The intersection of social media and continuous disclosure - how to get your company’s securities suspended in 280 characters or less

Blog-Post-Image-2018-03-20
Could a Tweet really get a company’s securities suspended? What about an Instagram post or a WhatsApp message?

Part of the allure of social media is its ability to instantly disseminate information straight from the source, allowing a stream of consciousness to bypass traditional gatekeepers and censors and flow straight to the consumer. And it doesn’t stop there, frequently it’s retweeted, re-posted, critiqued, verified, rebutted ad infinitum. Add this to a market where high frequency trading can move astronomical amounts of capital in a fraction of a second, and it’s easy to recognise the heightened risk environment listed companies now operate in.

1. What is social media and can it be material?

A cursory look through the ASX Listing Rules yields no clues as to what ASX considers social media to be. There are a handful of references in ASX Guidance Note 8, referring to “investor blogs, chat sites and other social media”, but ASX hasn’t provided a fixed definition of social media. Why? Because there is no need. Social media, just like the traditional media, is merely a means of communication, what is important is the information itself.

In the context of an ASX listed company, the relevant question will be: is the information material? For guidance on what is ‘material information’, see ASX Guidance Note 8 or discuss with a professional adviser, but a good rule of thumb is, will this information affect an entity’s trading price? If the answer is yes, then the information must be announced on the ASX market announcement platform immediately.

So, can a tweet, Facebook post, instant message or Instagram photo contain material information? Of course it can. You should think twice about posting a photo of your managing director smiling dreamily at a core sample or crossing his fingers outside the Tesla HQ.

2. What are the risks?

For a listed entity there are many risks posed by employees or directors posting information without reference to a social media policy. Three that spring to mind are:

A. the entity could breach its listing rule obligations and be suspended from trading for releasing material information without lodging it on the ASX platform first. In this instance, suspension is likely to last until the entity is in a position to prepare a complete ASX market announcement;

B. if the information is circulated and traded on before it is announced to the market, persons involved may breach the ‘insider trading’ provisions of the Corporations Act, potentially exposing themselves to criminal liability; and

C. the relevant entity may unwittingly give up confidential information or trade secrets.

Entities must also be aware that posting information to a select audience is not a reliable means of protection against these risks, as the retweeting / re-posting of information means that the original audience is often not the only audience. This became startlingly apparent last year when Rio Tinto’s chief executive Jean-Sébastien Jacques got a lesson in the power of social media when his instant messaging comments on Yammer were disseminated publicly, leading ASX and analysts alike to ponder whether his comments on increasing Rio’s production from circa 330 to 400 mtpa should be considered as a production guidance or merely an aspirational statement.

3. Should my company adopt a social media policy?

Yes. While a social media policy alone can’t prevent the risks social media poses to a company, it is the first step towards raising awareness within a company and, in our view, is a critical part of a company’s corporate governance. By extending the policy beyond just directors and employees to promoters, advisers, contractors and other classes of persons who may handle confidential information, a company can remove any ambiguity on how its information should be handled in the digital sphere.

Once adopted, companies should look to implement and monitor the policy and embed it into the culture of the company.

4. What should a social media policy cover?

A good social media policy should be tailored to the specific needs of the entity, taking into account its ambitions, corporate structure, personnel and any other relevant information.

Some questions to get the ball rolling though:

• Who is the intended audience of a social media strategy?
• Who does the policy apply to?
• Who should be able to post and when?
• What type of behaviour should be prohibited?
• How does a social media policy further an organisation’s strategy?
• What compliance issues should be considered?
• How should a company respond in the face of an attack on social media?

5. Why use social media at all?

With risks like those outlined above, companies may be tempted to install a blanket ban on social media, but such an approach turns a blind eye to the fact that the majority of the public (including the company’s workforce) engages in some way with social media, whether it be through social networking sites such as LinkedIn, Twitter and Facebook; instant messaging applications such as Skype, WhatsApp or iMessage; image or video sharing forums like Instagram, YouTube, Flickr and Pinterest; blogs like Tumblr; or forums such as HotCopper.

Entities that choose not to adopt a social media strategy may miss out on a great opportunity to connect with potential customers, investors, employees, etc. and by not adopting a social media policy, entities may expose themselves to heightened risks.

*Jeremy Newman, Associate at Bellanhouse Lawyers