Social Media: Parsing the Hypos Webinar Wrap-up – Part 1
Recently, our CEO Darrell Heaps got a chance to join a fascinating panel discussion organized and moderated by Broc Romanek, Editor of TheCorporateCounsel.net to discuss the SEC’s recent Section 21(a) report regarding Netflix. Along with Darrell, the speakers on the panel also included:
- Joe Hall, Partner, Davis Polk & Wardwell
- Dominic Jones, Editor, IR Web Report
- Dave Lynn, Editor, TheCorporateCounsel.net & Partner, Morrison & Forester LLP
- Brad Owens, Assistant General Counsel, Zillow
The panel members each provided insights on a number of hypothetical scenarios where a company used social media, to illustrate what might be legally permissible. They also offered ideas about what might be an effective IR strategy to deal with each situation. Below, we are going to share the hypothetical scenarios and what we deemed the key outcome as discussed by the panelists. As there were many hypotheticals (10 to be exact) and so many great ideas shared, we are going to do discuss this in a two-part series.
Hypo #1: CEO’s Tweet Before Earnings Call
CEO tweets: ‘Views of our online platform up 300% since IPO. IPO occurred two years ago and company’s principal line of business heavily relies on the online platform – although mere views don’t bring in revenue.’
The panelists felt that this scenario was very similar to the Netflix situation that sparked this renewed debate about social media and disclosure and pushed the SEC to provide further guidance. They felt that since this has been covered off in Section 21(a), that as long as the channel has been recognized as an official channel to be used for disclosure, the CEO’s Tweet is protected.
The panelists did mention that even though the new guidance would ultimately protect the CEO, the scenario does raise a few questions. The first, regarding whether the channel was a personal or company account. The second, the very idea of a company allowing their CEO, CFO or their IRO or others out there ‘speaking’ in public for attribution to the company. Particularly, when there is a seemingly off-the-cuff statement by the CEO without any context.
Ultimately, it was decided that while the CEO would be in line with Reg FD guidelines in this instance, it still calls into question the need to be more strategic and thoughtful when using social media.
Hypo #2: Analyst’s Tweet Before Earning Call with IRO Response
Analyst tweets: ‘Think company’s quarter will disappoint.’ IR head responds with: ‘Wait for the earnings call & find out for yourself.’
For this question, the panelists discussed just how much interaction should be allowed between Analysts and IROs. The Twitter space allows for people to see a comment made by an analyst whether or not anyone responds. While the IRO may have only been acting out to discourage followers from taking the Tweet as fact, the message could be seen as disclosing non-public information. What companies need to do when they start using social media is be up front with the amount of interaction they will be providing. By saying that they will not directly respond to any subjective comments made by analysts regarding company performance, they are protecting themselves from saying anything that could land them in trouble with Reg FD while also making it clear to followers why they will not address certain tweets.
Hypo #3: CFO Retweets Positive Statement Without Additional Commentary
CFO retweets: ‘Acme quarter likely to pleasantly surprise’ without providing any additional commentary.
The panelists agreed that it is always risky whenever a corporate officer comments favorably on an analyst report. By retweeting the comment, it can look as though the CFO has endorsed the statement, which may not have been their intent. The CFO may have only retweeted it because he liked the news, not understanding that over Twitter, without any context or tone/in-person body language that would be observed if speaking face to face, people could be confused and see the retweet as an endorsement or a premature comment on the company’s performance.
Hypo #4: Company Live Tweets During Earnings Call
IR head live tweets during the earning call, including an answer to a question posed during the Q&A portion of the call.
This hypo was specifically brought up with Panelist Brad Owens since Zillow had just had their earning call the previous day. Owen’s confirmed that they had both live-tweeted during the call as well as solicited questions for the Q&A portion via Twitter and Facebook. Zillow has been live-tweeting during their earnings calls for the last year, but up until this last call their tweets had just consisted of making people aware of when the call was starting and what was generally being discussed during the call without sharing any actual earnings information. Their recent call however featured 4 tweets that had been composed ahead of time that hit on key themes from the call and were sent out directly after they we announced during the call.
The panelists all agreed that live tweeting during an earnings call is an excellent way to expand the reach of the call but also were quick to mention that having Tweets prepared in advance of the meeting so they can be properly reviewed internally by the legal and compliance teams was a good practice. They also noted it is a good practice to provide the links to the relevant disclaimers and to the earnings release itself.
As for taking questions on Twitter, while the panel did admit that it does open up the possibility of questions being asked that a company does not want to answer, it does also democratize the process and allows people to ask questions who may not normally get the chance.
Hypo #5: CFO Apologizes in Reply to Laid-Off Employee
Laid-off employee tweets: ‘Can’t believe Acme fired so many’ and CFO responds: ‘We’re sorry but business conditions are so dismal.’
This hypo was interesting as it was not clear whether or not this comment would raise a red flag with the SEC for violating Reg FD. But the panel agreed that this is not a wise practice for anyone from the C-Suite to be corresponding with disgruntled ex-employees. They felt that this kind of scenario is exactly why companies need to consider training the people who will be using social media and having social media policies. As if there was a CFO that would actually tweet something like that, it must be in a scenario where they simply don’t understand what it is that they’re actually doing. Basically, same rules apply in that you would never foresee a CFO addressing one specific grievance from an ex-employee in some other public forum.
Stayed tuned to the second part of this series where the panel discusses the remaining hypotheticals that address the implications of ‘soliciting’ followers to vote for an upcoming AGM, M&A’s and IPOs to name a few.