Social Media as a Form 10-K Risk Factor

Social Media as a Form 10-K Risk Factor

It's official. Social media is a risk factor. At least according to Estee Lauder and lululemon athletica.

Over at Footnoted, Michelle Leder and her team dig through SEC filings digging up the dirt on bad corporate behavior. They were digging through the 10-K for Estee Lauder when Theo Francis came across a new risk factor.

Our inability to anticipate and respond to market trends and changes in consumer preferences could adversely affect our financial results.

Our continued success depends on our ability to anticipate, gauge and react in a timely and cost-effective manner to changes in consumer tastes for skin care, makeup, fragrance and hair care products, their attitudes toward our industry and brands, as well as to where and how consumers shop for those products. We must continually work to develop, produce and market new products, maintain and enhance the recognition of our brands, achieve a favorable mix of products, and refine our approach as to how and where we market and sell our products. While we devote considerable effort and resources to shape, analyze and respond to consumer preferences, we recognize that consumer tastes cannot be predicted with certainty and can change rapidly. The issue is compounded by the increasing use of social and digital media by consumers and the speed by which information and opinions are shared. If we are unable to anticipate and respond to sudden challenges that we may face in the marketplace, trends in the market for our products and changing consumer demands and sentiment, our financial results will suffer.

It's not exactly: "We could lose millions if the Twitteratti turn on us."

Public companies disclose risk factors in their SEC filings trying to inform its stockholders and potential purchasers of its stock about potential losses. Failure to disclose a risk could result in a shareholder suit that the company was hiding its risks.

It looks like Estee Lauder is covering itself in case its customers get ugly in social media, start attacking the company, and stop buying its products.

Ever vigilant, Theo Francis poured back through the SEC database to see if any other companies had disclosed social media as a risk factor in its SEC filings. The only other consumer-product company they  found that lists social media as a risk factor in its 10-K was lululemon athletica, a Vancouver-based maker of "yoga-inspired apparel."

Social media is not a new disclosure in SEC filings, but it was mostly discussed in marketing strategies and business strategies for tech and media companies. For example, Estee Lauder's competitor Elizabeth Arden talks about the use of social media as part of its marketing strategy, but does not disclose it as a risk factor.

I wonder if we will see other companies start adding social media as a risk factor. Have you seen any other companies list it as a risk factor?


For additional commentary on developments in compliance and ethics, visit Compliance Building, a blog hosted by Doug Cornelius.