Social Media's Very Limited (And Unwarranted) Role in Investor Relations
For background and context, I am socially active on Facebook, Twitter and Foursquare; I use LinkedIn for professional purposes; and of course I write for this blog. I have also been practicing investor relations (IR) since before Reg. FD, and yes, things have certainly changed over the years. Case in point: I am often asked by my corporate communications-focused colleagues about the role social media should play in a corporation’s overall communications strategy, including IR. This was not a question I was being asked three years ago, let alone in 1999.
While I fully support the use of social media as part of a broader corporate communications strategy, my answer as it pertains specifically to IR is very simple: virtually none. This response usually shocks my colleagues. After recovering the power of speech, they usually ask something like, “But how could social media not be a key aspect of IR when it is an entrenched part of almost all communications programs?” At a time when many agencies espouse the virtues of all things social media (CJP included) people often have difficulty understanding how I could advocate limiting its use in the IR function. However, with that said, I have heard arguments that IR departments should engage in social media “because their peers do.” (Evidently peer pressure is alive and well.)
My stance is based on two irrefutable and undeniable facts:
- Current regulations subjugate social media platforms to a secondary option; and
- The audience is not there.
Allow me to explain. While social media plays an important role for B2B and B2C companies, its role within the communications discipline of IR is decidedly negligible. Let’s look at the two issues I cited above and illustrate exactly what I mean.
- Social media platforms do not satisfy basic disclosure requirements. If material news was disseminated first and/or only through a social media platform, the disclosing company would have violated one of the basic tenets of Reg. FD and would receive a phone call from the SEC. At this juncture, by law, you simply cannot disclose material news over a secondary platform. At the same time, if a company wants to push material news over a social media platform after disclosure via an acceptable platform such as an SEC filing, press release, major national business press and/or broadcast media, then by all means do it. When it makes sense, I do this as well, recognizing that social media platforms are largely a “me too” after what are considered to be broad, “approved” disclosure points. Even taking all of that into consideration, there is a larger issue, which leads me to my second point…
- The audience isn’t there. Let’s put the regulatory concerns aside and pretend that social media platforms were allowed to serve as primary disclosure points. Who would see these communications? Institutional investors and equity/debt sell-side analysts aren’t monitoring social media platforms all day looking for news about the companies they follow. Instead, they rely on more trusted and traditional methods.
“That’s crazy,” people tell me. “Everyone is on Twitter all day.” This is simply not true. Ever worked at a brokerage firm or an investment bank? For compliance reasons, most even deny access to personal web-based email accounts, let alone Facebook and other social media applications. At my last in-house brokerage project, I couldn’t even access ESPN.com. The professional investment community does not follow companies via social media applications, nor can they do so even if they wanted to. Perhaps retail shareholders follow companies over social media applications, but it’s certainly not the norm.
If you are really dying to reach these audiences via social media, then by all means, push out your press release to them via Twitter. However, chances are they probably won’t see it until after they have already received an email alert from the company’s IR department, seen the press release hit the wire, and/or read about the news in a major business publication.
I encourage IR practitioners to explore the use of social media platforms as a non-primary disclosure point after satisfying the basic rules of Reg. FD. Just remember that it’s very likely your audience is not on the other end waiting for your news. Your best bet is to focus on the audience in front of you and where you know they are listening instead of trying to reach them where you think they should be.