Investor Relations Atwitter Over New Technologies
How are new technologies changing investor relations? Prof. Greg Miller details the good, the bad, and the ugly.
ANN ARBOR, Mich.—Investor relations professionals need to disclose timely financial information about their companies to as broad an audience as possible. With more investors embracing new communication tools such as RSS feeds, Twitter, and blogs, many find the traditional methods don't cut it anymore.
Michigan Ross professor Greg Miller studies how investor relations departments are using these new forms of communication. What looks like an advantage could raise some new problems, he says.
In his case study, New Technologies and Financial Communications: The Opportunities and Risk of Social Media and Other Online Tools for Investor Relations, Miller reveals there's no clear consensus on how to build a social media or online investor relations model. In this Q&A Miller talks about how some companies and regulators are tweaking existing practice and developing new strategies.
What are the advantages of using these new forms of communication — the company website, blogs, and Twitter — for investor relations?
Miller: Well, that's being debated. People are still trying to sort it out. But one advantage that most agree on is the ability to take control of your information environment. When you talk to the investor relations (IR) people who are trying to make this happen, they talk about their Web page being the place people go to for information on the company. That's instead of relying on a third-party provider or the press. It allows them to make sure all the information is there that people need to make a decision as opposed to going someplace like the Financial Times page, which only might have part of the picture. They want to put all the information together and make sure it's all there. A more edgy opinion is that they also want to place that information in a way that tells the story they want. I know that sounds nefarious but you can say if they start out with a good intention to tell the real story, then it makes sense for them not to hide information from you. Another obstacle for some is an inability to generate press coverage. At the same time, a lot of the commercial services that cover them often have incorrect information. This is a big issue a lot of IR people have with some of the services that provide information to the institutions. The idea behind doing this isn't just to make sure there's a complete set of information, but also a correct set. What they're saying is working with the wire agency is just one more step in the process where something can go wrong. These are rare examples, but sometimes the wire agency can release information early, or send out the wrong information if a company changes a draft copy of some communication.
How about the disadvantages?
Miller: One huge disadvantage is that it's just so easy to send these things out. Just think of functions other than IR and how often companies have screwed it up. One company recently sent out a Tweet that said something to the effect of, "While people in London were rioting we were having a riot of our own at our new opening." Of course, that's poor taste. Because this communication mechanism is so informal you have to do some social media training. There also are concerns about possibly breaking the law. There's a lot of discussion about people inadvertently violating Regulation FD, which governs how companies disclose information and prohibits selective disclosure and disclosure of private information. A CEO recently got in a situation where the company filed public documents to issue debt, and you're not supposed to say anything outside of that filing. He went to a dinner with some investors and Tweeted something to the effect of, "great dinner, financing looks solid." There were a lot of questions about whether he violated SEC rules. Turned out he hadn't because of the way they did the filing. We think this kind of communication can democratize information to a degree. But by doing that are you opening up concerns for the company? Another concern you hear is that companies already have ways to communicate with institutions and sophisticated investors and it's not clear they want to feed other audiences like retail traders so easily. The assumption some make is that retail traders will trade on the news in ways that are not based on information processing and they'll create volatile day-trading stock patterns. There's no evidence that happens, but when you talk to IR people it's something they worry about. It's not only social media that leads to that concern. Dell created an IR blog and almost nobody followed its lead.
How has Dell done with that?
Miller: It's been okay. They're trying to do things differently and they've always been a good IR company. There are other companies trying to do this. The fear of a blog is that it's too loosely formed. Because there are so many laws that cover the disclosure of this information, the concern is that it doesn't follow an official channel. Instead of a blog, a lot of companies are moving to online annual reports with videos of the executives. It shows what the executives think in their own words. Cisco has several videos of members of the company talking about what matters to them — not just in annual reports but all over their website. In general, there's a move away from traditional, printed annual reports.
One interesting part in the case was when Google decided not to use BusinessWire for their news releases. They use their website and push mechanisms like RSS. The idea was to democratize the flow of information, but in trying to do that some argued they've fragmented it. You have to be on the RSS feed or check out the website and that could create more asymmetry, not less. Microsoft has defended the use of the wires. Is there any evidence for or against either side of that argument?
Miller: There's not enough evidence because there are not enough companies that have done it. The thing about Google is they are so big they are going to have attention all the time. If they send out a push about earnings, people will pay attention. The newswires will pick up on it instantly because everyone cares. Their experience is not going to be indicative of what a low-visibility firm would have. In fact, there are some attorneys who wonder if a low-visibility firm would meet Regulation FD if they followed Google. The rule requires something be broadly seen but also that companies have the ability, if there's going to be heavy flow to the website, to manage that traffic. Google can do that. The question is whether others can. So there hasn't really been an impact on the marketplace yet. Google likes to try stuff that's different to see what happens.
The case also looks at a scenario in which Intel wanted to hold a virtual-only shareholder meeting. Most companies do both a live, in-person meeting and broadcast that over the Web. The backlash seems to have caught them by surprise. What didn't they realize?
Miller: When Intel went to the mix meeting — you could come in person or watch online — they got a lot of positive feedback. They thought the next step in the evolution would be to make this easy for people and do it all on the Web. I really do think they just thought it made sense and they were saving everyone some hassle. But they had good relations with their shareholders. What they didn't think about is that shareholders are worried about what happens if you have bad relations. That's when you start to worry about a management team playing with the queue so somebody who's negative doesn't get a chance to speak or ask a question. They didn't anticipate that. One interesting element not covered in the case is that a lot of IR people say they're reconsidering going online at all. A lot of the people who come to the annual meeting have a minority opinion, but they use the annual meeting to push their agenda. There are some gadflies, and many IR professionals don't want to give them a bigger microphone. They're concerned somebody could misrepresent what the company is actually doing and you don't want that to become the sound bite everyone remembers. I was surprised at how many said they don't want to do it. Since writing the case, I thought the concern would be protocol within the board meeting. But the investment relations officer at one company said that's just a technology issue. The real concern is once they open this up and the technology works so everybody gets a chance to speak, are you creating a megaphone for the cranks? That becomes even easier when it's online-only. People don't even have to come to the meeting; they just type in a comment. And if the company filters it out, you get all kinds of concerns over management of meeting content. Or what if there's a technical glitch and a question doesn't get through? Everyone wonders if the question was censored because it was negative. When you think about the implementation, you can understand why the investment relations officers are worried about the negatives.
This is an evolving issue. Have the SEC guidelines kept up with it, and is it something they're looking at?
Miller: I know the SEC is looking at it. Regulators try to write their guidelines broadly so you can say these are just other communication channels and all the other rules apply. The SEC does have guidelines in place to encourage companies to adopt new technologies and think of ways to use new technologies to get information out to as many people at the same time. They think that helps with orderly and fair markets. They encourage companies to do this but they don't want you breaking Regulation FD. But the technology is moving so quickly they're trying to figure out what's going on, as well. They are doing a good job considering it and thinking about it. The technology changes so often though, and we haven't hit a steady state yet.
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