In-House Advisor: To Tweet or Not to Tweet

The Canadian Securities Administrators have reasserted the rules around material disclosure, particularly as they apply to social media. Companies dabbling with Facebook and Twitter should take heed.
IN STARK COUNTERPOINT to the predilections of the current US president — who makes great use of Twitter as a medium — the Canadian Securities Administrators (CSA) say their reality more or less excludes social media.

To be fair, the
CSA has its own Twitter account and explicitly endorses social media, but only as an auxiliary line of communication. The regulator strictly maintains that no material event has been properly disclosed until it’s published through traditional channels. The internet is, apparently, not yet “sufficiently widespread” to qualify as an adequate medium for material disclosure.

Specifically, the CSA says in Staff Notice (SN) 51-348 that publicly traded companies’ material disclosures must not be posted to corporate websites, Twitter, Facebook, LinkedIn, YouTube, Instagram, or any of their ilk, until after they’ve been made widely available through a press release on a publicly accessible news network or in a pre-announced press conference, followed by filing to the System for Electronic Document Analysis and Retrieval (SEDAR).

Furthermore, braggadocio of the sort used by US President Donald Trump is banned. Social media channels may be used to support required disclosure, the CSA says in its March 9 pronouncement, but may not include unbalanced, misleading or overly promotional content or tone.

SN 51-348 makes clear that social media are a tertiary means of communicating with investors, says Christopher Main, Associate General Counsel for Telus Communications Inc.


Following a CSA review of social media practices of 111 reporting issuers, 30 per cent of companies surveyed took corrective action to improve their compliance, the regulator says in its staff notice. CSA concerns included: (1) selective or early disclosure to investors on social media platforms; (2) overly promotional content in social media postings or inconsistencies with duly disclosed information; and (3) insufficient corporate social media governance policies.

“The regulator’s position on social media has largely remained unchanged for well over a decade,” says Matthew Merkley, with Blake, Cassels & Graydon LLP in Toronto. “I’m not saying there’s a problem. But it bears reconsidering, at this point in time.” He notes that the effect of 51-348 is to reiterate long-established policy on disclosure and he says there has been no indication the CSA is contemplating an update.

Lynn Hnatick, with MLT Aikins LLP in Saskatoon, says there are no new rules or regulations in SN 51-348. “It’s an emphasis that those established rules do apply to social media.”

While the regulator’s position on social media may appear somewhat arbitrary, Will Van Horne, with McMillan LLP in Calgary, observes that CSA policy is informed, in part, by court decisions on insider-trading cases that have established standards for what is to be considered general disclosure of material information.

Telus’s Main sums up the CSA’s message succinctly. “Everything has changed [technologically], but all the [disclosure] principles remain the same.”

CSA policy on social media is defined by its 2002 statement in National Policy (NP) 51-201. To wit: “investors’ access to the internet is not yet sufficiently widespread such that a Web site posting alone would be means of dissemination ‘calculated to effectively reach the marketplace …”

Where internet access is concerned, the statement was arguably outdated when it was written — and 15 years later appears quaint, at best. The International Telecommunication Union says 62 per cent of Canadians had Internet access in 2002 (now 89 per cent), while Statistics Canada identifies about 13 per cent of Canadians as investors.

Consider this together with the disposable income requirements of both investing and computer ownership, and it appears highly likely that nearly all investors were to be found among internet users in 2002, to say nothing of penetration rates today. After all, it’s hard to imagine a day trader without an internet connection.


Still, SN 51-348 serves to address an important question — that is, whether internet access and securities disclosure are, in fact, related concepts.

In NP 51-201, the CSA talks in terms of information push. “Push,” they say, is when an issuer takes the initiative to place information before the public via a news release. Information “pull” is when the public is required to search out information and pull it from online sources. In this construct, pushing information to the public in a press release equals proper disclosure, while leaving investors to pull information from the infinite, uncharted and endlessly fragmented internet is a hit-and-miss proposition that fails to meet the disclosure test.

“Fragmentation seems to be the evil they’re trying to cure,” Van Horne says. “On the Internet, there are millions of places you could put that [disclosure] information. Through traditional channels, everyone knows where it is. It just brings a little more certainty to the marketplace.”

Or, to put it another way, knowing the truth is out there is not the same thing as knowing the truth. The first principle of securities regulators everywhere is that, if a company is going to offer debt or equity to the public, it has a duty to provide complete, accurate, timely and unbiased information on all matters that are material to its business — and to provide it to all investors at the same time.

In light of this regulatory imperative, a certain crusty disdain for the preferred milieu of celebrities may well be justified. But there’s equally no doubt that increasing numbers of listed companies are embracing social media for their own reasons.

Sabrina Royer, with the Toronto office of Bennett Jones LLP, says social media provide listed companies with effective means to reach their stakeholders.

