Most public companies think in terms of 10-Ks, 10-Qs, and 8-Ks when it comes to disclosure, but the SEC’s recent endorsement of social media marks a key development in the annals of investor relations. Social media outlets like Twitter and Facebook are becoming increasingly accepted channels for material information, and it’s more important than ever to understand best practices in a world of tweets, cashtags and wall posts.

1. Social Securities:
How to Make Sense
of Reg FD and New
Disclosure Channels
By Evan Pondel, PondelWilkinson Inc.
with

2. Social Securities: How to Make Sense of Reg FD and New Disclosure Channels
2
The trading day is only five minutes old, and word is spreading
on Twitter that the FBI is raiding a certain public company. The
company’s investor relations representatives soon find themselves
on the receiving end of a barrage of calls from frenzied portfolio
managers attempting to debunk what they just read in 140
characters or less.
The company’s stock is down 10 percent, Bloomberg reporters
are calling for comment, and the said company’s executives have
yet to weigh in on the rumor because they live in California where
stars are still visible in a predawn sky.
This is not a hypothetical scenario. It actually happened earlier
this year to a company with a market capitalization of more than
$9 billion. The rumor was eventually proven false and the stock
corrected itself in a couple of hours, but such an instance is
indicative of the power and influence of social media on capital
markets.
Now add to the mix the Securities and Exchange Commission’s
recent endorsement of social media as viable disclosure channels,
and publicly traded companies of all shapes and sizes are
beginning to listen to conversations that can make or break a 52-
week high in a nanosecond. Welcome to the world of hashtags
and cashtags, where investors, executives, SEC counsel and IROs
are trying to make sense of this new social media soup.
“I would not make a blanket statement and say that social media
are good for all public companies. Rather, I’d say they can be
useful tools,” said Elizabeth Blankespoor, assistant professor of
accounting at the Stanford Graduate School of Business, who
recently coauthored a study that found tweeting can improve
the liquidity of smaller, lesser-known companies. “But there
are always pitfalls when keeping control of data, and the SEC’s
announcement on social media was pretty cautionary about
selective disclosure.”
And perhaps rightly so. Most public companies think in terms
of 10-Ks, 10-Qs, 8-Ks and the like when it comes to disclosure,
in addition to issuing news releases on wire services, such as
Business Wire, PR Newswire, GlobeNewswire and Marketwired.
But to understand how social media fit in with these more tenured
disclosure channels, it’s probably useful to revisit the rudiments
of why and how companies began disclosing information in the
first place.
Fair Disclosure
The Securities Act of 1933, often referred to as the “truth in
securities” law, required that investors receive information
regarding securities being offered for sale. That could take the
form of a registration statement or prospectus. In 1934, the
SEC began requiring companies with more than $10 million in
assets whose securities are held by more than 500 owners to file
“annual and periodic reports,” which are also known as 10-K and
10-Q filings.
Stock exchanges also began recommending disclosure channels
to satisfy “immediate release policies.” To this day, the New York
Stock Exchange recommends that companies send press releases
to Dow Jones & Company, Inc., Reuters and Bloomberg to “insure
adequate coverage.”
Despite these disclosure channels, the SEC grew more suspicious
in the late 1990s that companies were dribbling out “insider”
information to analysts and institutional investors. On August 21,
2000, the SEC adopted Regulation FD (fair disclosure) against a
backdrop of media reports about insider trading scandals. The
crux of the rule: to ensure that public companies disclose material
information to all investors at the same time.

