SEC Gets Social: Why Social Media is a Good Thing for Investor Relations

 

Last Tuesday, the U.S. Securities and Exchange Committee (SEC) announced that public companies will now be allowed to circulate material information via social media sites like Facebook and Twitter, as long as they first tell investors which sites they intend to use.

The SEC’s decision comes after Netflix CEO Reed Hastings came under fire for a Facebook post in July of last year stating that the company exceeded one billion hours of viewing in June. Hastings’ post caused a spike in shares, which rose 6.2% that day alone.

Through their move, the SEC has acknowledged a shift in business’ relationship with technology – it is growing, it is pervasive and companies are embracing it. However, it is the financial services industry, in particular, that the decision affects, and for the better.

The rule really comes into play when the information that is circulated might change a company’s stock price, as was the case with Netflix. By posting the information to Facebook, did the company really make the information public to all investors? Was everyone given a fair chance at getting the information?

Short answer – yes.

But more than that, the answer is investors should be looking at social media regardless. More than a third (35 percent) of respondents to a recent Ask Your Target Market survey stated that they have seen tweets or other social media posts used as sources by official news outlets. This demonstrates that not only is the general public looking to social media for information, but those seen as reliable news sources are, too. As technology evolves and instant access becomes even more instantaneous, social media will continue to present itself as a supply of information.

Although the SEC still has some questions that need to be clarified for investors – i.e. which sites are appropriate for announcements and how messages should be framed – this decision gives the financial services industry a chance to get better acquainted with social media, something the industry has been reluctant to do.

Social media won’t replace the traditional ways of reporting major information, such as conference calls and press releases, at least not in the near term. Whether or not that does happen, company executives will need to be careful about what they post.

What do you think? Will the SEC’s ruling be a hit or a miss?

Photo from Reed Hastings on Facebook

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