Gaining Followers: Use of social media by Canadian public companies while navigating Canadian securities laws
Corporate communication is becoming faster and more flexible. It will continue to be further transformed by social media, which provides a simple, quick and cost-effective way to connect with the public. While disclosure through social media can be efficient, and can enable greater investor access and engagement, the informality and limitations of such platforms pose certain risks to Canadian public companies subject to strict securities and disclosure requirements. This post outlines how social media use by Canadian public companies is governed by Canadian securities laws, and outlines some best practices given the current regime.
In 2017 the Canadian Securities Administrators (“CSA”) released CSA Staff Notice 51-348 – Staff’s Review of Social Media Used by Reporting Issuers (the “Notice”). The Notice summarizes the CSA’s review of compliance with disclosure obligations of reporting issuers that use social media networks. Notably, 72% of issuers reviewed were actively using at least one social media website. Recent studies suggest that 80% of the world’s 4 billion internet users use social media and that a significant number of Canadians and Americans now rely on social media to get at least some news. As a result, Fortune 500 companies are increasingly using social networks, with LinkedIn, Twitter and Facebook being among the most commonly used.
The Canadian Regulatory Regime
Canadian issuers are subject to annual, periodic and event-specific disclosure obligations pursuant to National Instrument 51-102 – Continuous Disclosure Obligations, National Policy 51-201 – Disclosure Standards (“NP 51-201”) and the rules of certain Canadian stock exchanges (most notably the TSX). For example, they are required to disclose a material change to the business, operations or capital of the business by immediately issuing and filing a news release, followed by a material change report as soon as practicable (and within 10 days of the change). Similarly, disclosure policies of Canadian stock exchanges generally require reporting issuers to immediately issue a news release to disclose material information.
The Generally Disclosed Requirement
Pursuant to NP 51-201, Canadian issuers and those in a special relationship with them are prohibited from informing (other than in the necessary course of business) anyone of a material fact or change before such fact or change has been generally disclosed. Information is “generally disclosed” if it has been disseminated in a manner calculated to effectively reach the marketplace, and if public investors have been given a reasonable amount of time to analyze the information.
Traditional methods for meeting the generally disclosed requirement
Presently, issuers can use one or a combination of the following traditional methods to satisfy the generally disclosed requirement: (i) news releases distributed through a widely circulated news or wire service; and (ii) press conferences or conference calls that interested members of the public may access by attendance or by telephone or other electronic transmission.
But what about disclosing through a company website or social media?
The prevalent view is that disclosure by means of company websites and social media is not currently sufficient to meet the CSA requirement to generally disclose information. While companies are permitted to share material information through social media networks, NP 51-201 suggests that they may only do so as a supplement to traditional means of disclosure, with the traditional means of disclosure being the first step.
NP 51-201 expressly confirms that posting information to an issuer’s website, on its own, is unlikely to constitute general disclosure as investors’ access to the internet is not yet sufficiently widespread to constitute dissemination effectively reaching the marketplace and because websites generally do not push information out into the marketplace.
Critics of this view would argue that since this policy’s last amendment in 2013, website design and alert features have significantly improved. Smart technology and social media have also arguably become mainstream and may now be capable of effecting broad dissemination comparable to traditional news releases, press conferences or conference calls.
Although NP 51-201 does not speak specifically to social media use, to consider whether information has been “generally disclosed”, the CSA will consider all of the relevant facts and circumstances. This includes considering the issuer’s traditional practices for publicly disclosing information and considering how broadly investors and the investment community follow the company. Although limited, case law suggests that relevant facts and circumstances to determining whether information has been generally disclosed include such information being disclosed in an open and public manner, and being widely accessible online from the perspective of a reasonable person.
Given the dramatic growth in the usage of social media (with 94% of adult Canadian internet users having at least one social media account in 2017), disclosure by means of social media will likely become an acceptable primary disclosure model, but when remains unclear.
The U.S. Regulatory Regime
In contrast, companies in the United States are permitted to effect public disclosure by disclosing information in a non-exclusionary manner reasonably designed to make information broadly available to the public. In 2013, the SEC approved the use of social media to disclose key information, so long as investors are made aware of which channels will be used and access to such social media outlet is unrestricted. Notably, such dissemination by means of social media remains subject to securities laws mandating fair disclosure of key information.
Getting More Likes
In light of the Canadian regulatory regime, what are the best practices when using social media to disseminate corporate information? The Notice revealed that 72% of the Canadian issuers reviewed as part of the Notice are using social media. The Notice also revealed that despite such prevalence, 77% of the issuers reviewed as part of the Notice, lacked policies and procedures surrounding social media governance or compliance.
As public issuers increasingly use social media to communicate with stakeholders, they must ensure that such activity does not outpace their ability to maintain internal governance of such communications or put them offside disclosure obligations under securities laws. While disclosure by social media cannot be made until information has been generally disclosed using traditional means, Canadian issuers should adhere to the following best practices surrounding supplementary social media announcements.
Implementing a Disclosure Policy
Issuers should address social media communications in corporate disclosure policies, or develop a specific social media governance policy that is practical to implement and periodically reviewed and updated. The policy should consider, among other things, the following factors identified in the Notice:
- authorized individuals who may post information about the issuer;
- the platforms and type of information about the issuer that may be posted;
- approval procedure required before information can be posted;
- monitoring of the issuer’s social media accounts, including third party postings about the issuer; and
- other guidelines (for example, requiring employees that post about the issuer on personal social media sites to identify themselves as an employee of the issuer).
Managing Social Media Disclosure
Social media governance policies should contain appropriate procedures to ensure compliance with securities laws and protect corporate reputations. Issuers should consider incorporating the following practices to their use of social media platforms.
- Disclosure disseminated by traditional means should be included in its entirety when communicated using social media. If this proves impractical, a link to the full disclosure should be included as part of the social media communication and any communicated excerpt should not be misleading when read on its own.
- Ensure disclosure by means of social media: (i) is factual and balanced; (ii) provides equal prominence to both favourable and unfavourable news; (iii) includes sufficient details to enable investors to understand the substance and significance of the disclosure; (iv) excludes exaggerated reports and promotional commentary; and (v) is consistent with the issuer’s continuous disclosure on SEDAR.
- Ensure disclosure is delivered from the issuer’s social media accounts as opposed to executives’ personal social media accounts to avoid confusion and enable the appropriate communications teams to consistently draft and review posts prior to publicizing.
- Provide for effective dissemination of the social media disclosure policy including providing training to employees, directors and officers on the issuer’s social media objectives and guidelines and the related risks of using social media, especially when communicating corporate disclosures.
- Provide for enforcement mechanisms including monitoring compliance with the social media disclosure policy and taking appropriate disciplinary action when required.
Canada’s regulatory framework for disclosure by Canadian public companies may at some point be updated in recognition of the widespread change social media has brought about in the way that companies communicate. Until that happens, Canadian issuers using social media should ensure that they have appropriate policies and procedures in place to comply with the current regulatory framework.
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 Kegam Kevin Torudag and Lai Lai Chan, Re, 2009 BCSECCOM 145
 Regulation Fair Disclosure (Regulation FD)
 SEC Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc., and Reed Hastings, Release No. 69279 / April 2, 2013
 Practical Law Canada, Practice Note: Social Media and Public Companies: Securities Law Considerations
CSA Staff Notice 51-348 – Staff’s Review of Social Media Used by Reporting Issuers social media use by reporting issuers social media