3. Social Securities: How to Make Sense of Reg FD and New Disclosure Channels
3
To do that, Reg FD states that companies can make public
disclosures by filing or furnishing a Form 8-K, or by disseminating
information “through another method (or combination of methods)
of disclosure that is reasonably designed to provide broad, non-
exclusionary distribution of the information to the public.”
Reg FD 2.0
Even today, these methods mostly consist of issuing a press
release with a wire service, posting information about a conference
call on a company’s website, and hosting webcasts. But the
SEC’s recent announcement regarding social media marks a key
development in the annals of disclosure now that it’s OK to tweet
material information, as long as investors are told in advanced
that a company will be doing so.
All along, people thought that Netflix CEO Reed Hastings was
going to get in big, big trouble for disclosing information on his
Facebook page. Instead, Hastings’ alleged disclosure blunder
served as a catalyst to the SEC’s endorsement of social media.
So what does this mean for the investor relations community?
What it does not mean is that executives, IROs, chief marketing
officers, and anyone else who represents a public company and
dabbles in social media should start tweeting market-moving
information. “It’s a matter of common sense and consistency,”
said Howard Lindzon, founder and chief executive officer of
StockTwits. “Reed Hastings took a lot of arrows for doing what
he did.”
The challenge for public companies is finding the right person
to manage social media. Understanding the basics of Reg FD,
as well as having the ability to drum up catchy and informative
tweets is not easy. Lindzon said companies should assess social
media as a plumber would assess the piping in a house. “Simple
and efficient plumbing is key. But you first have to learn how to
use the products,” he said.
Lindzon offered the following tips when testing the waters with
social media:
• Do not engage social media because you think it could make
your stock price go up;
• Share links and track those who read them;
• The “when” and “where” isn’t as important, as how you do it
and consistency;
• Allocate the right amount of time; and
• Diversify your use of channels.
Targeting the Right Audience
One of the biggest draws of social media is that they are essentially
free distribution channels, which is enticing when companies
spend several thousand dollars a year in wire distribution fees.
But experts say companies shouldn’t be so quick to relinquish
traditional means of issuing news releases.
“The mistake people are making about social media is that these
channels are somehow a replacement for our old established
system,” said Bradley Scott, senior product manager at SNL IR
Solutions. “Unless you are completely confident as a company
that everyone will want to ingest your social media, you need to
think about social media as an ‘and’ not an ‘or.’”
Many would-be consumers of social media are unable to view
certain websites because their employers block them. Institutional
investors aren’t always inclined to habitually check Twitter for
company news, either. A buy-side portfolio manager who runs a
half-a-billion dollar hedge fund and prefers to remain anonymous
said he seeks out information from social media only when a
stock is moving.
“Anyone who trades simply because of a bunch of hooey on Twitter
isn’t a very sophisticated investor,” said the portfolio manager,
who uses his Bloomberg terminal to access companies’ tweets.
Bottom line: Companies must know their target audience when
using social media, and Bradley Scott at SNL recommends the
following to ensure companies are getting close to the bull’s-eye:
• Listen to where social media conversations are happening;
• Ask your investors what social media channels they are using;
• Make sure your company is ready to commit to social media;
• Be consistent with access to social media links throughout a
company’s website; and
• When you implement a social media policy, stick with it.
Instituting a Social Media Policy
As far as communications policies go, the subject of social
media has yet to receive as much attention as, let’s say, crisis
communications. Less than half of employers have formal social
media policies, according to a survey of 470 companies released
last year by the Society for Human Resource Management. But
as more employers engage in social media, instituting a policy
of what can and can’t be said on Twitter, Facebook and other
channels is absolutely imperative.

4. Social Securities: How to Make Sense of Reg FD and New Disclosure Channels
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About a year ago, the chief financial officer of a fashion retailer
was fired after tweeting the following about his company’s board
meeting: “Board meeting. Good numbers=Happy Board,”
according to the Wall Street Journal.
“Trying to stop social media is like trying to stop the ocean’s tides
from coming in, so you have to figure out how to use it responsibly
and safely,” said Hillel T. Cohn, a partner at law firm Morrison &
Foerster. in Los Angeles, who specializes in securities regulatory
matters. “First and foremost, companies have to consider whether
social media fit the nature of their business.”
And if they do, Cohn recommends the following:
• Set up a social media policy that permits official corporate
communication to be conveyed through specified social media
accounts, not personal accounts;
• Ensure that social media communications are consistent with
other public statements;
• Determine whether disclaimers are necessary, such as forward-
looking statements;
• Identify someone who will monitor social media
communications; and
• Avoid misleading language.
That isn’t easy when a social media account has been hacked. The
false Associated Press tweet that sent the Dow Jones Industrial
Average plunging in April is a harsh reminder that the threat of
being hacked may outweigh the
benefits of engaging in social media.
“The reality is, most companies
will just have to accept the risk of
hacking and be prepared to deal with
the consequences,” Cohn said.
Technology heavyweight Dell has
been proactive in its embrace of
social media. The company publishes
its “Global Social Media Policy”
on its website with the following
principals: “Protect Information; Be
Transparent and Disclose; Follow the
Law, Follow the Code of Conduct; Be
Responsible; and Be Nice, Have Fun
and Connect.”
Ultimately, the onus will increasingly fall on investor relations
professionals to determine whether engaging in social media is
worth the risk, but it is difficult to resist the temptation when
Warren Buffet, a.k.a. the William Shakespeare of shareholder
letters, opens a Twitter account and tweets, “Warren is in the
house”.
Evan Pondel is president of PondelWilkinson Inc., a Los Angeles-
based investor relations and strategic public relations firm. He
can be reached at epondel@pondel.com.
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