Social media is not easily defined. Definitions tend to focus either on the “community” aspect, the existence of “interactivity,” or the availability of “user-generated content.” In common speech, the term is used in a variety of ways, from a broad view which refers to almost everything on the Internet, to a middle view that regards social media as any Internet site which allows users to interact with other users and generate content, to a narrow view referring just to Facebook and similar highly flexible networking and friendship sites, with other interactive sites given dedicated categories such as blogs, wikis, file-sharing sites, and chat applications.
Social media has been defined as “any tool or service that uses the Internet to facilitate conversations” (Solis, 2011: 21). Kaplan and Haenlein (2010) define it as “a group of Internet-based applications that build on the ideological and technological foundations of Web 2.0, and that allow the creation and exchange of user-generated content.” Social media has grown rapidly, with 96 percent of the online population now using one or more social media platforms (comScore MediaMetrix March 2012 Social Network U.S. category reach).
Despite the common use of the term social media as if social media were a family of platforms sharing common characteristics, there are an immense number of platforms which share very little in common other than use of the Internet. The goal of all platforms is to facilitate communication between people of common interests, but how this is achieved differs widely. Some platforms use distance to associate users, others allow users to search for each other, some are strictly based on preexisting social networks, and some are product or institution based. Platforms differ widely in the richness of communication (i.e., their use of images, audio, video, and text), their degree of inclusivity vs. exclusivity, in frequency of messaging, and in the rules of communication. Some companies’ proprietary messaging systems have evolved into quasi-social-media platforms, such as Amazon’s system of product reviews, which allows reviewers to interact with each other, but most social media platforms are designed to be flexible and can be embedded in any web page.
Figure 12.1 The growth of social media “mega-sites” (© Linklaters 2014)
Figure 12.1 shows the development of three of the largest social media platforms: Facebook, LinkedIn, and Twitter. The graph is taken from the report by Didizian and Cumbley, published by Linklaters in 2014: “Social media and the law: A handbook for U.K. companies.”
Social media cannot be easily categorized, since each tool is unique and quickly evolving. There are some basic differences in purpose, as Figure 12.2 shows:
Figure 12.2 Basic social media categories
Kietzmann et al (2011) suggest that social media is composed of some or all of seven building blocks: identity, conversations, sharing, presence, relationships, reputation, and groups. Wikipedia, itself a social media site, lists 208 major social media platforms, not including online dating and defunct platforms.1 Wikipedia lists 18 virtual communities that have more than 100 million active users2 and 83 sites with more than 1 million active users.3 Facebook is by far the leader in this scoreboard, with over a billion members. Looking at this list of 18 tools shows how diverse the range of social media is and how difficult defining social media is.
Argenti (2011) asserts that: “Embracing social media is no longer a strategic business option, but a necessity, and a huge opportunity.” Social media, however, by its nature being hard to control brings real challenges for communication professionals, and this is especially true for investor relations (IR) professionals due to the potential financial and legal consequences of corporate disclosures. For investor relations officers (IROs), the additional challenges are the limited regulatory approval, the requirement to maintain traditional channels alongside new channels, and the twin hazards of negative sentiment and selective disclosure.
“Social media” is not a homogenous category, but a constantly growing and highly diverse range of tools. Corporate leaders need to figure out what social media can be and what they want to do with it.
The most commonly adopted uses of social media so far are:
• Feedback on products/services form customers (usually Facebook)
• Competitions and other public relations (PR) stunts (usually Facebook)
• Repository of corporate videos (YouTube) and
• Corporate responses to media stories (Twitter)
IR has limited use for social media for the following reasons: (1) IR does not generate a high volume of news, and investors and analysts would not welcome this; (2) social media is largely an “opt-in” technology, and so does not easily fit the requirement that all investor communication must be equally accessible to all; (3) stocks are not bought frequently by investors, but are long-term purchases; therefore, investors do not need regular stimulation to purchase; (4) IR typically does not have the resource to dedicate to generating a stream of verified and compliant (i.e., nonmaterial) news stories; (5) many social media platforms give users the ability to comment on messages, which can mean that corporate messaged can rapidly be “framed” in a negative way; (6) social media content is hard to store or reference.
Because of these factors, IR can best use social media by piggybacking on the company’s social media output already generated by the corporate PR function. Ideally, options will be provided so that users can choose what kind of news feed they require. Investors who want constant social media news can opt into this by signing up for the category of “financial news.”
Figure 12.3, which is taken from Business Insider, shows an estimate of the largest social networks in the world. Facebook and YouTube are the current mega-sites, but the rapid pace of change within technology and consumer tastes means there is no guarantee this will last for long.
Figure 12.3 The largest social networks in the world (© Business Insider 2013)
While the growth of public information has solved some long-standing problems of the financial markets, the deluge of public information (of varying quality and relevance) has introduced a range of new challenges.
The financial services sector uses social media little compared to other sectors, as demonstrated by research conducted in July 2009 by Altimeter/ Wetpaint ENGAGEMENTdb in a study of the social media engagement of the top 100 brands. This is displayed in Figure 12.4.
