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Corporate, Securities

Social media policy key to ensuring compliance with securities laws

While communicating via social media might seem fast, easy and natural, this informality can pose particular risks for public companies when it comes to breaching strict securities and disclosure laws and regulations, Calgary corporate and securities lawyer Saptarshi (Rishi) Chakraborty tells

Although there are no securities rules or regulations specifically targeting social media, says Chakraborty, partner with Nerland Lindsey LLP, public companies are subject to overall disclosure standards and rules under securities laws and the regulations of the stock exchange on which they are listed.

“In particular, National Policy 51-201 – Disclosure Standards sets out the general standards and expectations of the securities regulators for public companies when disclosing material information. Generally speaking, as a public company, management and its boards should carefully assess information relating to its business and operations and if such information is deemed to be material, it should disclose that information to the public as soon as possible,” he says.

In March 2017, the Canadian Securities Administrators (CSA) released a staff notice summarizing its findings and disclosure expectations for public companies after reviewing the social media practices of 111 reporting issuers, including information they posted on popular websites.

“Following its review, the CSA encouraged issuers to consider implementing a social media policy that details: (a) who can post information about the issuer on social media and the type of sites where information can be posted; (b) what type of information about the issuer can be posted; (c) what prior approvals are needed before posting information; (d) who is responsible for monitoring the issuer’s social media accounts, including third-party postings about the issuer and (e) other guidelines/best practices to be followed by people posting information on social media,” says Chakraborty.

In addition, companies that disclose “material information” on these sites need to be aware that the posts do not count when it comes to meeting legal disclosure obligations.

“When issuers disclose material information, they should ensure that the information is ‘generally disclosed’ consistent with the disclosure expectations outlined in NP 51-201. The CSA has unambiguously stated that information is not considered to have been generally disclosed solely because it has been posted on an issuer’s website. Similarly, the posting of material information on a social media website alone would not be sufficient in order for the information to be considered ‘generally disclosed’ under NP 51-201,” says Chakraborty.

As Chakraborty explains, companies may satisfy the ‘generally disclosed’ requirement by using one or a combination of accepted methods — either via news releases distributed through widely circulated news or wire service and/or announcements made through press conferences or conference calls that interested members of the public may attend or listen to either in person, by telephone, or other electronic transmission, such as the internet. 

“Public companies may use social media as a supplement to traditional methods of disclosure with necessary restrictions implemented through a robust social media policy,” he adds.

Ideally, says Chakraborty, boards of directors and senior management teams, with the assistance of their advisors, should institute a corporate disclosure policy and specifically, a social media policy as part of their ‘going public’ process.

For those companies that are already public but have yet to institute these policies, Chakraborty “strongly recommends” they be put in place without delay.

“It is also important that the policies are reviewed at least annually and there is effective monitoring for compliance with such internal policies,” he adds.

In addition to instituting a comprehensive and robust policy, Chakraborty says public companies must also ensure they educate employees, directors and officers about its social media goals and guidelines and the risks of using it, especially when communicating on behalf of the business.

“While admittedly it may be innocuous for a key employee to retweet an article about their company being a target of a potential merger, and regardless of whether that news may or may not be true, a simple retweet can send unintended signals to the wider market and expose the company to potential risks,” he says.

Ultimately, says Chakraborty, legal counsel can assist public companies to navigate the rules and regulations surrounding timely disclosure of material information and help put together appropriate policies and procedures to ensure compliance with applicable securities laws on a day-to-day basis.

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