Is social media bad for business?
Is social media bad for business?
In April 2013, Netflix CEO Reed Hastings posted information about the company’s viewing figures on his personal Facebook account. Although an apparently unremarkable act, Hastings’ decision was unsual because he hadn’t also disclosed the figures in a public filing. The move prompted the SEC to launch an investigation into whether it was permissible for Netflix to use social media to communicate ‘material’ information in this way.
The SEC dropped the investigation and instead issued guidance allowing SEC-reporting companies to use social media in this manner – provided the company has given advance notice of the channels it intends to use. As a result, an increasing number of SEC-reporting companies have been registering Twitter, Facebook and corporate blogs as official channels for disseminating material information (similar to inside information in the UK) to investors. Observers note that eBay and Dell now tweet updates on earnings calls and analysts’ meetings, while Intel stages online Q&As and allows shareholders to participate in web votes during its AGM. In the UK regulators have taken a more conservative approach, requiring London-listed companies to file an RIS notification before (or at the same time as) information is disclosed via social media. For more information click here.
The activists’ weapon of choice
The power of social media as an tool for shareholder activism was evident as early as 2007, when Eric Jackson (who held only 96 shares in Yahoo!) published a blog voicing his discontent at the leadership of the company’s then CEO, Terry Semel. His words struck a chord and before long he had the support of more than 100 investors representing 2.6 million shares. With their backing his ‘campaign’ grew in strength, and ultimately forced Semel to resign.
Although traditional methods are still used (submitting a proposed resolution, or requesting the company to circulate a formal statement) social media has become the activist shareholder’s weapon of choice. Carl Icahn, has become particularly active in the use of social media as a tool to rally support for a cause. Icahn has recently made a number of posts on his social media account urging tech bosses to buy back shares, and in the past has taken to Twitter to vent his opposition to a buyout .
The SEC recently took a step further on corporate use of social media when it issued guidance permitting companies and others to use size-constrained social media channels for certain communications about securities offerings, shareholder proxy contests and tender offers that generally require a legend. Before this guidance, it was not feasible to use channels such as Twitter for these types of communications because Twitter's limitations on the size of text/number of characters would be exceeded by the legend alone. The guidance permits users to use an active hyperlink to the legend instead of the legend itself. Commentators have pointed out that while this accommodation allows companies to direct these communications more easily to shareholders and potential investors using the size- constrained social media channels, these channels are also now available as a tool for shareholder activists in tender offers and proxy fights.
Both in the US and the UK, activist investors have been using digital means to help overthrow boards, oust CEOs, reverse business practices and support or oppose acquisitions and mergers. The rise in activism has been driven largely by the financial crisis and the perception that directors need to be held to account more than in the past.
The sites executives should know
The web is also being used to press activists’ agendas on environmental and human rights issues (through proxy recommendations) while social networks can quickly identify companies that might make attractive targets for a broad base of investors. For example, sites such as Stocktwits (a free social network for investors and traders), Tradingview.com (which allows users to drop interactive charts on to blogs, Facebook posts and tweets) and Wikinvest (which offers financial and business analysis on companies), everyday investors can discuss the valuation and investment potential of a particular company.
Online proxy voting advisers have been able to reach wider audiences through social media and use of such services is becoming more common, with companies such as ISS Proxy Advisory Services and Manifest providing shareholders with analysis and voting advice ahead of company meetings.
Andrew Grant of Tulchan Communications, whose company advises some of the world’s biggest institutions including Lloyds Bank, Standard Life and Legal and General, says technology has empowered shareholders to contribute to the debate. But while many businesses have struggled to respond as effectively, only with the right organisation will activists achieve their goals.
‘The activist has one aim – to bring about change by building support for their argument,’ he says. ‘They have the advantages of speed of response, flexibility of engagement and freedom of language. However, without a better strategy and a coalition of other shareholders, they live in danger of just becoming a “noisy gong or a clanging cymbal”.
‘By contrast, most companies are still getting to grips with how they engage on these public platforms and incorporate it into their corporate communications. They tend to have more cumbersome internal processes to abide by and a wider group of stakeholders to consider.’
Could you handle a social media crisis?
Shareholder activism has forced corporates to revisit the way they approach investor relations, but it would seem they have some way to go where social media is concerned. According to a 2013 survey by FTI Consulting, 80 per cent of investors believe activists will use social media to target companies more in future and only 11 per cent are confident that companies are adequately prepared to defend themselves on social media platforms.
Despite the SEC’s favourable ruling on disclosure, companies must continue to be wary in their own online operations. It’s easy for quoted companies to fall foul of the regulators by re-tweeting while in a takeover situation, disclosing information through the wrong channels at the wrong time or misleading the public by failing to provide full details of a situation (see our briefing ‘Digital media and investor communications: Pitfalls for UK listed companies’).
Negative stories can spread around the world in hours and cause serious damage to a brand (see our briefing ‘Containing a Crisis: dealing with corporate disasters in the digital age’). While it’s necessary to respond quickly, retracting a message once it’s in the public domain is extremely difficult. But silence can be equally perilous, as investors and activists monitor corporate websites around the clock. Digital communications teams need to co-ordinate with senior executives and investor relations to ensure they have all the facts and are sending the right message in a timely way – otherwise the problem they’re trying to fix could become a lot worse.