News Feeds vs News Releases: CSA Cautions Issuers on Social Media Use

By: Nina Lavoie

Social media platforms such as Facebook, Twitter and Instagram are becoming an increasingly important way for reporting issuers to communicate with their shareholders, stakeholders and potential customers. Recently, the Canadian Securities Administrator (the “CSA”) published Staff Notice 51-348 – Staff’s Review of Social Media Used by Reporting Issuers (the “Staff Notice”), a review conducted by the regulatory authorities in Alberta, Ontario and Quebec of 111 non-investment fund reporting issuers in respect of compliance with the requirements of National Policy 51-201 (“NP 51-201”) and National Instrument 51-102 (“NI 51-102”).

Of the issuers reviewed by the CSA, 72% were actively using at least one social media website.  Of those, 25% either filed clarifying disclosure, edited or removed disclosure, or made prospective commitments to improve disclosure based on the CSA’s review.  Demonstrating how impactful such disclosure practices can be on capital markets, in the case of four such issuers, the CSA estimated that the non-compliant disclosure resulted in share price changes averaging 26% of the value of their shares.

Here are the main concerns the CSA identified, and tips to help steer clear of them:

Selective Disclosure

ISSUE: Selective disclosure on social media

• Selective disclosure happens when some investors receive material information, including through social media, that other investors do not receive because it is not generally disclosed.
  • In a number of instances, material forward-looking information such as revenue, earnings per share, cash flow targets, and the expected timing of significant future milestones, was disclosed on social media without being generally disclosed by news release. Also, such forward-looking information often did not comply with applicable disclosure requirements.
  • In some cases, third party posts on social media suggested a material event had occurred, despite the fact that the issuer had not made corresponding disclosure.

TIPS:

• Remember that material information disclosed only on social media or on an issuer’s website has not been “generally disclosed”.
• Accurately assess and generally disclose material information, including forward-looking information, on SEDAR and in a manner calculated to effectively reach the marketplace in accordance with NP 51-201 and NI 51-102.
• Do not make a statement that is misleading or untrue, or which omits a fact that is necessary to make the statement not misleading and would be expected to have a significant effect on the market price of the issuer’s security.
• Identify material forward-looking information when it is disclosed and state the material factors or assumptions used to develop the forward-looking information.
• Prohibit any person or company in a special relationship with the issuer from informing, other than in the necessary course of business, anyone of material non-public information before that material information has been generally disclosed.
• Have a strong social media governance policy in place (see more detail below).

Unbalanced and Misleading Disclosure

ISSUE: Unbalanced or misleading disclosure on social media

• The CSA noted that information posted on social media often had a strong positive tone, and in some cases was sufficiently promotional and unbalanced that it could have misled investors.
  • Some issuers provided additional commentary on social media not present in their continuous disclosure on SEDAR, or used non-GAAP financial measures which could have amounted to misleading or incomplete financial information.
  • In some cases, misleading or untrue statements were provided through links to other documents, such as analyst reports and research.
  • Where such analyst reports were paid for by the issuer, this fact was not disclosed prominently enough.

TIPS:

• Ensure your disclosure is factual and balanced.
• Disclose unfavourable news as promptly and completely as favourable news.
• Include sufficient detail for investors and the media to be able to understand the substance and importance of the events being discussed, and avoid exaggerated reports and promotional commentary.

Social Media Governance Policy

ISSUE: Lack of a strong social media policy

• The CSA found that a significant number of issuers did not have the policies, procedures, or controls in place which are required to ensure they meet high disclosure standards when using social media.

TIPS:

• Have a strong social media policy in place which is specifically tailored to your business.
• This policy should expressly state that material information must first be generally disclosed to the public before it can be posted on social media, and should also set out:
  • who can post information about the issuer on social media;
  • the coordination of the dissemination on various channels – first SEDAR and then on your website.
  • what type of sites (including personal social media accounts vs corporate) can be used to disclose information about the issuer;
  • what type of information about the issuer (financial, legal, operational, marketing, etc.) can be posted on social media;
  • which approvals, if any, are required before information can be posted;
  • who is responsible for monitoring the issuer’s social media accounts, including third party postings about the issuer; and
  • which other guidelines and best practices are followed (for example, if an employee posts about the issuer on a personal social media site they should identify themselves as an employee of the issuer).
• The above list is not exhaustive. Consider any other details which may be relevant to your business and the way your company uses social media.

The CSA will continue to monitor these areas in their review program activities and issuers that have not complied will be expected to take corrective action.

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