risks of meeting and maintaining legal compliance. It’s true, the SEC has recently modified its stance on blogs, but as new social tools continue to innovate and gain traction, a gap may be widening between the ability for companies as well as the SEC to keep pace with a rapidly evolving landscape of social networks and the means to meet investor demand as well as the emerging opportunities for engagement and communication.

Analyzing SEC Guidelines

In last year’s post, I playfully tossed out the idea of killing the press release in favor of new electronic formats and hubs that connect stakeholders, not because I believed that the press release is dead, but because I wished to challenge legal and communications teams to expand their reach to the communities that currently grip the attention of the people they wish to reach – especially when the news is favorable.

According to the SEC, “As we have developed EDGAR to facilitate and promote electronic availability of information, we also have encouraged companies to make their Commission filings and other company information available on their web sites. We believe that company disclosure should be more readily available to investors in a variety of locations and formats to facilitate investor access to that information.”

However, before we get too far ahead of ourselves, the SEC published a 47-page report that outlines the boundaries for sharing information as well as holding companies and their employees liable for the information that they post on blogs, networks, communities, and discussion forums.

If public companies are not proactively analyzing these guidelines and establishing internal policies, frameworks, and penalties, then they are exposed to the dangers that loom in the form of overly enthusiastic employees who are enamored with new and shiny social tools and objects. One wrong, irresponsible, or casual post, comment, tweet, status update, can produce a domino effect of consequences that have yet to establish precedence. While a tweet, for example, may seem harmless, the activity and response sparked by an update could result in repercussions that trigger SEC and shareholder retaliation. Corporate and marketing executives who rely on self-restraint and common sense across the organization aren’t employing common sense at all.

Integrating New Technology with What Works Today

Yes, it’s the company’s responsibility to reach people where they are actively seeking and sharing information, but the SEC also cautions communicators in doing so. Just because blogs, social networks, and micro communities such as Twitter and FriendFeed are the current flavors of our digital generation, their conversational roots and culture do not relinquish companies from their responsibility to share data in a way that complies with federal securities laws. The SEC guidelines clearly state, “While blogs or forums can be informal and conversational in nature, statements made there by the company (or by a person acting on behalf of the company) will not be treated differently from other company statements when it comes to the antifraud provisions of the federal securities laws. Employees acting as representatives of the company should be aware of their responsibilities in these forums, which they cannot avoid by purporting to speak in their ‘individual’ capacities.”

As I mentioned in a recent article published in the Financial Times by David Gelles, “If the people doing social media for a company aren’t informed enough to do the right thing when using these tools, you’re in danger.”

Companies MUST not abandon or sacrifice the bridges and services that already effectively connect information to people today and also comply with SEC regulation. It’s the responsibility of any community-focused organization to use the tools and channels that extend and supplement each other.

While press releases are among the top choice for meeting disclosure, they are not necessarily inexpensive and therefore encourage the exploration of new conduits. Companies report spending $15,000 – $50,000 or more per year on issuing press releases in order to satisfy Reg FD. Traditional and social solutions can also be considered as they are sometimes as or more effective than a traditional press release, especially in a recession where every penny counts. The sometimes-exorbitant costs of meeting disclosure have also fueled the study and technological evolution of corporate blogs, wikis, and social media releases. They represent exciting, modernized possibilities to adapt to and connect with constituencies and influencers in ways that some rely upon in order to make decisions and also process and produce content based on material company information.

This isn’t an ” either or” discussion. The Wall Street Journal reminded us recently that corporate blogs and tweets must keep the SEC in mind. I’d also include that companies must ultimately keep investors and their communities in mind while using the SEC guidelines as the map in which to connect with them according to meeting disclosure requirements.

Playing by the Rules: Amplifying Corporate Reach and Resonance

There’s a difference between mandates and guidelines and it’s your responsibility to understand the nuances in order to comply with Reg FD, while not missing the prospects associated with new and influential online communities.

When you read the SEC guidelines, you’ll quickly realize that they do not provide specific instructions and boundaries that dictate permissible and prohibited procedures and activities. In its current form, direction is gray at best. However, analyzing the guidelines based on the framework implied by the SEC, as it correlates to the culture and interworking of any organization, provides a blueprint for constructing a compliant and most likely, more effective, communications infrastructure.

Companies will need to consider whether and when postings on their Web sites, communities, or networks are “reasonably designed to provide broad, non-exclusionary distribution of the information to the public.”

While the SEC specifically mentions Web sites, forums, and blogs, it does not specifically name popular networks such as Facebook or Twitter – at least not yet. But that does not mean that they are excluded from the potential communications channels companies can use to reach stakeholders today.

The guiding principle is pervasive throughout the document and essentially advises that companies use the tools and services that reach constituents when, where, and how they rely upon receiving timely information, “In order to make information public, it must be disseminated in a manner calculated to reach the securities market place in general through recognized channels of distribution, and public investors must be afforded a reasonable waiting period to react to the information.”

Ebay is one of the widely referenced examples as it relates to disclosure and the Social Web. It also spotlights an instance when an individual employee is at the forefront of traditionally guarded and controlled information production and distribution process. In this case, Chief Blogger and Richard Brewer-Hay maintains a blog and Twitter account where his personal presence is as dominant as his affiliation with eBay.

