It’s time for finance to click with social media

The two corporate regulators, the Australian Securities & Investment Commission and the the Australian Securities Exchange, urgently need to update their disclosure rules to facilitate the use of social media outlets such as Facebook and Twitter to enable Australian listed companies to further democratise communications with investors.

Without these guidelines Australian companies and the securities market risk being left behind in the burgeoning use of social media.

Seven years after the launch of Facebook, Australian listed companies still have no definitive rules of engagement for using social media to communicate with investors during corporate actions such as takeovers, capital raisings, share offers, or indeed any material disclosure.

Outside of professionals, few investors have real-time access to notices of important disclosures, or are at a computer terminal throughout the day. Against this backdrop ‘live’ social media can be an important tool in facilitating timely access to important information for retail investors, in an era where connectedness is all-important.

The use of online social media for corporate governance reporting is becoming more accepted and prevalent in the business communities worldwide. It is imperative that Australian regulators keep pace with the changing environment or companies and their shareholders risk being left behind.

Last year in the US for example, Hewlett-Packard Company announced its acquisition of Palm via a 64-character tweet, synchronised with announcements through traditional disclosure channels. Other social media sites, such as Facebook, SlideShare and Scribd, were also used to communicate information about the transaction.

Notably, the most significant publicity and attention around the announcement was generated through the HP social media platforms, highlighting their growing importance for communication with investors.

Nevertheless, Australian companies are flying blind about what they can and can’t say on social media platforms in terms of material disclosure matters ranging from results to M&A events.

Clear guidelines and regulations would make it significantly easier for companies to navigate the fast moving social media world knowing that they are not stepping into a legal landmine or at least risking the wrath of the regulators.

In 2008, the United States Securities Exchange Commission issued guidelines addressing the use of “interactive website features,” leading the way for businesses to disseminate information to the public using social media.

US companies are now increasingly using services like Twitter and Facebook to not only release information regarding corporate transactions and results but to also engage in direct dialogue with their shareholders and the investing community on a wide range of matters affecting their companies.

In recent years, ASIC and the ASX have promoted the Internet and company websites as tools to enhance corporate governance reporting, but they are yet to provide comprehensive guidelines and regulations for the use of social media sites or to acknowledge the important role they could play in future investor relations activity.

ASIC has taken an interest in Internet Discussion Sites and actively uses Twitter to provide registry services information, which implicitly acknowledges the importance and value of these information platforms for communicating disclosure material. Nevertheless, they do not have regulations for listed companies use of social media sites for this purpose.

In responding to detailed enquiries about whether companies can use social media for material disclosure and what can be disclosed, neither regulator was able to identify the existence of any guidelines or regulations.  Nor did they refer to any policy development work under way.

The only assumption that can be made is that the regulators view existing regulations as sufficient for addressing disclosure of financial information through social media. However, this does not take into account the vastly different nature of social media to traditional disclosure channels and the need for specific guidelines to answer important questions around compliance issues they pose.

For example, if it is necessary for a company to provide a disclaimer within a 140-character tweet, is a hyperlink to an official press release on their website sufficient? Do “re-tweets” on Twitter and “likes” on Facebook signal endorsement of third-party content under securities laws? Once an ASX disclosure is confirmed should companies be obliged to synchronise all other disclosure channels they employ, including social media platforms?

Until guidelines and regulations are developed these questions will go unanswered, Australian businesses will remain constrained in utilising the full power of social media for investor relations, and the benefits of these sites for corporate governance reporting cannot be realised.

In essence, without reform ASIC and the ASX are preventing all shareholders, large and small, from benefiting from the real-time “democratisation of information” that the digital age now provides.

This opinion piece was written by Rachel Mulholland, Director of Social Media Communications at Cosway Australia and first appeared in The Australian Business Commentary pages on 7 June 2011. For more information about using social media in M&A transaction communications call Cosway on 9929 8344 or email Rachel at rachelm@coswaypr.com.au.