Social Networks and Corporate Disclosure: The New Reality?

Social media and social networks are regularly front page news. As a corporation, how do you address this new communication challenge and its legal ramifications?

The Growing Importance of Social Networks as an Information Source

The social media trend is gaining strength because of the hype associated with it, and a corporation that chooses to disregard this new reality may not only be passing up opportunities but also be leaving the online environment open for others to seize them. As a recent example, Google announced that all company information would be disseminated through its website and that it would no longer issue press releases.

Although a recent informal survey1 of 270 IROs and CFOs found that only 12.5 per cent claimed to use social media to actually disseminate financial information to shareholders in the financial market, another survey,2 of 455 analysts and institutional investors, revealed that 40 per cent read blogs, 20 per cent use blog information to make investment decisions or recommendations, and 58 per cent believe social media will become increasingly important in helping them make investment decisions.

The Risks and Rewards for Corporations

Corporations should be aware that the same characteristics that make social media useful — namely interaction, notification and immediacy — make it potentially dangerous.

Rewards include enhanced communications, with the possibility for corporate users to create and publish their own content. This has completely changed the dynamics of interaction on the Internet, allowing corporate users to react to news and decisions in real-time. Control of the media, through corporate blogs for example, allows corporations to respond appropriately to damaging remarks and to swiftly reorient their key messages. The TwitterTM phenomenon has also changed the relationship between corporations and their customers or investors, resulting in an increased proximity.

The flip side of this is an increased need to monitor such communications, with the time and personal resources it entails, to avoid the risk of widespread dissemination (often in record time) of opinions that may lack the necessary forethought or nuances.

Employee Risks and Benefits

The engagement of employees in social media initiatives can result in a benefit as well as a risk. An obvious risk is for an employee to make illegal, unauthorized or inappropriate disclosure of confidential information. In order to avoid such an eventuality, you will need to inform your employees about the steps and corporate strategy that are to be adopted. No company can control all of its employees’ actions. Nevertheless, you can ensure that your employees are fully aware of what they should and should not be doing.

Although it might be tempting to monitor the input that employees may have on social networks, such as FacebookTM or corporate blogs, there are significant privacy considerations to take into account. These also need to be addressed in a general policy of the use of social media networks within your corporation.

Restricting employees from making any statements regarding their employer is a conservative approach you can consider taking, but you may also miss out on significant opportunities to have your employees be your best ambassadors to the public.

Regulatory Considerations

The Securities and Exchange Commission (SEC) in the United States has recognized that the rules regarding corporate disclosure should reflect current methods of disseminating (and obtaining) information.3 In August 2008, for example, the SEC issued Release No. 34-58288, which provided guidance around the use of company websites as well as clarity on issues arising in connection with Regulation FD (or Regulation Fair Disclosure). Release No. 34-58288 recognizes that company websites may be the primary methods of disseminating information without violating Regulation FD. In this Release, the SEC set out three considerations for determining whether information posted on a corporate website is considered "public":

  • Is a company website a "recognized channel of distribution"?
  • Is information posted in a manner calculated to reach investors?
  • Has there been a reasonable waiting period for investors and the market to react?

Of course, whatever method of dissemination of information is used, corporate information disseminated through corporate websites, blogs, TwitterTM and other forms of social media may attract liability under provincial securities legislation for civil liability for secondary market disclosure.

McCarthy Tétrault Notes

If you are considering implementing a corporate blog, opening a TwitterTM account, creating a FacebookTM profile or adopting some other form of social media, you have to weigh the risks against the potential benefits. You need to develop and communicate a clear policy that:

  • sets out clearly how you interact with your stakeholders (every blog needs to be given the same consideration as the traditional press release or continuous disclosure documents);
  • clearly identifies the methods of disclosure you endorse in order to not get caught in Web-based rumors; and
  • ensures you are complying with the relevant regulatory requirements.



1 Bulldog Reporter IR Alert, quoted in "Trends and Best Practices in Online Communications and Social Media in Corporate IR,"

2 By the Brunswick Group, quoted in "Trends and Best Practices in Online Communications and Social Media in Corporate IR,"

3 See, for example, the SEC’s 21st Century Disclosure Initiative Report, which discusses a modernized disclosure system.