Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.
Issue link: https://digital.carswellmedia.com/i/854329
60 LEXPERT MAGAZINE | JULY/AUGUST 2017 While the Canadian Securities Admin- istrators don't name names or point fingers in its report, Van Horne says that in his experience the biggest users of social me- dia are smaller, newer companies that have grown up in the internet age. e blue-chip set tend to take a more reserved approach to social media and may also benefit from larger, more pervasive compliance func- tions, he says. CSA Findings In its review of issuers' social media activi- ties, CSA found that 77 per cent of com- panies surveyed "had not developed spe- cific [social media] policies and procedures which would promote internal governance and compliance with securities law." e regulator sent letters of comment to 44 per cent of the surveyed companies, each letter citing at least one compliance-based con- cern. Among those CSA classified as active social media users, 25 per cent took correc- tive action as a result of the review. In a number of cases, CSA says, "issuers provided material, forward-looking infor- mation on social media" prior to proper disclosure. e social media disclosures were "significantly more favourable than historical results or any other information reflected in the issuers' continuous disclo- sure record [and] … it was not surprising to see significant share price increases in sev- eral cases …" Delays between posting material infor- mation on social media and issuing disclo- sure 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 disclo- sure resulted on average in a 26-per-cent movement in the stock prices of the issu- ers involved," the regulator says (emphasis added). "In these cases, the deficient disclo- sure appeared to be material and Staff may consider further engagement with these issuers." None of the four had specific gov- ernance policies on the use of social media. Minding One's Tone "Information posted on social media web- sites 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 promo- tional or unbalanced that they raised con- cerns 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 orient- ed," 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, be- cause social media is more casual, you can get casual with disclosure. You can't." Merkley adds that the regulatory re- quirement 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 me- dia sites. is, Merkley warns, could result in segmenting bad news in a way that un- dermines equal prominence. To avoid the pitfalls of regulator-per- ceived promotionalism or prominence issues, he says, the default social media announcement might be limited to some- thing like "Company X releases Q2 Re- sults," followed by a link to a detailed press release that has previously been "generally disclosed" through traditional channels, such as SEDAR, and only thereaer posted to the company website. "at'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 assump- tions" underpinning business forecasts. CSA policy requires that all material fac- tors and assumptions be specified, fre- quently resulting in 500 to 700 words of very technical boilerplate text within a press release. Balance "is is difficult to balance with some of social media's limitations, such as the Twit- ter 140-character rule [about 25 words]," Royer says. "And the [Canadian Securities Administrators have] not otherwise pro- vided guidance on how they expect this to look. Accordingly, companies may want to restrict any posts containing forward-look- ing information to forums where they can include the required … disclosure." Balance is also at peril whenever listed companies choose to cite the assessments of | IN-HOUSE ADVISOR: SOCIAL MEDIA DISCLOSURE | MATTHEW MERKLEY > BLAKE, CASSELS & GRAYDON LLP [Social media policies and material disclosure policies] 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.