Social media is driving more content to virtually every digital nook and cranny around the globe, with the velocity of a fire hose on a lit match. So it’s only ironic that the U.S. government recently called a well-known corporate executive on the carpet for disclosing (actually more like gushing) some positive news on Facebook to his quarter-million fans.
Nothing wrong with putting out the good word, mind you, but if you run a publicly traded company you’re supposed to think twice before talking about the numbers of customers (which translates to dollars) reached by a certain time period (which securities analysts then call guidance). Guidance is a good thing if you are investing for retirement or playing the market. But the federal government demands that such footnoting to a traded company’s communications be fairly and widely disseminated, in a law called Regulation FD, also known as Reg FD.
So when Netflix CEO Reed Hastings shared what was essentially an indirect financial projection for his 200,000+ fans on Facebook, he crossed the line in the view of the Securities and Exchange Commission. Doubtful Hastings consulted his corporate attorneys before he posted. He most likely didn’t check in with his investor relations counsel. The usual last stop on the corporate totem pole, the public relations or corporate communications rep, probably rushed to dust off the reputation management playbook, cleaning up the mess by doling out scripted damage control messaging to news media.
The question now that federal securities regulators in the U.S. as well as their counterparts in other parts of the world will inevitably have to grapple with is this: Has social media matured to the point where it can be considered a fair disclosure vehicle for the financial markets? If not now, then when?
If social media channels such as Facebook currently don’t make the grade, what exactly constitutes the accepted communications tools for delivering financial information to the public? Having had a hand in generating and distributing such disclosures for several publicly companies, I can tell you the number of accepted Reg FD “shotgun” channels available less than 10 years ago have been dwarfed by the information pipelines available today. Besides direct financial filings with the government, the principle means of fair disclosure was (and still is) the press release. Social media/public relations influencers such as D.M. Scott may easily dismiss the release as some ancient relic of the Traditional Media Era. But the stodgy old press release remains an effective means for fairly, widely and equitably distributing corporate financial news. Distributed via one of the major fee-based wire services, such as Business Wire, Marketwire or PR Newswire, a press release is instantly fed to newsrooms, online news portals, search engines and information database services such as Dialog, Dow Jones Factiva, Hoover’s and Lexis-Nexis. Many news organizations and portals run the complete feeds directly at no charge, or you can go directly to the newswire site to consume the feeds in real, unfiltered time. Gone are the days when we relied on news media gatekeepers to divvy up a scant number of news items from those feeds for publication or broadcast. Technically, Reg FD had nothing do with fair and equitable information disclosure. The Internet and social media channels leveled the news access playing field so that the public no longer has to rely on individual editors, print and broadcast news organizations, stockbrokers or market analysts to have access to ALL financial news generated by companies.
The difference between a press release issued on a paid newswire service and a posting on Facebook is simply a distribution and search problem. Distribution is easy; just ensure you post the same material disclosure to the widest range of social media channels. That effectively mimics the shotgun blast delivered by paid newswires. Search is another matter altogether, although ironically, searching current and archival global media sources in the Traditional Media Era was either cost-prohibitive or logistically impossible for the average investor or researcher. Trust me, venturing into file cabinet morgues to get background clips during my newspaper days was as painful and tedious as it sounds. Microfilm and microfiche was a technical distraction yearning for a digital solution.
Search, on the other hand, is problematic. As Altimeter Group industry analyst Jeremiah Owyang noted in his recent Facebook “tailbone” critique: “Facebook is sitting on a trove of social data that hasn’t fully surfaced, they’ve an opportunity to evolve and truly be a dominant force in finding content – not just served on a newsfeed.” We could turn to Google+, where SEO experts agree content and search are an integral part of the search portal’s strategy. Blog colleague Mark Traphagen and Google+ expert knows all too well the power of Google+ when it comes to search. In a recent post, he affirmed that Google strategically wedded Google+ with search, effectively making the social channel an ideal platform for posting information and ensuring complete content transparency and wide information access.
One can only wonder if the Netflix story would have taken different turn if Reed Hastings had shared his metrics success on Google+ vs. Facebook. In that respect, D.M. Scott may be correct in openly criticizing the SEC as essentially a technological dinosaur in need of developing “new rules on what disclosure is in our world of instant communications.” The disruption of traditional news media warrants an overhaul of Reg FD, which was crafted more than 20 years ago, a time when journalists, news organizations, industry researchers and financial analysts all got first crack at company news – and nobody raised a stink about that. Prior to Reg FD, the financial analysts had even greater and more timely access to the books, via the then-common non-public conference calls in which CFOs and other senior executives “briefed” a select few on the nuances and backstories associated with the raw numbers, telegraphing carefully phrased answers to questions with a wink, a nod and a pregnant pause so as to avoid accusations of delivering insider information. I sat in on many of those calls as a corporate communications officer, and to this day never understood why we just didn’t let every shareholder, stakeholder or interested party dial-in and listen along, even if they couldn’t ask their own guidance-oriented questions. Blog colleague Bob Geller pointed out in a post that years ago the SEC softened it disclosure rules, offering that corporate websites and some social sites could be used to meet Reg FD financial disclosure (and no doubt caused a shudder among the fee-based newswires who had a virtual monopoly on the financial disclosure biz). The problem with Facebook, as pointed out by New York Times blogger Steven M. Davidoff, is that it skirts the issue of whether it is technically a place that people expect to view corporate financials, and not that it is indeed a very public and global forum for content.
And therein lies the rub, which complicates traditional views of content. The SEC has a digital geography problem based on antiquated, two-dimensional views on content distribution. I suppose if we lived in a world where stockholders depended solely on newspapers for full and wide financial disclosure, the SEC might hold traded companies responsible for failure to disclose if they didn’t force newspapers to wrap their products in plastic bags on rainy days.
Full disclosure is a moving target. At one time corporate websites were the go-to for all information, then they fell out of favor as information consumers gravitated to social channels. Ask any company if they think paying a few hundred or a few thousand dollars to a paid wire service delivers any kind of result, and you will probably hear more complaints about the newswire vortex that seemingly sends your important announcements through a black hole and into another dimension. So much for websites and wire services.
Two-dimensional content distribution thinking in a three-dimensional social world simply doesn’t work. Russ Hastings certainly made a mistake, for which he was well-aware and well-trained by professionals who know best. Had he simultaneously posted the same messaging on his Twitter, LinkedIn and Google+ channels (technically feasible with the help of tools such as BufferApp, HootSuite, Sprout Social and others), he would have effectively reached just about every place a person might expect to see disclosures and been assured that his words would have been shared and replicated to every social corner.
The question remains: Is new media mature and robust enough to take the reins of traditional media and fulfill the government (and public) demand for full disclosure? Are we ready to replace the traditional press release pumped through a paid wire service with an information salvo from the Facebook-Twitter-Google+ machine? What do you think?
- The Netflix Billion Hour Nasty-Gram: Time for SEC to Catch Up With Social Media? (triplepundit.com)
- Social Media and Reg FD: Can You Use Facebook to Disclose? (blogs.wsj.com)
- Social media cloud rules of disclosure as SEC may sue Netflix over CEO’s Facebook comments (triblive.com)
- Regulation Fair Disclosure: Once Again in Critics’ Cross Hairs (businesswire.com)
- SEC Urged to Update Disclosure Rules on Netflix Warning – Bloomberg (bloomberg.com)