The Security Exchange Commission Approves Social Media to Give Investors Information

Social media has become an integral part of peoples lives.  It has typically been used as a method of casual communicating between friends, family members, and colleagues.  Over the past several years the trend has shifted to include businesses of all types and sizes. With over 500 million Facebook users businesses have been creating fan pages, building a social media strategy, and engaging consumers.

One challenge for those in the financial services and investment sector has been how to engage consumers, and connect with investors, without violating regulations.

It is easy for a company to communicate with investors through social media because once a message is placed on a fan page it can be seen by all of your fans in real time.  It can be more effective than email, calling, and traditional mail.  By using social media as a form of communication, companies are also giving investors the opportunity to share the information with their peers.

This week the SEC announced that it is okay for businesses to use social media to give investors information that may affect the company’s stock price. 

The condition is that a company needs to first inform investors that these announcements will appear on Facebook and Twitter.  The Securities and Exchange Commission issued this statement regarding the fair disclosure rule saying it, “applies to social media and other emerging means of communication used by public companies the same way it applies to company websites.”  This expands with the SEC’s 2008 approval of companies using websites to convey information to investors, so long as they were first told to view the site for updates.

This recent approval came on the heels of the Netflix CEO Reed Hastings making an announcement on his personal Facebook page that was not included in later SEC filings. 

While he is not currently under investigation for this, it did raise concerns that he used social media to make an important announcement about the company’s customers having spent one billion hours of online viewing that month.  The news influenced the stock price being raised and some investors were not privy to the announcement.

Setting clear guidelines ensures that companies can use social media to make announcements, and communicate with investors, while setting the consumer expectation that the company uses social media in that manner.

The key for any business is to ensure that investors understand how messages will be delivered and have access to obtaining them.  Company Facebook pages are accessible to the public, where personal Facebook profiles typically are not.  For businesses that have a comprehensive social media strategy, this SEC announcement will make life a lot easier.