The Canadian Securities Administrators (CSA), concerned by the increased prevalence of corporate disclosure through social media, have issued guidance for Canadian public companies. Their notice follows a review of the tweets, blogs, posts and videos of 111 public companies on various social media websites, as well as the companies’ own websites. The three key areas identified for improvement are: (i) ensuring that material company information is not released on social media before being generally disclosed; (ii) providing sufficient and balanced information so as not to be misleading or inconsistent; and (iii) putting in place adequate social media governance policies.
Selective or early disclosure
Securities laws in Canada prohibit directors, officers, employees and others in a “special relationship” with the company from informing others of material information about the company before the information has been generally disclosed. Posting information through social media or on the company’s own website does not mean the information has been generally disclosed. Instead, it may result in some investors receiving valuable company information before others.
Although securities laws do not specify what it means for information to be “generally disclosed,” it is understood that the information must have been disseminated in a manner calculated to effectively reach the marketplace and investors must have been given a reasonable amount of time to analyze the information. A news release distributed through a widely circulated news or wire service will generally satisfy the requirement, as will a press conference or conference call announcement, so long as interested members of the public may attend in person by phone or electronic means, adequate notice is provided and a transcript or replay of the call is made available afterwards.
Misleading and unbalanced information
One of the attractions of social media is it is typically short and snappy. The downside is it may not provide sufficient information and, as a result, may be misleading or inconsistent with other sources of corporate disclosure. The other risk with social media is that the information provided may not be balanced and is more likely to be overly promotional in tone. For example, the CSA requires unfavourable news to be disclosed just as promptly and completely as favourable news.
In addition, companies should avoid disclosing forward-looking information through social media, that is, statements regarding possible events, conditions or financial performance that is based on assumptions about future economic conditions and courses of action. This is because social media often does not lend itself to complying with other securities law disclosure requirements related to forward-looking information, such as the requirements to identify material risk factors that could cause actual results to differ materially and to provide the material factors and assumptions supporting such information. That type of information would be difficult to provide on a message board or a blog, much less a 140-character tweet.
Insufficient internal governance
Without an adequate social media governance policy, companies are more likely to run afoul of securities laws by posting unbalanced, misleading or selective disclosure. The CSA recommends that a corporate policy cover at least the following items:
who can post information about the company on social media
what type of sites (including personal social media accounts vs. corporate) can be used
what type of information about the company (financial, legal, operational, marketing, etc.) can be posted on social media
what, if any, approvals are required before information can be posted
who is responsible for monitoring the company’s social media accounts, including third-party postings about the company
what other guidelines and best practices are followed (for example, if employees post about the company on personal social media sites they should identify themselves as employees of the company)
Other important considerations
In addition to the concerns related to securities law compliance addressed in the CSA notice, companies should also consider the following in developing a robust social media governance policy:
Privacy: Include provisions in the policy to protect third-party confidentiality and privacy.
Intellectual Property: Include guidelines around: (i) respecting third-party intellectual property; and (ii) the protection and use of the company’s own intellectual property to address issues such as consistent trademark use and the inadvertent disclosure of proprietary information or trade secrets.
Employment: Ensure relevant employment legislation, employee privacy policies and employment agreements are considered to confirm compliance and consistency with a social media governance policy. Ensure there are policies in place that provide adequate guidelines for social media usage by employees.
The CSA Staff Notice is available here.
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