Not all IROs are embracing the brave new world of tweets, blogs, LinkedIn and Facebook
With Facebook’s IPO offering an example of investor relations close to its cataclysmic worst, perhaps it’s not surprising that some IROs think twice about using social media in their business, especially given the regulator-rich nature of their environment.
Understandably, and despite the persuasive tide of tweets, texts, Instant Messenger, Facebook and LinkedIn, some investor communications people are opting for abstinence.
One major reason is compliance. The SEC has been issuing ominous, although necessarily vague, advisories as its staff members try to gauge the multifarious ways would-be insider trading networks can communicate below the radar.
For example, the commission has been wrestling with such arcane issues as whether pressing the ‘Like’ button on Facebook could count as a testimonial.
New York SEC enforcement head David Rosenfeld recently questioned the traditional one-on-ones after earnings calls, on the basis that if a CEO or CFO said anything in such a conversation that he did not tell all the analysts and investors, it could be a prima facie breach of Regulation FD. How much more risky, then, are all the channels of communication offered by social media?
No room to relax
As compliance officer for a financial company, Barbara Riker of Teucrium operates in an especially highly regulated environment. ‘I don’t know how companies can let their managements tweet as if it were an unfiltered medium,’ she says.
‘Maybe people feel that with social media the rules are relaxed, but far from it. We’re covered not just by the SEC, but also by FINRA, the National Futures Association and the Commodities Futures Trading Commission. Their regulation isn’t always consistent, so a company has to be very strict. With social media, it’s a new field that makes the issues even more unclear, so we just don’t do it; we don’t do blogs and if you go to our site, you can’t leave a comment.’
Her company is far from technophobic, Riker insists. ‘There is a lot of information there – we are very transparent, but we don’t want to get into an exchange with investors on the site or on Facebook, LinkedIn, or similar,’ she explains.
‘Our people can have private pages, and they can say they work for us, but they cannot post about the company and they cannot post to personal media from the company account.’
Riker says all emails are archived for five years. ‘And we review them all, sampling them every month,’ she adds. As anyone who has tried to track down a personal post, text, email or tweet can testify, however, this is a daunting task, so there is safety in a lack of variety of media. ‘Our people don’t use Yahoo IM or even Bloomberg,’ Riker says.
This is crucial because the main thrust of the SEC’s advice is to monitor all social media. With the glut of would-be internet billionaires offering new social media venues, the gargantuan task of monitoring and archiving them should give compliance officers the mother of all media migraines, making abstinence the best solution for avoiding trouble.
But is it useful?
Additionally, there is the question of effectiveness. Social media, as anyone who has been caught in the cross-fire of a ‘flame war’ (where multiple users descend into a trade-off of abusive personal comments) can testify, are not designed for nuance and subtlety. Many veteran IROs and analysts share a strong belief in physical proximity.
‘I want to see the sweat on the CEO’s brow,’ more than one analyst has declared. More positively, personal contact allows IROs to get feedback on whether an investor is receiving the company’s message in all its detail.
Andy Dolny is treasurer and vice president of investor relations at delivery company UPS. He’s also a staunch social media refusenik. ‘Compliance is probably one of the main reasons we choose not to use social media in IR,’ he says. ‘But it’s also a question of professional expertise and clarity in messaging.’
He explains that if he answers a question in an email, text or tweet, ‘the messages can be misconstrued, and read in such a way that our true intent wasn’t really understood. That’s my biggest concern. I’m not against social media; I just don’t know that they’re the right tools for investor relations.’
Dolny accepts that it could be right for PR or other sorts of relations with a company, but not for IR. ‘I don’t even use email in IR,’ he declares. ‘I’ll accept questions via email, but I won’t answer them via email, because you could take that email and send it to 20,000 other people.
‘I’ve had more misunderstandings via email than I’ve ever had in oral communication with people and, from an IR standpoint, I would never want that. A lot of times it’s the way you say something, or the way you position something in your words, so that it can be misread, or read as guidance, or as sharing information that shouldn’t be shared. If someone tweeted it, it’s possible it could imply something totally different from what I’d intended.’
Indeed, how can a 140-character tweet carry the same weight as, say, Warren Buffet’s long and informative discourses on the state of the world and the company? His eminence and canonization by grateful stockholders have protected Buffet from the adverse effect of what some of his fellow CEOs might consider to be his idiosyncratic views.
No such protection was afforded Gene Morphis, former CFO of Francesca’s Holdings, a fashion retailer in Texas. The career-crashing possibilities of social media were all too vividly demonstrated when the opinionated executive was ‘terminated for cause’ after someone drew the company’s attention to Morphis’ social site postings, which ‘improperly communicated company information through social media.’
Perusal of his blog, Morph’s View, and his twitter feed at @theoldcfo suggests that Morphis’ sins were more a breach of etiquette than of SEC regulations. After the earnings release, for example, he told his Facebook followers: ‘Conference call completed. How do you like me now, Mr Shorty?’ That was not deemed appropriate for an officer of a company.
Nor was his tweet on March 6, just before the board meeting, which read ‘Dinner w/Board tonite. Used to be fun. Now one must be on guard every second.’ The next day he posted: ‘Board meeting. Good numbers=Happy Board.’ That was five days before the earnings call on March 12. There followed a perceptible jump in Francesca’s Holdings’ stock price, suggesting that some investors at least had internalized his ebullient message.
By May 14, Morphis was gone but the sorry tale serves to underline the views of Riker and Dolny, who stress the importance of training staff and refreshing the commitment regularly. ‘We’re very clear: every quarter they sign acknowledgments,’ Riker says.
In her company’s excursions into the virtual world, she stresses careful examination. ‘We’ have carried out four webinars, both prerecorded and live, and we found it an effective way to get to a larger group of people,’ she says. ‘But we monitor carefully: all the slides are preapproved, and before we post on our website we can edit.’
Dolny concurs. ‘It’s very important that we abide by the rules,’ he says. ‘We log every conversation, we strictly adhere to the silent period and, more importantly, we have a disclosure policy that our compliance people ensure everybody reads every year – that if you’re talking, or you’re going to be in a meeting with an investor, you must have someone from IR there.’
Does it detract from the effectiveness of IR if such potent new methods of communication are ignored through regulatory caution? ‘It depends how you define effectiveness,’ Dolny responds. ‘If your goal is to get something out to as many people as possible, that’s one definition.
If your goal is to make sure you’re heard, that you understand the question and therefore the answer, that the message is what you want to deliver, then I don’t know whether social media are the right thing. They tell us only that we delivered something; we won’t be able to tell how it was received, because now we don’t know who received it, or how. It’s about more than compliance.’