Tuesday, May 11, 2010

Investor Relations & Social Media -- A Bust?

It's now mid-2010. And still, investor relations (“IR”) professionals are largely avoiding use of social media. Yet, the topic of social media has not only dominated IR discussion for what seems like an eternity but it’s also widely considered -- especially among IR pros -- an essential online tool for investor communications. Is there a good explanation for this -- so much talk and so much praise, but so little action?



To be fair, many IR pros are using investor websites like StockTwits and SeekingAlpha (both of which I’ve written about here and here, respectively) to monitor what’s being said about their companies online. Both sites are useful for monitoring purposes as they enjoy large readerships of active and opinionated sophisticated investors.

But, monitoring is simply employing one use of social media, “passive use”. By monitoring you’re essentially a spectator -- watching without getting involved. That’s where the bulk of public companies currently reside.

As for “active participation” in social media there’s only a small minority of public companies to be found. These companies are using a variety of platforms to push press and financial news releases and, periodically, to interact. Examples can be found on Twitter (example) and Facebook (example).

While these examples demonstrate that there exists some level of “active participation” by IR in social media, those interactions are largely isolated to answering basic questions from retail investors. But when it comes to interacting with the substantial numbers of finance professionals and sophisticated investors who use social media sites and blogs to research stocks there’s little evidence that any substantive or high level discussions are currently taking place.

Explanation

The most widely held explanation for the lack of “active participation” in social media is that public companies are concerned about violating RegFD (fair disclosure). But while RegFD may be a consideration, it’s hardly the only explanation.

If public companies were really enamored with the current scope of social media opportunities and wanted to protect themselves from potential RegFD violations they would simply apply the same policies they do to every other public appearance by management. Similar risks are present when holding earnings calls (especially now that transcripts are freely available all over the Internet), making investor conference presentations, and conducting one-on-one investor meetings. In fact, if companies were actually able to identify appealing social platforms on which to interact they could simply apply the same policies they already have in place for other public communications.

Why isn’t IR “actively participating” and engaging sophisticated investors using social media? Because there’s no single social platform that offers both the “right” community and the “right” tools IR needs to meet their daily needs. Not Twitter. Not Facebook. Not any of the investor platforms, either. (That’s why companies are increasingly turning inward and beefing up their own IR websites with increasing amounts of useful investor content.)

For at their core, Twitter and Facebook are news and social networks, not dedicated investor communities. And since most public companies (especially small-caps) devote limited resources to IR activities, they must be incredibly efficient. They don’t have the time to correct every article or respond to every rumor posted on every social network on the Internet. That strategy is simply unsustainable.

Instead, if public companies were able to identify a dedicated investor platform (or two) that offered the tools they needed to expand the reach of their message, they would have the perfect complement to their existing IR efforts. Most importantly, they would have a social extension to their corporate IR sites which would help increase their chances of reaching new investors -- an especially critical and challenging task at this point in time when sell-side research is on the decline and more public companies are competing to be noticed.

Conclusion

There will come a time when high-level, real-time conversations between public companies and sophisticated investors are commonplace online. We’ve already witnessed a glimpse of the remarkable possibilities. Of course, the real question now is where those conversations will take place.

Google’s (GOOG) ($GOOG) recent announcement (and Expedia's similar announcement) suggests that large cap companies are looking to increase their IR news distribution and social presence on their own corporate IR websites rather than letting those activities take place elsewhere. And, for large caps like Google, there’s no reason to think they won’t succeed.

But, many companies, especially small-caps, are not as fortunate as Google. They don’t enjoy a consistent stream of online traffic to their corporate websites. For them, a social investor platform as an extension of their own corporate IR sites is critical to reaching new investors.

So, don’t fault public companies for taking their time getting acquainted with social media. The fact is that the right combination of investor platform and tools that would allow companies to take full advantage of the opportunities social media has to offer doesn't currently exist. But when the two ultimately materialize in tandem IR outreach will be transformed, substantive, high-level online discussion will then take place, and those IR firms I regularly communicate with will finally have the social media platform they crave.

Related Posts:
Investor Relations 2.0 -- Is SeekingAlpha the Answer?

2 comments:

JoannSondy said...

Excellent article. Yes, many of us have been trumpeting social media integration into IR strategies for a long time. Since I work with IR counseling agencies, most of the backlash I hear fits into two categories: "it's a fad" and "budget". Many companies are still conducting minimal IR programs right now. If only they would look at how their budgets are spent right now and make a few (small) changes and prepare for next fiscal year.

Tommy said...

For the past two years I have been developing a site dedicated to the Life Science industry. I would be more then happy to share more information with you if you let me know your email address or contact info. In a nut shell:
www.connectbiotech.org.
This site is dedicated to the life science industry in particular Venture Capitalists, Portfolio Managers, Sell Side Analysts, and Company Management. This is an invitation only site.

One unique feature of the site is called "List of Participating Companies," which includes any company officially or un-officially attending a conference / event world wide.

Connect-biotech members will not only be able to see the full list of presenting or attending companies, but will also be able to directly request meetings with company representatives who are connect-biotech members. This feature will assist the company with business development efforts, investor outreach, and relationship building.