by Richard S. Levick and Jeff Morgan
As the first proxy season of the Dodd-Frank era kicks off, public companies are being held to higher standards of transparency and accountability than ever before. From say on pay to a host of new reporting requirements, regulations seeking to provide shareholders with greater insight and leverage into corporate governance decisions are now on the books. It's not a stretch to say that the arrival of these reforms has marked the beginning of a new age in investor relations.
At the heart of Dodd-Frank's strictures is a push by legislators and regulators to forge closer relationships between investors, boards, and C-Suites. It's not as much about shareholder empowerment as it is about shareholder engagement. The government wants shareholders to have a voice; but it also wants that voice to be heard. As such, it is no longer sufficient to simply articulate value, vision, and plans for future prosperity. Public companies have to listen to investors with greater frequency and attention than they have in the past.
As IR programs seek to create venues for this meaningful and ongoing dialogue, they ought not to overlook the opportunities presented by social media—which, by definition, facilitate the two-way communication that compliance with the spirit of Dodd-Frank is really all about.
Even if Dodd-Frank never existed, the era in which it was written creates a compelling case for social media engagement in the IR realm. Today's fast-paced trading environment has all but rendered the stone tablets of traditional media obsolete. Newspapers seem antiquated as investors turn to the Web for real-time quotes and breaking news on the companies they follow. With the prevalence of smartphones and tablet technology, investor-friendly mobile applications aren't far off. And with platforms such as Seeking Alpha, StockTwits, and Wikinvest already aggregating data on companies and building their own trader-based social networks, it's becoming clear that IR programs that sit on the digital sidelines and enable others to control the online conversation do so at their own peril.
What's called for is a three-pronged approach to IR social media engagement that emphasizes monitoring, messaging, and dialogue to meet the challenges raised by both Dodd-Frank and the speed with which information travels in the modern marketplace. In the hierarchy of implementation, monitoring comes first, as every public company must at least have the capacity to know what's being said about it on multiple social media channels. Recent moves by financial services regulators illustrate this point's significance.
In January of this year, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 10-6, entitled "Social Media Web Sites: Guidance on Blogs and Social Networking Sites." Just this week, it was reported that the U.S. Securities and Exchange Commission (SEC) has initiated a sweep of registered investment advisors' use of social media to market or promote their services. Both instances underscore social media's growing impact on consumer investment decisions. While these examples relate to communications between broker-dealers and their clients, they illustrate the need for IR professionals to know precisely how social media content may be affecting corporate reputation at any given moment.
When damaging or misleading information permeates the marketplace via any number of social media channels, the window with which to respond or correct the record is increasingly small. To those who are deaf to what's being said on social media, that window is shut entirely. Absent real-time social media monitoring capabilities, IR programs enable others to influence their company's valuation story. That's a recipe for trouble in an environment where rumor and innuendo can sway market perceptions just as quickly as fact.
Add recent instances in which companies' (including tech giant Microsoft) earnings reports have been located on company websites by news outlets and subsequently posted to social media sites prior to their scheduled release, and the case for strategic social media monitoring becomes all the more powerful.
Once an IR program becomes better acquainted with social media via its monitoring program, the next step is messaging. When the SEC issued guidance on IR Internet use in 2008, some companies (and mostly those whose branding and marketing programs were already knee-deep into digital media) began experimenting with e-mail, blogs, and RSS feeds as a means to reach investors. For the most part, however, these tactics were still seen as one-way communications tools—as just another way to disseminate the latest news release or alert investors to upcoming events.
Three years and a full Internet generation later, however, the value of social media as a vehicle for gauging stakeholder sentiment is more evident. And as such, companies should consider using Facebook groups, Twitter profiles, or the services available on any number of social networking platforms to not only share any and all information that is already available for public consumption (in a manner consistent with SEC requirements, of course); but solicit investor responses as well. While the prospect of transforming a routine press release into a pseudo annual meeting might be a bit scary at first, companies must understand that even the most scathing comment posted to a social media group or profile is only just the beginning of a conversation. At the very least, social media engagement can serve as an early warning system that alerts the IR team to issues before they devolve into proxy fights or worse.
Just as Sarbanes-Oxley ushered in a new era of disclosure, Dodd-Frank has given rise to a new era of dialogue between investors and those who lead the companies they own. At the same time, the ever-increasing speed of information has created new challenges for IR professionals who must now manage a company's reputation for value on a minute-to-minute basis. In both cases, social media engagement provides another tool to remain informed and engaged on the issues that investors—and potential investors—care about most.
Richard S. Levick, Esq., is the president and chief executive officer of Levick Strategic Communications, a crisis and public affairs communications firm. He is the co-author of The Communicators: Leadership in the Age of Crisis and Stop the Presses: The Crisis & Litigation PR Desk Reference, and writes for Bulletproofblog. Mr. Levick is on the prestigious list of "The 100 Most Influential People in the Boardroom," which is compiled by the NACD and Directorship Magazine. Reach him at firstname.lastname@example.org.
Jeff Morgan is President and CEO of the National Investor Relations Institute (NIRI), the professional association of corporate officers and investor relations consultants responsible for communication among corporate management, shareholders, securities analysts and other financial community constituents. NIRI is the largest professional investor relations association in the world, and is dedicated to advancing the practice of investor relations and the professional competency and stature of its members.