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Social media use should comply with securities law

Focus on: Corporate and Commercial Law
|Written By Michael McKiernan

Corporate lawyers say reporting issuers need to work securities law compliance into their social media policies after a report by the Canadian Securities Administrators found shortcomings in online disclosure practices.

CSA Staff Notice 51-348 looked at the use of platforms including Facebook, Twitter, YouTube, LinkedIn and Google Plus by a sample of 111 listed companies and their representatives.

The review found that just 23 per cent had a specific governance policy that addressed their use of social media.

A further 30 per cent had general disclosure policies that touched briefly on social media sites, but that still left almost half of the surveyed issuers with no governance policy at all on the matter.

Barbara Hendrickson, founder of BAX Securities Law in Toronto, says she’s certain the CSA will be keeping an eye on the issue in the future, given the continuing growth in popularity of the platforms.  

“You need to have a social media policy and you need to enforce it,” she says.

“It should address things like selective disclosure and perhaps even have prohibitions that stop employees from posting certain information on social media platforms without permission or clearance.

“As enforcement activities start coming up, I think all issuers will start looking closer and making social media a standard part of their corporate governance documents,” she adds.  

Sabrina Royer, a corporate lawyer with Bennett Jones LLP in Vancouver, says the CSA report is timely.

“Based on how dynamic the area is, I’m not surprised some issuers are having problems. They need to be aware of the limitations of some social media forums,” she says.

“This is a pretty new area, especially when it comes to its use as an investor relations tool.”

Michelle Vigod, partner in the corporate and commercial practice group at Goodmans LLP, says while many issuers are likely to have social media guidelines already in place, company accounts tend to fall under the control of the marketing department, whose goals and concerns do not always match up with her own.  

“The people who are putting up the Facebook posts are not necessarily the people who know the details of securities law disclosure requirements,” she says.

“From what I’ve seen, social media policies are conceived more in terms of appropriate usage and making sure that employees are putting out a consistent message. They’re not so much focused on securities law compliance.”

Vigod says she encourages clients to open up a line of dialogue between the compliance and marketing arms of the business when developing policies for social media use, and she says the CSA report is a good reminder that regulators are taking the issue seriously.

“Social media is a great tool for outreach to customers and potential investors, but I think some issuers didn’t realize that it’s a component of the business that may be taking them offside in terms of their disclosure,” she says. “The organization needs to be aligned from top to bottom in its approach.”

The informal nature of many social media platforms can often make them unsuitable for the sometimes-onerous disclosure requirements imposed on issuers, Vigod says.

That’s particularly true of Twitter, where the 140-character limit requires a short and sweet approach to posts.

The authors of the CSA report noted that the proportion of corporate disclosure occurring on chat rooms, blogs and social media is on the rise as the internet has taken a central role in how the world communicates information.

“Reporting issuers must constantly be aware of the securities reporting obligations that their social media activities may trigger, even if these activities are not directly intended to communicate with investors,” they wrote.

In addition to insufficient policies, the CSA expressed concern with selective or early disclosure of material information to some investors via social media that was not also issued generally to investors, as well as posts that put a misleading spin on information so that it fails to line up with the official version already released on the central System for Electronic Document Analysis and Retrieval.

According to the review, securities regulators called out 44 per cent of the issuer sample, which included companies operating in Alberta, Ontario and Quebec, for at least one instance of potentially non-compliant social media posts.

Three out of 10 companies in the whole group took corrective measures ranging from, at one end of the scale, commitments to improve their social media disclosure practices. At the other extreme, around 13 per cent of the sample were forced to delete the offending posts or file clarifications on SEDAR.

Jason Saltzman, a partner in the Toronto office of Borden Ladner Gervais LLP, says much of the report is simply a restatement of basic disclosure principles, something he expects larger issuers to have a better handle on already.

“Social media disclosure is fine so long as you do it the right way. It’s still a public disclosure, and there’s no reason to treat it any differently to one made in the regular way, which means you can’t be selective or misleading,” he says.


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