Social Media Governance for Public Companies
by Mitch Avnet
Compliance Risk Concepts recently published Social Media Governance for Public Companies in which we reviewed the SEC Division of Enforcement’s inquiry into a post by Netflix CEO Reed Hastings on his personal Facebook page stating that Netflix’s monthly online viewing had exceeded one billion hours for the first time. Netflix did not report this information to investors through a press release or Form 8-K filing, and a
subsequent company press release later that day did not include this information.
Neither Hastings nor Netflix had previously used his Facebook page to announce company metrics, and they had never before taken steps to alert investors that Hastings’ personal Facebook page might be used as a medium for communicating information about Netflix. Netflix’s stock price had begun rising before the posting, and increased from $70.45 at the time of the Facebook post to $81.72 at the close of the following trading day.
The SEC did not initiate an enforcement action or allege wrongdoing by Hastings or Netflix. Recognizing that there has been market uncertainty about the application of Regulation FD to social media, the SEC issued the report of investigation pursuant to Section 21(a) of the Securities Exchange Act of 1934.
All public companies utilizing social media for corporate communications should implement controls to ensure that all social media communications on behalf of the company are true and complete and that the company controls the timing to comply with Regulation FD and to avoid premature disclosure and that disclosures are crafted in a manner that protects companies from 10b-5 fraud or inside trading claims.
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