December 12, 2012 -- We’ve all been warned about the dangers ill-advised Facebook posts can pose to our reputations. But Netflix CEO Reed Hastings is now learning that business leaders on Facebook face a danger of a different order: SEC litigation, even for perfectly reasonable posts.
You see, the Securities and Exchange Commission staff apparently thinks Facebook posts are private—even when you deliberately make one public (as Hastings did), even when you have hundreds of thousands of subscribers (as Hastings does), and even when some of those subscribers are reporters and bloggers who write about what you do (as, as Hastings points out in his Facebook post about the matter, some of his are). It’s hard to imagine what could be more public, but the SEC staff has an idea: a form 8-K, filed with the SEC. (Netflix has now filed a form 8-K noting the SEC staff’s concern and announcing that Hastings would post about it on Facebook.)
The SEC staff’s peculiar notion of what is and isn’t public would be nothing more than amusing except that SEC regulation FD
requires material nonpublic information, when it is disclosed intentionally, to be made public. So if what Hastings announced on his Facebook profile is material and his announcement didn’t make it public, the SEC has a basis under its own rules to take action against Hastings.
What Hastings announced, on July 1, was that his company had reached the milestone of streaming a billion hours of video to its customers over the Internet in a single month. This is an exciting thing to boast about on Facebook, and Hastings took the opportunity to boast in that forum, where he could speak in his own voice to those who want to hear him. But the milestone wasn’t a huge advance over the company’s previously stated performance: Netflix had already mentioned on its corporate blog that it was streaming nearly a billion hours
per month. There was no reason to pass the news to lawyers to couch in careful legalese and submit to the government.
Even from the perspective of the SEC’s stated goal of making information public, informal sharing of information has real advantages. It can provide information the companies involved wouldn’t consider sufficiently important to publish formally. Moreover, while both SEC filings and Facebook posts are available free online, Facebook has a broader audience.
Indeed, if the SEC’s goal is to “level the playing field” by equalizing information (a dubious goal, but one the SEC says it embraces), perhaps it should even prefer Facebook posts to SEC filings. A Facebook post is aimed at anyone who wants to listen to the person or organization that posted it, and members of the public who have chosen to hear from that person or organization may come across it as part of their daily routine (although some measure of chance intervenes here), but filings in the SEC’s database
are seen only by those who—perhaps because they are financial-industry professionals—make an effort to ensure that they see them. Of course, if the SEC’s actual goal is to increase the advantages that those who specialize in stock trading have over other investors, it should crack down on Facebook posts and insist on SEC filings. It’s ironic that the SEC staff considers posting to Facebook, rather than filing a form, a “selective disclosure.”
Bringing a case against Hastings or Netflix because of his post would deter other business leaders from sharing their achievements on social networks. Yet such sharing is valuable—to those who post, to those who read, and to all of us who live in this culture.
At the cultural level, it is valuable because hearing from people like Hastings in their own voices, rather than through lawyers or public-relations professionals, is a reminder that they are
people. And that’s a reminder that’s important in a world where many people think that businesses, and those who create them, exist to serve others. (Recall, for example, the anger at Netflix when it changed its offerings
.) It may help save businessmen from more laws and regulations based on that premise
For individuals who read such posts, it is valuable as an opportunity for admiration and inspiration. “Show me your achievement,” as Ayn Rand
says, “and the knowledge will give me courage for mine.”
And for individuals who post about their business achievements, it’s an opportunity to do something that—thanks to the achievement of the people behind Facebook and Twitter—the rest of us have come to take for granted as one of the joys of modern life: to share our achievements proudly on the social networks of our choice. If the SEC moves against Reed Hastings or Netflix because of his Facebook post, and thereby deters him and other executives from making similar posts, it will deprive some of the highest-achieving Americans of one of the joys of achievement.
Alexander R. Cohen is managing editor of the Business Rights Center and associate scholar. He holds degrees in journalism, philosophy, and law. Cohen previously served as an adjunct assistant professor at the John Jay College of Criminal Justice.