from Third Quarter 2009
Corporate Board Member
by John R. Engen
The explosion of Twitter, blogs, and other interactive communication tools has more companies thinking about taking the plunge into social media. According to the nonprofit Society for New Communications Research, 81 of the Fortune 500 companies already sponsor public blogs, among them Bank of America, Chevron, and General Motors.
Some, including Dell and GE, have taken to putting post-earnings interviews of their chief financial officers on YouTube. So far only a handful of companies make use of Twitter’s 140-character “tweets” to keep shareholders and other constituents abreast of company happenings, though that tally is expected to rise.
Before jumping into the water, boards should make sure the proper controls are in place. Most traditional business communications—10-Qs, press releases, investor presentations, and the like—go through the legal department to ensure that the information doesn’t violate Securities and Exchange Commission disclosure laws or spill the company’s strategic beans.
The social media are more spontaneous, which presents a number of risks. Material nonpublic information, for example, could escape to places it doesn’t belong, could leave the building without being reviewed, or could be just plain wrong. And if it went only to specific people, it could violate fair-disclosure laws. “I would be worried if I were on a board and the company didn’t have a policy” governing the use of tweets, blogs, and other new socialmedia technologies, says Lisa Wood, a partner with the Boston law firm Foley Hoag LLC.
Some companies already appear to have gotten ahead of themselves. At eBay, the online auction house, company-assigned blogger Richard Brewer-Hay has been covering and tweeting about all sorts of corporate goings-on, including quarterly earnings and conference calls, for more than a year. He did it without any legal disclaimers until March, when eBay’s legal department apparently got worried. Since then his blog has included a separate legal page, which warns that postings on financial information are “brief highlights” and directs readers to a site that contains the company’s complete releases. Brewer-Hay now also has to preface any of his Twitter reporting on company events with disclaimers about forward-looking statements and financial measures that don’t comply with generally accepted accounting principles. “Plain and simple, eBay Inc. is a public company and, as such, must comply with SEC regulations,” he explained on his blog when he first posted the cautions. The 140-character limit on tweets means it takes four of them to dispense his disclaimers.
Boards need to know what companies, or their bloggers, can and can’t communicate electronically in order to stay within the limits of compliance. They must also make sure that only authorized people are doing the talking and that what those people say, even in 140-character tweets, is accurate and doesn’t violate company rules or the SEC’s selective-disclosure laws.
Some companies welcome comment from unofficial sources, including outsiders and employees. IBM has even set up what it calls social-computing guidelines, acknowledging the value of “emerging online collaboration platforms,” as it puts it—Big Blue-speak for outside blogs where employees can say what’s on their minds. IBM does lay down some rules: Identify yourself when talking about company matters, don’t refer to clients, and don’t pick fights.
Lisa Wood says that one company she knows has a committee of bloggers who review and edit each other’s postings. To work out the kinks, the committee tested the blog in-house for several months before going public. Another outfit solicits shareholder questions on its blog but answers them only on its website or via recorded phone messages after appropriate review, perhaps by the legal department. “It allows the company to interact with shareholders while controlling the risk,” Wood explains.
This is all new territory, and the rules are still evolving. “As a board member you should ask yourself, ‘Does our company want to be a guinea pig in this area, or should we wait and learn from other people’s mistakes?’” says Wood. Unless being an early mover is crucial to the company’s strategy, it might be best to wait before jumping in.