Lexpert Magazine

LEXPERT MAGAZINE | JULY/AUGUST 2017 61 | IN-HOUSE ADVISOR: SOCIAL MEDIA DISCLOSURE | securities analysts — whether the analyst is independent or paid by the issuer. e CSA staff notice says listed compa- nies are expected to provide the "names and/or recommendations of all indepen- dent 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. Cit- ing one analyst engages a minimum obliga- tion 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 atten- tion 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 con- cerns. …" Following the CSA review, the off-side issuers provided clarifying disclo- sure "in order to highlight that these docu- ments were not independently prepared." e message is clear, Hnatick says. To avoid contretemps with the regulator, listed companies need to make prominent disclo- sure of any paid analysis in a space closely proximate to the relevant document. Third-Party Disclosure "It's challenging for issuers to comply with existing obligations in a changing world," Hnatick says. But the principle is simple enough. "e regulator wants high-qual- ity disclosure practices, regardless of the venue. at shouldn't be a surprise for any- body 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 exam- ples 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." e generic example cited by the CSA is the insolvency of an issuer's major cus- tomer, 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 po- tential impact on an issuer. ere is no explicit discussion in SN 51- 348 of any example in which an analyst blogs about material information improp- erly 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 be- tween insiders and analysts. "ere 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 com- pany insiders as to what information was genuinely material. Policy SN 51-348 concludes by calling for all issu- ers to adopt social media governance poli- cies that reflect the same standards compa- nies 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 in- formation can be posted [financial, opera- tional, legal, marketing]; (5) what approv- als are required; (6) who is responsible for monitoring content; and (7) other guide- lines and best practices. "Pretty much every company has a dis- closure 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 harass- ment, sexism and racism, as well as privacy and employment law, he says. In a few cases, social media policies "may have had a para- graph dealing with disclosure." But a full- blown material disclosure policy was likely separate and largely directed to the atten- tion of directors and officers. "Now," he says, "the two things are coming together and being packaged together, reinforcing the existing [dis- closure] policy in this new environment where things are done very quickly and oen 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 be- cause 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." THE GOLDEN RULE OF COMPLIANCE Legal experts say the easiest way to comply with diclosure rules is to use formal channels first and be patient with social media If there's a simple formula or golden rule for staying out of disclosure trouble, Bennett Jones LLP's Sabrina Royer says, "companies should generally focus on their formal disclosure — this should always precede any social media disclosure." Merkley says "companies should put out their regular press release, just as they always have — and allow a period of time for dissemination before saying anything on social media." He points to a paragraph in SN 51-348 that says, "Information has been generally disclosed if it has been disseminated in a manner calculated to effectively reach the marketplace, and if investors have been given a reasonable amount of time to analyze the information." Patience is the watchword, he advises. Don't do anything on social media too quickly. And don't expect policy relating to social media to change anytime soon. IN HOUSE INSIGHT

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