“It’s real-time, cost-effective and accessible,” Royer says. “Initially, companies used social media as a marketing tool, but it’s become more commonplace to use it as a customer- and investor-outreach tool.” She adds that she sees SN 51-348 as encouraging proper use of social media, rather than disallowing it.

Merkley says that social media “allow issuers to broadly and instantaneously reach an audience at very low cost. And it’s skewed to young people.” This includes millennials, born from roughly 1980 to 1995, who are currently reaching investment age and are commonly defined, in part, by their affinity for technology, and social media in particular. “Issuers want to reach that audience.”

Van Horne sees it as going beyond traditional channels to reach “an audience that doesn’t sit around and read a Bloomberg terminal.”

He says social media are often used in hiring, where they’re seen by many companies as faster and less costly than recruiting firms. And as environmental advocates have taken to social media to oppose corporate development, companies have responded through their own online channels. “You see a lot of that here [in Calgary] from the larger [energy exploration and production] issuers,” he says. Oil sands operators and the Canadian Association of Petroleum Producers use a variety of Internet media to promote their views on responsible development.

Of course, none of these activities requires the involvement of trained investor-relations professionals. So it was perhaps inevitable that social media efforts would eventually cross over into the realm of securities compliance.

Main says Telus company policy requires close co-ordination between corporate communications, investor relations and the legal department to ensure that disclosure regulations are not violated. In the example of a development project, he says, legal would take the lead in ensuring that any website description of the project posted by corporate communications is consistent with disclosure information published by investor relations.

“I’d like to think it’s been inadvertent,” Van Horne says of compliance infractions. He agrees with Royer and Merkley that there was never any Wild West attitude in the business community; no assumption that “anything goes” on social media. Instances of non-compliance have simply been part of the learning curve inherent in adopting new communications channels.

While the Canadian Securities Administrators don’t name names or point fingers in its report, Van Horne says that in his experience the biggest users of social media are smaller, newer companies that have grown up in the internet age. The blue-chip set tend to take a more reserved approach to social media and may also benefit from larger, more pervasive compliance functions, he says.


In its review of issuers’ social media activities, CSA found that 77 per cent of companies surveyed “had not developed specific [social media] policies and procedures which would promote internal governance and compliance with securities law.” The regulator sent letters of comment to 44 per cent of the surveyed companies, each letter citing at least one compliance-based concern. Among those CSA classified as active social media users, 25 per cent took corrective action as a result of the review.

In a number of cases, CSA says, “issuers provided material, forward-looking information on social media” prior to proper disclosure. The social media disclosures were “significantly more favourable than historical results or any other information reflected in the issuers’ continuous disclosure record [and] … it was not surprising to see significant share price increases in several cases …”

Delays between posting material information on social media and issuing disclosure statements through accepted channels ranged from minutes to “days or weeks.”

“In the case of four specific issuers, the original non-compliant disclosure and/or the subsequent correction of that disclosure resulted on average in a 26-per-cent movement in the stock prices of the issuers involved,” the regulator says (emphasis added). “In these cases, the deficient disclosure appeared to be material and Staff may consider further engagement with these issuers.” None of the four had specific governance policies on the use of social media.


“Information posted on social media websites generally had a strong positive tone,” the CSA observes in SN 51-348. “[We] noted a number of instances where social media postings were … sufficiently promotional or unbalanced that they raised concerns under securities law.”

While Merkley advocates an update of CSA policy on social media, he points out there’s no easy fit between the strictures of securities disclosure requirements and the easy, breezy, upbeat banter that prevails on Facebook and Twitter.

“Social media are very positively oriented,” he says. “You take 20 selfies and post the best one. You don’t normally blast out negative developments.” It’s an expectation that users bring to social media, he says — one that clashes sharply with the CSA’s longstanding insistence, reiterated in SN 51-348, that “disclosure should be factual and balanced, giving unfavourable news equal prominence to favourable news.” In Merkley’s analogy, balance requires that you post your favourite selfie and offset it with the appalling visage that stares at you from your passport or driver’s licence, whichever is worse.

“Social media has a more casual style,” Main agrees. “But you can’t say that, because social media is more casual, you can get casual with disclosure. You can’t.”

Merkley adds that the regulatory requirement for equal prominence in the disclosure of favourable and unfavourable developments may mitigate against the common practice of dividing lengthy press releases into several postings on social media sites. This, Merkley warns, could result in segmenting bad news in a way that undermines equal prominence.

To avoid the pitfalls of regulator-perceived promotionalism or prominence issues, he says, the default social media announcement might be limited to something like “Company X releases Q2 Results,” followed by a link to a detailed press release that has previously been “generally disclosed” through traditional channels, such as SEDAR, and only thereafter posted to the company website.

