Megan Hjulfors, ARC Resources Limited
It has been more than two years since the SEC approved social media as a platform for transmitting corporate news. At the time, many predicted that the announcement would fundamentally change the way IR professionals communicate. Two years on, it doesn’t feel like there has been a groundswell.
Research from the University of Massachusetts Dartmouth reporting social media usage by Fortune 500 companies in 2014 showed modest growth. Fortune 500 Facebook use increased 10% between 2013 and 2014 to reach an 80% usage rate, and Twitter usage increased 6% to an 83% usage rate. LinkedIn led the way as the most used platform by Fortune 500s, with a 97% usage rate. While the findings might indicate that Fortune 500s have fully embraced social media, there are still very few companies in the U.S. using social media as a primary platform for hard news.
I find myself asking why this is the case. In many ways a marriage between IR and social media is a precipice, dogged by challenges of regulatory compliance, message management and credibility. However, as I watch how tech savvy or younger colleagues seamlessly integrate social sources into their information diet, I remind myself not to be too quick to dismiss the value of social media as a disclosure network.
Social media is not static; how we use it is constantly evolving. While recognizing the legitimate challenges, it is also important to identify the value-adding opportunities that could be leveraged for IR communications. This article uses the SEC’s actions and Regulation FD as a framework to explore the challenges of social media as a disclosure network and identifies learning opportunities that could be leveraged by Canadian IROs. While Canadian securities regulators have made reference to social media, no definitive guidance has been provided.
Disclosurephobia
Challenge: IROs have a healthy mistrust of communication channels outside of their control. The line between personal and corporate use of social media can create dangerous situations for issuers. Look no further than Reed Hastings, the CEO of Netflix, who in 2012 got into hot water when he posted what the SEC deemed to be material comments about Netflix on his personal Facebook account. The post resulted in an investigation by the SEC, which ultimately ended with the SEC refraining from any enforcement action. However, the case prompted the SEC to clarify its rules regarding social media as a disclosure network.
Opportunity: Becoming active on social media requires a company to think bigger than its Facebook strategy; it requires an additional level of disclosure policy and employee education throughout the company. This is something we should be doing in any case, because whether a company is on social media or not, its employees are.
The 140-Character Conundrum
Challenge: Most businesses and quarterly results are too complex to distill into 140 characters. While social media posts should link to a news release or expanded document, disclosure rules still apply to social media posts. The challenge becomes crafting a post that is fair, balanced and accurate, while not obscuring or ignoring unfavourable information.
Opportunity: The exercise of distilling messages into a concise post forces us to communicate more strategically, as there is no room for superfluous words or ideas. Becoming skilled in this domain can help IR communicate in a more impactful and memorable way.
The Issue of Credibility
Challenge: The credibility of social networks is a major deterrent for many companies from using them as disclosure networks. While reports from the Pew Research Center show that today 72% of American adults are on Facebook, the majority of users surveyed said that their primary reason for using social media is for connecting with friends and family. Companies must consider how using social media for disclosure might negatively or positively affect brand perceptions. For example, what message is being sent when your important corporate announcement is displayed on a Facebook news stream between a photo of someone’s cat and someone else’s vacation?
Opportunity: The Pew Research Center estimates that 30% of Facebook users use the site as a news source. Whether or not an IRO ultimately uses social media as a primary platform for disclosure, understanding how and where people seek news is an important consideration. In a competitive information environment, it is becoming increasingly important to use a multi-platform approach to expand the reach of a message.
Stranger Danger: False Information and Social Media’s Ability to Move Markets
Challenge: Shortly after the SEC gave its social media ‘blessing’, the Twitter account for the Associated Press was hacked and messages of an explosion at the White House were sent out. Despite the White House’s fast response to dispel the false information, the Dow Jones abruptly dropped on the fake news. This example highlights two issues that IROs should note. The first is the potential for hacking of accounts and the creation of imitation accounts. The second is an awareness that information on social media can move markets in certain cases.
Opportunity: Having a healthy level of anxiety with respect to internet security is probably a good thing, and should serve as a reminder to ensure that you have both topnotch security and a contingency plan in the event that you are victim to a hacker. Remember that having an understanding of and presence on social media platforms positions you to fight back if such an incident occurs. The second issue is the idea that social media has the ability to move markets. In the Associated Press situation this was not a desirable effect; however, research has shown that increasing information symmetry through social media can lead to greater market liquidity, especially for smaller companies.
Protecting Information Fairness within Fragmented Audiences
Challenge: The SEC was clear that in applying Regulation FD to social media, all the same rules must be followed. Revisiting the Reed Hastings case, the SEC provided detailed information on its concerns regarding the post. An underlying theme in the SEC’s concerns was the issue of fairness and equal access to information. There is still significant grey area surrounding this topic, as under Regulation FD the burden of determining fairness is largely pushed onto the issuer. While an issuer may follow all of the social media rules outlined by the SEC, such as providing advance notice of when and where announcements will be made and linking to supporting documents, the question of how a company determines if a platform is a legitimate location of disclosure is still foggy. Should this be determined by the number of followers, the ratio of followers, the type of followers, or another method?
Opportunity: Competing levels of distribution channels existed long before social media. A basic example is the difference between information access available to an analyst versus a retail investor. Social media works to erode this information imbalance and additionally offers a tool for the issuer to provide information to an extraordinarily broad audience at minimal to no cost.
Since the invention of the printing press, technological advances have transformed how we communicate and redistributed the balance of information and power. While it is unlikely we will see social media replacing the newswire in the near future, using social media to complement corporate disclosure and enhance communication processes and efforts can be extremely advantageous. As social media continues to grow and social media savvy matures, IROs will need to develop a better understanding of how to use social media – not just as a distribution tool but as a meeting place for engagement between companies and investors.
Megan Hjulfors is Investor Relations Advisor at ARC Resouces Ltd. in Calgary.