SEC permits social media use for corporate disclosure

Public companies are increasingly using social media to communicate with shareholders and investors. The U.S. Securities and Exchange Commission (SEC) acknowledged that on April 2 when they decided to allow public companies to use corporate social media outlets to disclose material information, so long as investors have been alerted about which social media will be used to disseminate such information.

The reaction to this news in the marketplace has been mixed. Many are applauding the SEC for acknowledging that the way companies connect with their investors is evolving. On the other hand, there are many risks and precautions public companies need to take when using social media to disclose material information to shareholders.

Social media sites, especially Twitter, have been vulnerable to hackers. For example, in April hackers posted a fake report on the Associated Press’ Twitter account about a bombing at the White House, causing the Dow Jones to plunge more than 140 points within minutes. If a hacker gets into a public company’s corporate Twitter account, this could result in a drop in stock price, distrust and a PR nightmare.

Public companies who want to only disclose material information through social media must communicate to investors and shareholders in advance that social media accounts will be recognized channels of distribution so everyone is on the same playing field. If social media is to be used as a disclosure channel, guidelines and procedures should be established for consistency and accuracy of posting material information.

If public companies decide to use corporate social media accounts as a way to disseminate material information, our agency recommends using social media as part of the overall communication toolbox. Many public companies want their news on financial Websites such as Yahoo Finance, the AP, Dow Jones and Reuters. Posting news to only a Facebook and Twitter account will not guarantee news will get to these important financial outlets.

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