How Social Media Is Affecting Disclosure Provisions

This week in class we discussed the issue of financial disclosure. The article for last week described voluntary disclosure, the constant flow of information about a company, and the required disclosure necessary through SEC regulations. With voluntary regulation, it is important to know how to properly provide the public with information, without creating problems with the words and actions taking place. The article for class discussed the value of disclosure of negative information early on. Being honest with investors through voluntary disclosure is very beneficial since it reflects favorably on the management, increases liquidity and reputation, while decreasing and need and fear of litigation.

While noting the importance of disclosure to the public, I decided to research how disclosure relates to social media networks since the release of information is now available to quickly and through a variety of different forums. Brian Solis wrote a recent article about “Corporate Tweets and the SEC: Sometimes It’s Better To Keep Your Mouth Shut”. I was interested to see what his opinion on disclosure was in relation to the information we read in the article’s Chapter 5. Solis discusses social media as a human voice, yet its use is able to heighten the risk of a company’s ability to comply to legal standards.

The SEC has created at 47- page report about the specific rules corresponding to the issue of disclosure in social media forums. The report also mentions that companies and employees will be held response for information discussed and posted on their blogs, networks and discussion forums. Solis comments that “If public companies are not proactively analyzing these guidelines and establishing internal policies, frameworks, and penalties, then they are exposed to the dangers that loom in the form of overly enthusiastic employees who are enamored with new and shiny social tools and objects”. In order to correspond with the SEC companies need to provide specific guideliens of the type of company information that can and cannot be blogged to make sure the organization is not in danger.

Social networks are successful in that companies are having dialogues with consumers and attempting to improve their public relations. Although the items being discussed through internet forums must be corresponding to the language and timing of the traditional press releases put out by the company. The comment made on these forums will be treated like any other statements that violate antifraud provisions. While companies can use new media as a public forum where they can immediately post information, it is important to do so in a way that corresponding to the SEC’s blogging regulations.

In order to show how important social media has become to Investor Relations, Solis states that 81 of the Fortune 500 companies current utilize the blogging forums (in 2009). While companys use these blogging sites, the article notes the necessity for continued use of traditional media in order to make sure the company’s information is being properly disclosed in as many places as possible.

It is interesting to see that the new media we have discussed during so many class periods, is a direct concern of the SEC and the disclosure regulations we have been focusing on in Investor Relations class.