SEC’s New Social Media Guidance: Sensible, Fair, Inevitable

4/3/13Follow @BradLoncar

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being innocuous (it wasn’t even intended for investors), the worry was that almost anything could be held against CEOs for what they said online, so many chose not to go online at all.  Now with today’s guidance, corporate officers are in the clear as long as investors know where to find them in advance.

Does this mean companies should disclose important news exclusively through social media?…obviously not.  However, it does mean that you don’t need to worry about every inadvertent thing you say online.

This is a good thing for companies because communicating with the public is a natural component of doing business these days.  To be prevented from doing so would have put public CEOs at a huge disadvantage to their private competitors who faced no such restrictions.  It will also be good from the investment side of things because social media will enrich a CEO’s relationship with investors and, for those who do it right, increase trust and build a better understanding of their business.

What This Means for Wall Street

How this affects Wall Street perhaps might be the most interesting part of the story to watch.  For starters, Wall Street has in many ways played the middleman between companies and investors, so where they fit into this new paradigm (especially as it pertains to distributing information) is becoming less clear.  There have been some much-discussed articles lately about how Twitter is disrupting many of the services Wall Street traditionally provides.  Now that the SEC is telling companies it’s OK to take a more direct approach to communicating, that will become an even more pronounced issue.

One thing is for sure, today’s guidance makes it clear that Wall Street will have to embrace social media if it wants to keep a leading role.  The big banks have actually been very reticent to do so up to this point because of strict compliance rules.  As commentator Josh Brown (@reformedbroker) described here, you might be surprised to see that if you walk into many trading desks these days, you are likely to find traders glued to their cell phones because they can’t access social media on company equipment.  If those firms don’t want to be left behind, that will obviously have to change after today.

What This Means for Investors

Individual investors are big winners today, in my opinion.  As I wrote back in December, I believe social media is an equalizer, and acts as a counter to the perhaps unfair and asymmetrical way news had previously been distributed to some investors.  If carried out in an appropriate manner, social media will only improve transparency.  The individual investor has the most to gain from that.  This is great news all around for those investors who embrace it.

Overall, I think today’s decision by the SEC was sensible, fair, and eventually inevitable.  I hope we will look back on it one day as an important catalyst in the way investing has evolved for the better.  While many like me were bracing for a different outcome, the SEC deserves a lot of credit for taking a step forward today.  I am excited to see how this plays out.

Brad Loncar is an individual investor. Follow @BradLoncar

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