In January, Ebay released fourth-quarter results and while listening to the earnings call, Richard Brewer-Hay posted live updates to Twitter. The legal team was alerted and after analyzing the medium, possible liabilities, and also associated potential, the team documented a series of 140-character disclosure statements. One tweet reads: “The presentation of this financial information is not intended to be considered in isolation or as a substitute for GAAP financial measures.”

As its “internal reporter,” the company empowers Brewer-Hay to transparently share company activity to shape the brand and inject personality and perspective through a strategic and proactive outbound communications program.

But he’s not alone in his efforts to humanize the corporate voice in and around financial reports, disclosure and earnings obligations through blogs, Twitter, and other social presences.

Johnson and Johnson recently reported, for the first time, minutes from the company’s annual meeting via Twitter.

EMC Corp also uses Twitter to extend the reach for company news, while also tracking the opinions of employees, investors and peers.

Dell publishes Dell Shares, an investor relations blog that complements the company’s blog network dedicated to providing transparency and insight related to corporate activity, technology, and products. In David Gelles’ Financial Times articles, Dell’s Vice-President of Investor Relations Lynn A. Tyson acquiesced that she was initially reluctant to start Dell Shares, “One of the challenges on the blogosphere is disclosure. How do you comply with all the disclosure requirements in an environment that could potentially create more risk?”

In May, Intel Corp. will allow shareholders to ask questions via the Web and vote online during its annual meeting. But for now, the company isn’t yet integrating blogs and Twitter for use in investor relations until further research and analysis can provide a solid and meaningful connection between Intel and investors.

The Society of New Communications Research tracks over eighty-one Fortune 500 companies that publish blogs, including Wal-Mart Stores Inc., Chevron Corp. and General Motors Corp with 20 linking to corporate Twitter accounts (not all are yet utilized however). The SEC also maintains a Twitter presence via SEC Investor Ed and SEC News.

Corporate Twitter Accounts include (partial list):

Best Buy
Cisco Systems
Toys ‘R’ Us
Johnson & Johnson
Wells Fargo
Time Warner
New York Life Insurance
Texas Instruments
Whole Foods Market

Public Relations

Investor Relations and disclosure aside, every company needs a public presence and voice as it relates to Public Relations, customer relationships, community development, reputation and brand management, and product development.

Bryan Rhoads at Intel shared his experience and lessons so that others can overcome common challenges and hurdles within organizations seeking direction and ROI for social participation, “Start small, do the due diligence and have patience… and be fine with being a change-agent for the following year or two. At Intel, I had many serendipitous relationships and circumstances that allowed us to move forward with external social media. First, we had some pioneers in this space that served as natural allies and examples that we leveraged for a foundational framework. We also approached amiable members of our legal and management teams to build those relationships and to ensure that we had the proper strategy, risk assessments, process, etc. This air cover and due diligence allowed us to undertake a small pilot blog.”

Rhoads also observed, “We took the deliberate approach and philosophy that employees must have direct access to the audience without complicated workflows through PR/Legal. These needed to be “real” employees who had an information dense story to tell. A natural candidate for the pilot was our own IT Department, i.e. to have our own Intel IT managers talk about how they implement Intel technology and also show how we eat our own dog food through a “peer-to-peer” lens to other IT managers facing similar challenges, difficulties, questions, ROI, etc. Our IT@Intel blog pilot was a natural and authentic “in-the-trenches” story that resonated with more than just IT Managers. Its success then made it easier to expand employee blogging and social media in early 2007, where we had the process, the policies and the strategies in place to offer additional blog flavors such as Research, CSR, Technology and Geo blogs in Chinese, Russian, Spanish, etc. All in all, we have over 35 flavors of communities and blogs on”

Corporate Voice vs. Individual Personality

Indeed, the SEC is recognizing company-sponsored blogs and networks, which can include CEO blogs and investor relations blogs, among other communities, as official presences in addition to company web sites, “Companies can use these for a variety of purposes, including allowing for the exchange of opinions and ideas between a company’s management or certain other employees and its various stakeholders.94 The open format of blogs makes them an attractive forum for ongoing communications between and among companies and their clients, customers, suppliers, shareholders and other stakeholders. Similar to blogs, electronic shareholder forums can serve as a means for investor to communicate with companies and each other and to provide investor feedback on various issues in a real-time basis, and we have adopted rules to encourage their use.”

These rules raise concerns as to the extent of transparency and humanization of the information shared, requiring a delicate balance between personality and objectivity. Remember, it’s not just what you do say and how, but also what you don’t say that can lead to speculation and movement based on interpretation and speculation.

For example, some eBay followers have noticed a change in tonality in Brewer-Hay’s tweets. But, if it doesn’t expose eBay to legal proceedings and still delivers information in a way people prefer, then so be it.

