The propriety of using social media to convey corporate news was brought into stark relief in August after Tesla CEO Elon Musk tweeted about plans to take the company private at a lavish price with “funding assured.” Tesla shares, which had only recently regained the ground it lost following Musk’s oddly dyspeptic comments to analysts in a June conference call, shot up on the announcement, only to be shot down after Musk quickly disavowed the plan.
Though the tweeted privatization message seemed more stream of consciousness than informed strategy, the damage was done. By mid-September, when the U.S. Department of Justice was reported to have opened a criminal probe into the matter, Tesla shares had fallen by about 30% from their post-tweet high. The DOJ probe is on top of a civil investigation by the U.S. Securities and Exchange Commission; the SEC and Tesla have reached an agreement that was amid court approval as of Oct. 11.
All of which raises the question of whether your investments are one ill-considered tweet or Facebook post away from encountering a blizzard of panicked selling. Traditionally, corporate communications were issued in the form of a press release disseminated through mainstream media outlets. That changed dramatically in July 2012, when Netflix CEO Reed Hastings used his personal Facebook page to announce that “Netflix monthly viewing exceeded 1 billion hours for the first time in June.” Hastings’ Facebook post to his 245,000 subscribers earned the company a so-called Wells Notice, in which the Securities and Exchange Commission revealed its intent to investigate the matter.
The following April, the SEC announced that it would not pursue an enforcement action against Hastings or Netflix but also used the occasion to update and clarify its August 2008 “Commission Guidance on the Use of Company Websites.”
Few investors would question that social media can be an effective tool for building brand loyalty and sharing generic information about a company’s products. But those potential benefits also come with risks that are addressed in a highly readable summary of Regulation FD (Fair Disclosure) by the international law firm Morrison & Foerster. “It may be prudent for companies to address the use of social media in Regulation FD policies,” the report suggested, “including whether prohibitions, restrictions or oversight should apply to the use of social media by individuals authorized to speak for the company.”
Given the impulse control issues encountered by many users of social media, adding multiple layers to the Reg FD compliance process seems like sound advice, indeed.