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SEC Decision Allows New Method of Stakeholder Engagement

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This week, the Securities and Exchange Commission (SEC) moved corporate disclosures into the year 2013, or at least 2010. In a release on Tuesday, the agency recognized that social media channels—including Facebook and Twitter—were acceptable methods of disclosure. The SEC included one caveat: investors must be made aware ahead of time that the company will utilize these channels for disclosure.

This move comes following scrutiny surrounding a tweet from Netflix CEO Reed Hastings in November 2012, which announced that subscribers had passed the achievement of one billion hours viewed. The SEC issued Netflix a Wells Notice, announcing the investigation of Hasting’s potential violation of Regulation FD, which requires companies to disseminate information in a way that does not favor one investor group over another.

After the investigation began more CEOs found themselves in hot water over social media postings. In January, Zipcar was forced to make a last minute filing to the SEC following CEO Scott Griffith’s tweet about Avis acquiring his company. Elon Musk, chief executive of Tesla Motors, also made headlines for his tweet about an upcoming announcement from the company.

The SEC’s decision to allow corporate use of social media to disseminate information is not completely unexpected. Since 2008, the agency has permitted the use of corporate home pages to disclose sensitive information—the subject of its release, “Guidance on the Use of Company Websites for Disclosure Purposes.” In fact, SEC representatives have encouraged delegates to NACD’s advisory councils to use corporate websites when providing additional details that go beyond what is required by public filings.

For directors, a group notoriously slow to adopt social media, the SEC’s decision could mark a significant shift in how companies disclose sensitive information, and investor relations generally. Starting with the 2009’s Proxy Disclosure Enhancements and reinforced by Dodd-Frank, the length of corporate filings has increased with the number of required disclosures. As a result, directors have been recommended to “tell their story,” going past boilerplate language to explain the rationale and strategy behind decisions.

First and foremost, it is critical that directors understand their company’s consumer and investor base. If these groups are active on Facebook and Twitter, the SEC’s decision to conditionally permit these as communication channels could provide a new method of engaging increasingly active stakeholder groups.