“That’s certainly the most conservative approach,” Van Horne says, “but I don’t think you have to be quite that limited.” To be sure, the news release on traditional channels has to come first. “But if you’ve had a record quarter, there’s no reason why you shouldn’t be able to say that on social media,” with a link to the full disclosure. He sees it as no different than writing a “record-quarter” headline on a traditional press release, an accepted practice since time immemorial.

Intensifying the discordance between the light-bright-and-trite environment of social media and the proper disclosure of forward-looking projections is the sheer weight of “material factors and assumptions” underpinning business forecasts. CSA policy requires that all material factors and assumptions be specified, frequently resulting in 500 to 700 words of very technical boilerplate text within a press release.


“This is difficult to balance with some of social media’s limitations, such as the Twitter 140-character rule [about 25 words],” Royer says. “And the [Canadian Securities Administrators have] not otherwise provided guidance on how they expect this to look. Accordingly, companies may want to restrict any posts containing forward-looking information to forums where they can include the required … disclosure.”

Balance is also at peril whenever listed companies choose to cite the assessments of securities analysts — whether the analyst is independent or paid by the issuer.

The CSA staff notice says listed companies are expected to provide the “names and/or recommendations of all independent analysts who cover the issuer … in order to prevent issuers from selectively disclosing the reports of only those analysts whose views are favourable to the issuer.”

“Balance is not only in what you say but what you don’t say,” Merkley observes. Citing one analyst engages a minimum obligation to list all those who cover the company.

It’s an all-or-nothing rule, Hnatick says. “It falls under the rules of selective disclosure and, again, it’s not new.” She says the CSA is merely emphasizing that all the rules of formal disclosure apply on social media.

Paid analysis came in for special attention in the CSA review: “Some of these documents included stock price targets and valuations for the issuer which were more than double their stock price at the time the report was written,” the regulator says. It adds that a fine-print statement that the issuer paid for such analysis is insufficient and “may raise misleading disclosure concerns. …” Following the CSA review, the off-side issuers provided clarifying disclosure “in order to highlight that these documents were not independently prepared.”

The message is clear, Hnatick says. To avoid contretemps with the regulator, listed companies need to make prominent disclosure of any paid analysis in a space closely proximate to the relevant document.


“It’s challenging for issuers to comply with existing obligations in a changing world,” Hnatick says. But the principle is simple enough. “The regulator wants high-quality disclosure practices, regardless of the venue. That shouldn’t be a surprise for anybody who’s put their mind to this subject.”

It’s also clear that high-quality disclosure does not come from third parties. “During our review,” the CSA says, “we noted examples of third-party posts (blogs, etc.) which suggested a material event had occurred [that] had not been disclosed by an issuer through their continuous disclosure.”

The generic example cited by the CSA is the insolvency of an issuer’s major customer, which is discussed by a third party on social media before the issuer has made general disclosure of a material event. In short, an analyst is blogging about an event occurring in the public domain and its potential impact on an issuer.

There is no explicit discussion in SN 51-348 of any example in which an analyst blogs about material information improperly disclosed by a company insider. But NP 51-201 contains specific discussion on the evils of selective disclosure, including the inherent risks involved in meetings between insiders and analysts.

“There are examples where people said something that they should not have said in a select environment,” Van Horne concedes. But he says in many past cases, these have amounted to differences of opinion between the regulator and company insiders as to what information was genuinely material.


SN 51-348 concludes by calling for all issuers to adopt social media governance policies that reflect the same standards companies apply to their formal regulatory filings.

It says a company’s social media policy should address the following: (1) who can post company information; (2) what types of sites can be used; (3) whether personal accounts can be used; (4) what types of information can be posted [financial, operational, legal, marketing]; (5) what approvals are required; (6) who is responsible for monitoring content; and (7) other guidelines and best practices.

“Pretty much every company has a disclosure policy that covers 51-201,” Blakes’ Merkley says. “And most, if not all, have social media policies.” He says that trouble arises because the two have tended to be largely or entirely separate.

In most cases, social media policy has dealt with what employees can say about each other and their managers in public venues, addressing topics such as harassment, sexism and racism, as well as privacy and employment law, he says. In a few cases, social media policies “may have had a paragraph dealing with disclosure.” But a full-blown material disclosure policy was likely separate and largely directed to the attention of directors and officers.

“Now,” he says, “the two things are coming together and being packaged together, reinforcing the existing [disclosure] policy in this new environment where things are done very quickly and often informally.”

Telus’s disclosure policy includes rules on the use of social media, while separate guidelines also make clear who can post information of potential investor interest, Main says. “If you weren’t an authorized spokesperson, that doesn’t change just because you can tweet,” he observes.

MLT Aikins’ Hnatick says the quality of social media policies has tended to vary widely from company to company but one thing is sure, “there’ll be a lot more focus, now that we’ve heard from the regulator.”