What’s important to realize is that maintaining a presence on the Social Web is not formulaic, whether it’s PR or IR. The answer lies in what matches existing company culture and also appeals to stakeholders in ways that they favor. The spirit of the Social Web seems to galvanize the presence of a person or persona, but perhaps interim corporate accounts could help ease the foray into uncharted waters for many organizations. This is all driven and steered by community feedback. By not participating or listening to communities across the web however, companies gain nothing in terms of value, advice, or feedback – no matter what stage of participation companies fall within. This is not the time to plug our ears and close our eyes in the hopes that this social fervor will subside.

Creating an Effective Communications Network

A critical theme within the SEC documentation is the stipulation that companies are more likely covered under the Fair Disclosure act if they publish information equally and accurately through a variety of traditional and digital passages. More importantly, companies should create a hub that documents all available mediums to receive information as it’s made public. For example, list all press release services you employ; provide a directory of relevant blogs with URLs and RSS Feeds; list Twitter, FriendFeed, FaceBook or other relevant social network profiles; share podcast links and presences on other audio networks such as iTunes; embed electronic documents and link back to host accounts such as DocStoc and Scribd; and also link to a traditional or social media newsroom if this isn’t already the directory where this information resides.

News and intelligence should not reside in any one place. Concurrently, new channels should not suddenly appear without proper attention and disclosure. The SEC advises the practice of writing and distributing Notice and Access press releases to alert stakeholders to upcoming material announcements and pointing them to the place of distribution. Notice and Access is the SEC’s attempt at helping companies reduce costs associated with traditional press releases, while still utilizing the tools they use today to receive information. Since these releases dramatically reduce the word count, they also minimize the typical expense per release.

The advantages associated with Notice and Access also extend well beyond the financial savings or meeting disclosure. Notice and Access provides a cost-efficient vehicle to condition investors and influencers towards any given format companies choose to prioritize, including corporate blogs and Web sites.

Wherever possible however, the operation of traditional and new media cross pollination enables companies to broadcast information to a distributed compilation of networks that deliver information instantly, serving the appetite for immediacy where people choose to consume news.

Investor Broadcasting vs. Investor Relations

Traditional Investor Relations serves analysts, investors, stakeholders and influencers through a combination of strategic outreach and the ongoing distribution of material information using compliant channels and processes. With the extension of the model to now include social networks and also the experimentation of publicizing personalities in the process, companies are potentially emphasizing the “relations” in IR. This opens up a particular area of focus as maintaining relations with analysts for example, is considered outside the realm of traditional disclosure. Engaging in conversations with investors in the public timeline (statusphere), on Web sites, and in the blogosphere, potentially place companies in jeopardy of backlash and legal action.

In a discussion with several corporate bloggers, social media strategists, and also IR professionals, how and when to engage in social media was a shared concern. While each were divided in their position on corporate brand versus personal brand when distributing information in social networks, they were united on two important fronts that set the tone for any organization exploring and documenting best practices for participation. The first contends with individuals, particularly those of influence, who share glaringly incorrect information that will most likely have a negative impact on trading and value. Every person I spoke with agreed that a public response in these cases is most likely necessary and that the tone of the response should introduce information poignantly and factually without added perspective or personality. In the instances when public discussions bash or question company decisions, news, or value, all were in agreement that these conversations are better left untouched.

As Gelles explained in our discussion, “Companies are using social media to good effect in several ways. Through new dialogues with their customers, some companies are improving their public relations. With opt-in marketing, other companies are generating additional sales.”

Gelles continued, “But when it comes to investor relations, it’s not clear how much social media can contribute. The SEC has strict guidelines about disclosures. Regulation Fair Disclosure necessitates that material information distributed through social media be consistent in timing and language with conventional press releases. Moreover, companies so far seem uninterested in using social media to foster new conversations with investors about their stock’s valuation. So while companies may be applauded for embracing new communication tools, there is little additional value that social media can bring to investor relations. Even if companies do use social media as an additional method to broadcast earnings or material information, at this point those efforts are more about public perception than investor relations.”

These are monumental times in which new regulation and interactive communication channels are established and shaped as marketing and legal teams reach accords based on their interpretation of Regulation FD, the migration and shift of investor consumption patterns, and the experiences associated with evolving corporate experimentation and participation.

New SEC guidelines are imminent and chances are, they’ll mirror much of what’s already discussed in this article. The lessons shared here indicate that an ambitious program to extend corporate communications combined with a conservative, truthful, and unbiased voice may best serve the function of corporate disclosure and investor relations in the near future. In the end, while companies embrace the social web, its prevailing spirit may actually work against the desire or ability to fully engage in the very conversations that power and define it – at least from any dialogue that involves financial performance or material, undisclosed information.

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6 COMMENTS ON THIS POST To “In Social Media, The SEC Protects Investors and Companies by Removing “Relations” from IR”

  1. Aimee Greeblemonkey says:

    another great, informative post. thanks.

  2. atul chatterjee says:

    For me this is an amazing post. I had wondered why only 17% of Fortune 500 companies blog. It explains the inner thinking of companies.
    You are right, the Press Release will probably die or take a different form over the coming decade.

  3. Toby Bloomberg says:

    Brian – thanks for the rich, well thought out information. this is a must read for every person who steps into the social web on behalf of their organizations.

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