Public companies are increasingly turning to social media to market their products and services and drive revenues. Given the sheer number of people who tweet, blog and post, the unique ability to target a message to a desired demographic and the relatively low cost of digital media marketing efforts relative to traditional advertising, such efforts are only going to increase. At many public companies, anyone from the C-level management team to the sales and marketing teams to individual employees – including those who are not designated as company spokespersons under the company’s communications policies – may be using social media to promote the company’s products and services.
The Typical Communications Policy May Predate Social Media
Most public companies have implemented policies aimed in part at (1) designating a very limited group of specific individuals who are authorized to speak publicly on behalf of the corporation, and (2) restricting certain forms of employee communications. These may include corporate communications policies, crisis communications policies, insider trading policies, investor relations policies and other policies, all of which have evolved as a matter of good corporate governance practice and in the interest of limiting liability for communications that may be attributed to the corporation.
In public companies, it is not unusual to find one or more internal corporate policies that address the following:
- Restrictions on communications between corporate employees and the media, investors and other third parties;
- Requirements to keep company information confidential – whether “material nonpublic information” or otherwise;
- Limitations on securities trading by employees;
- Processes for channeling inbound media or investor calls to one or two designated spokespersons;
- Prohibitions on employees posting on shareholder message boards that cover the company, or other company-focused blogs; and/or
- Restrictions on trading while in possession of material nonpublic information.
Notably, these policies may predate the explosive growth in social media that has occurred over the past two to three years. They may fail to address the potential for an employee’s blog, tweet or post to place a company in a difficult legal position.
Do Social Media Postings Fall under Regulation FD?
One such issue may arise under Regulation FD (“fair disclosure”). Generally speaking, Regulation FD is designed to prevent public companies from disclosing material nonpublic information on a selective basis unless the company simultaneously discloses the information broadly to the public. Since the adoption of Regulation FD in 2000, the SEC has brought nearly a dozen enforcement actions against public companies that have selectively disclosed material nonpublic information.
Regulation FD technically only applies (a) to communications by the “issuer” or a “person acting on behalf of an issuer” (which covers employees who regularly communicate with shareholders) with (b) brokers, investment advisers, shareholders who are likely to trade on the information and certain other designated persons.
However, companies would be well advised to consider whether employee postings or other communications through social media (which, depending on the website or form of communication, may not be considered “broad dissemination” for Regulation FD purposes) could expose the company to unnecessary risk.
The increasing use of social media to promote corporate products and services by all levels of employees raises a number of additional issues for companies to consider, including:
- Inadvertent public disclosure of material nonpublic information;
- Potential gun-jumping violations for companies undertaking securities offerings;
- Breach of contractual confidentiality agreements with third parties;
- Breach of internal corporate policies; and
- Risk of SEC or other regulatory investigation.
Do Your Policies Address Social Media?
While many public companies have gone to great effort to document, implement and enforce public communications policies, those policies do not always address the types of digital communications that have become increasingly popular in recent times. Such policies often focus only on appropriately directing inbound requests for information, or limit the prohibition on employee communications only to third-party message boards. Indeed, public companies may not be focused on, or even aware of, employee communications through social media.
In these challenging economic times, public companies should be applauded for their creative efforts to sell products and services through the social media. In undertaking such efforts, however, companies should consider two critical areas:
- Is it time to update our internal corporate policies? Do our policies take into account the potential uses of social media?
- Is it time to retrain our employees? Our employee training already covers appropriate inbound communication, but should we implement additional employee training regarding outbound digital communications?
A special thanks to my former colleague Mark F. Hoffman for his contributions to this article