SEC social media rule overlooks rules of engagement around the world, says Veta T Richardson, president and chief executive officer of the Association of Corporate Counsel.
The world is flat - or so we think. The rules of engagement for social media markets around the world are vastly different. A recent opinion by the US Securities and Exchange Commission (SEC) illustrates that tech trends don’t always run in sync with the Web-enabled playing field outside US borders.
The SEC’s opinion looks at how and when companies can use social media — Facebook, Twitter, blogs, chat rooms — to push out information to investors. It demonstrates that the SEC is taking on a more progressive role when it comes to the intersection of technology, financial markets and modern day business operations. On the other hand, it overlooks barriers to information on social and digital media from a global standpoint.
Social media channels
In its opinion from early April, the SEC grappled with how to handle a situation where the CEO of Netflix posted some information about the company on his personal Facebook page. The SEC determined the post was material to investors, and investigated. The recent opinion did not punish Netflix or Mr Hastings, but instead tries to clarify the SEC’s view on communications to investors.
The SEC wrote that it 'supports companies seeking new ways to communicate and engage with shareholders and the market'. But a post on a personal Facebook account doesn’t cut it. The SEC instead encourages practices such as using 'corporate web sites identifying the specific social media channels a company intends to use' to get out its message. Overall, the opinion pretty closely tracks the SEC’s main rule on disclosure (known as 'Regulation FD') and a 2008 interpretation of that regulation.
The fact is, social media has become increasingly relevant in recent years. It quenches the thirst for information for the savvy investor. It serves as an early warning system for corporate malfeasance and it often beats traditional press in breaking news. It is fast paced and addictive, and according to online research, it increasingly serves as a primary information source for consumers. Most importantly, it’s a must have for companies that need to stay connected with the public and investment community.
No doubt, new technology is a game changer. It can break down barriers and has helped resolve conflict in certain countries. Fax machines helped to end the Soviet Union (link). Twitter and Facebook led to the crumbling of old regimes during the Arab Spring (link).
Unfortunately, technology is also used to deny access. During the Arab Spring, the Egyptian government shut down the country’s entire Internet in January 2011. China set up a complex system of electronic filters and laws to block Internet access to anything the government classifies as controversial. India has been in a tug-of-war with Blackberry about whether the government can pierce that company’s privacy measures. And that’s not even taking into account the many countries that have adopted Internet access more slowly than others or censored objectionable content.
While the SEC’s opinion may straddle an emerging fault line — with tech on one side and globalization on the other, it is important to note that this issue is much bigger than clicking ‘likes’ on Facebook - for money knows no borders. Case in point, the U.S. Treasury recently 'measured the value of foreign holdings of US securities as of 30 June 2012, to be $13,259 billion'. If access to Facebook is banned in China, how can an investor like a company’s Facebook page to keep abreast of developments?
To be sure, today’s investing environment embraces the dynamics of a global economy. But, companies with a global footprint will likely resort to the standard norms to stay in compliance with Regulation FD. And the selective disclosure of material nonpublic information will remain a moving target with regulators because the social media world is not all that flat and the rules governing access to information need to take into full account the realities encountered by investors all over the world.