Goldman Sachs released its quarterly results last week over Twitter, abandoning the news distribution services it had used since becoming a public company in 1999.
It’s welcome news for Twitter, which could use the boost, but not for Businesswire and PRNewswire, the two giants in the news services industry. Silence from the SEC suggests more companies could follow.
On October 7, Goldman said it would announce its quarterly financial results via Twitter, becoming the first large, non-tech company to do so. Such a momentous event had been imagined for years, but it passed with little notice aside from a few news articles.
The Securities and Exchange Commission (SEC) said nothing, even though Goldman’s move would appear to cross an important regulatory line on disclosure. Indeed, the Wall Street Journal didn’t even bother to ask the SEC for a comment.
That’s odd, because the SEC has long sought to ensure the timely dissemination of critical news to the widest possible audience. That’s what drove Regulation Fair Disclosure (Reg FD) fifteen years ago. So why did the agency have nothing to say about a major company using Twitter to announce its earnings?
Perhaps the muted response means the form that disclosure takes doesn’t matter any more. Thanks to algorithmic, high-frequency trading maybe any means of disclosure is adequate, with information quickly swept up like little electronic crumbs the moment it becomes available.
Or maybe the move to Twitter was seen as inevitable after hackers gained access to non-public earnings information at PRNewswire and other services a few months ago.
The more likely explanation is that the SEC is comfortable with what Goldman did and is quietly giving the nod to the practice. A close look shows that Goldman was careful to conform with the agency’s guidance on the use of social media.
The SEC first addressed the issue of web-based disclosure in 2008, when Twitter was in its infancy. The SEC’s guidance at the time was moderately encouraging of website postings as a way to disclose material information, but the agency left it to companies to determine if their websites were widely recognized distribution channels. Here’s the relevant section from the SEC’s 2008 guidance:
As we stated above in the context of whether information posted on a company web site would be “public” so that a subsequent selective disclosure would not implicate Regulation FD, we now believe that technology has evolved and the use of the Internet has grown such that, for some companies in certain circumstances, posting of the information on the company’s web site, in and of itself, may be a sufficient method of public disclosure under Rule 101(e) of Regulation FD. Companies will need to consider whether and when postings on their web sites are “reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” To do so, companies can look to the factors we have outlined above regarding the first two elements of the analysis – whether the company web site is a recognized channel of distribution and whether the information is “posted and accessible” and, therefore, “disseminated.”
At the time, companies decided that their websites were not equipped to meet those standards, so Businesswire and their ilk survived as a way to ensure that information would be disseminated quickly and widely to investors.
In 2013, Netflix gave the SEC an opportunity to revisit this issue. Reed Hastings, CEO of Netflix, drew scrutiny from the SEC for a comment he posted on Facebook that contained material information, a move that appeared to violate Reg FD since the company did not file an 8k to disclose the information.
However, the SEC decided not to pursue an enforcement action, and said announcements made via social media were ok as long as investors knew that a company planned to use such channels. The SEC also emphasized that use of social channels did not replace a company’s obligation to file regulatory documents, like an 8k and 10Q.
As an SEC official explained in a statement:
“One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information,” said George Canellos, Acting Director of the SEC’s Division of Enforcement. “Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don’t know that’s where they need to turn to get the latest news.”
In releasing its earnings via Twitter, Goldman followed the SEC’s guidance carefully. It announced in advance that its earnings would be available through Twitter and prepared a comprehensive press release and financial statements that were filed with the SEC in the usual manner.
Goldman has blazed – and the SEC has blessed – a path other big companies might soon follow. If so, it seems likely that Businesswire could go the way of the carrier pigeon, replaced by a technology that is cheaper, more reliable and easier to use.