As we continue to navigate a world that focuses on immediate access to information, public companies should embrace social media as a means of communicating with investors. While on the surface this may appear to be a daunting task, it need not be. Social media is a means to an end – the end being full and transparent disclosure that complies with Regulation Fair Disclosure (Reg FD).
A couple of weeks ago, the SEC made a decision not to pursue any enforcement action against Netflix (NASDAQ: NFLX). Almost immediately thereafter, on April 10, Netflix took advantage of this decision and filed a Form 8-K.
In the filing, the company indicated the various means by which it intends to disclose material information with respect to Reg FD. The company said that, for purposes of material information disclosure, it will use the following mediums to communicate with investors: the IR section of the company’s website, SEC filings, press releases, public conference calls, webcasts, The Netflix Blog, The Netflix Tech Blog, The Netflix Facebook Page, The Netflix Twitter Feed, and CEO Reed Hastings’ public Facebook Page.
What on earth was Netflix trying to accomplish? This was a great opportunity for a company with significant brand recognition and clout to set an example and take a leadership position in public company best practices with respect to the use of social media in investor relations communications. But instead, they cavalierly threw all of their communications channels into the kitchen sink. By rattling off ten possible ways in which maybe they will disclose material information, Netflix essentially mocked the SEC’s determination not to further an investigation into the company.
When the SEC first sent Netflix its Wells Notice back in July of 2012, I sent the regulatory body a letter castigating its decision to investigate Netflix. I advocated on behalf of Netflix and suggested that the SEC provide guidance on the subject of Reg FD since the last time they did so was in August of 2008 when they discussed the use of the corporate website as a means to accomplish disclosure. Well, as we all know, the world has significantly changed over the past five years.
Netflix’s most recent filing is a huge disappointment. Essentially, Netflix’s Form 8-K amounted to the pronouncement of its social media and IR policy. The question that needs to be asked is whether the company really intends to announce its material news across all ten disclosure means? If it does, then there is no problem since all investors will be able to pick and choose how they wish to learn about material news coming from Netflix. However, if the company does not plan to use all means all of the time, then it is not fine. In my opinion, it is safe to assume that the company does not intend to be consistent in its approach to communicating material news since in its 8-K filing it concludes by saying that it reserves the right to add or delete communications channels “from time to time [as updated] on Netflix’s investor relations website.” Only time will tell.
As I said in my letter to the SEC, the SEC really needs to nip this one in the bud and issue clear guidance on the subject once and for all. There is no reason why the SEC can’t set the record straight through easy to understand guidance on steps public companies should take when disclosing material information through multiple sources. It is just a function of the regulatory body sitting down and spending the time to do so.
Once again, here are my recommendations. They are straightforward, leave no room for ambiguity and will ensure that everyone has access to the same information at the same time.
1) In the company’s annual report filed on Form 10-K with the SEC, every company should clearly indicate all channels through which it intends to disclose material information. This should include traditional newswire services, social media and/or any other communications channel.
2) If a company wishes to change such channels, it shall either do so in its next Form 10-K or through the filing of an amended Form 10-K; but a company must use all communications means specified.
3) All material news announcements must be filed with a Form 8-K with the SEC.
4) All material news announcements must be posted to a company’s investor section of its corporate website. If a company does not have such a section, it must create one, as websites in general are a well-accepted repository for almost all companies’ information.
The ultimate goal of Reg FD is for everyone to be on the same playing field when it comes to obtaining information. To the extent that a company is required to file material news with the SEC and post it on its corporate website, everyone now has access to such information. To the extent that a company wishes to engage with its investors or other constituencies through additional channels, it just needs to make sure they are clearly known so investors can then decide on the best and most convenient way to obtain such information.
Thanks to the SEC’s statement on Netflix, companies throughout the U.S. and beyond are now trying to figure out what they should and need to be doing with respect to social media and investor communications. While Netflix could have taken a leadership position in establishing best practices that other public companies could follow, they did not do so. By embracing 21st Century communications tools as a means to satisfy Reg FD, it is now incumbent upon the SEC to take its statement one step further and issue real guidance on the subject. I respectfully submit that the above four points are a great starting point for the SEC to consider.
Jeff Corbin, CEO of KCSA Strategic Communications is the author of Investor Relations: The Art of Communicating Value. The second edition was released earlier this year and includes a chapter directly addressing social media and how to effectively use it to communicate with investors.