Figure 12.4 Social media use by industry (©Altimeter/Wetpaint ENGAGEMENTdb 2009)
Research in the United States by MHP Communications in 2011 (Sherman, 2011) indicated that investors are very slow in adopting social media tools, with Twitter only used by 35 percent of investors, YouTube used by 29 percent, and Facebook used by just 11 percent. LinkedIn was the social media tool of choice with a penetration of 96 percent, although a significant proportion of LinkedIn usage is likely to be job hunting rather than investment research.
A survey by Corbin Perception for the National Investor Relations Institute (NIRI) in June 2013 found that 72 percent of surveyed IR professionals don’t currently use social media for IR and less than half of them will consider doing so in the next 12 months. The same survey found that although most investors feel obliged to check the social media sites of the companies they analyze as part of their due diligence, 92 percent of investors consider the information gleaned from social media sites as either “somewhat unreliable” or “not at all reliable.” Research in the United Kingdom by Furlong PR (Hay, 2010) found that the websites of 78 percent of the FTSE100 lacked basic social media functionality such as a blog and RSS feed.
Social Media Costs and Benefits
Social media brings serious costs and risks as well as benefits to corporations, and especially to heavily regulated areas of corporate life such as IR.
Social media by its nature is rapid, tends toward the trivial, fun, ephemeral, and gossipy, and is content rich (although this varies greatly with some services like Twitter being content poor). While some social media tools are private and person-to-person (such as WhatsApp), most communicate to a predefined group. Public access to this information varies. Twitter is public for instance, while to view Facebook posts requires membership of Facebook. Many social media are relationship based, and many users expect companies to actively engage in conversation with their customers. Investors expect more relevant and timely updates, increased transparency, and real time interaction and conversations with companies that are on social media. Investors would like to receive market and economic trends and commentary, new product information, company background, and product performance updates. Organizations usually insist on high degrees of control over their interactions with customers or the public, in order to reinforce their brand and market positioning and to avoid the hazards of making exaggerated claims about products or the risks of giving offense.
The anonymity and lack of editorial control mean that social media sites can be very angry places, with conversations getting very ugly. As well as the universal risks of fraud, hacking, identity theft, trolling, data theft, defamation, cyberbullying, and invasion of privacy, there are the risks of breaching regulations regarding selective disclosure. The costs include IT setup, training, management time producing and checking content, staff time lost through misuse of sites, and the time and cost of resolving problems. Three particular barriers to greater use of social media in IR are time and budget constraints, confusion over regulatory responsibilities, and concerns about the loss of control when interacting with social media platforms. IR, and investment more broadly, possesses a very risk-averse compliance structure and culture, which hampers the penetration of new tools.
Figure 12.5 shows the responses to the question on risk in the Grant Thornton survey of 2011:
Figure 12.5 Social media risks (© Grant Thornton 2012)
We suggest that there are three essential aspects of social media for investors (1 to 3), one recommended aspect, (4) and one aspect that should be used with great caution (5)
1. Social media policy formulation. This is part of the disclosure policy mentioned below. In a survey by Katz and McIntosh (2013), three-quarters of company executives questioned said that their companies have no social media guidelines for employees.
2. Social media monitoring. Social media are not known for their coverage of financial news, but stories about the corporation, its products, or people may circulate on social media, and thus the monitoring of social media is an essential practice as an early warning of negative stories. It is essential to create company accounts on the major social media platforms such as Twitter, StockTwits, SeekingAlpha, etc. Establish alerts for social media and other online mentions of your company’s stock symbol, brand names, key products, competition, key partners, and members of management and the board. For Twitter, download a desktop application such as TweetDeck or Hootsuite, which will make it easier to manage your search results. Make sure the IR team has a good link to the PR team member who monitors social media for consumer news, to get early warning of consumer issues that may develop into investor issues such as product-related problems, service failures, complaints about advertising, etc.
3. Issue and opinion leader identification. Careful monitoring of social media will enable identification of both issues and opinion leaders. Social media is dominated by a small proportion of users who generate content (perhaps just 1 percent), and a larger group (perhaps 10 percent) who comment on that created content. The remaining 90 percent of users are typically passive spectators. Identifying the sources of stories is an essential part of understanding how stories develop and how to counter them. Every organization is likely to have certain “issues” hard wired into its particular business model, but also additional issues will be generated by particular media or public concerns of the moment. Informing management about issues at early stages is an essential part of developing an effective response, and so clear policies of escalation should be created.
4. Social media linking. This refers to the additional distribution of corporate news that has already been released via the recognized and official channels of regulatory news service (RNS) and corporate website. The social media content is purely incremental and supplements the comprehensive disclosure that was made prior to the social media distribution. The potential problem is that individuals can then comment on the news story using social media, which may involve criticism. The social media content must be distributed after the RNS and website content to ensure that disclosure is not selective. We suggest that social media content is uploaded a full hour after the RNS announcement (e.g., at 8 a.m. along with the e-mail to staff, if the RNS announcement was issued at 7 a.m.) to prevent any possibility of selective disclosure. Using social media to post links to the full announcement on the company home page is preferable to posting edited summaries on social media. This method allows for the beneficial advertising effect from social media, but eliminates the regulatory risk.
5. Social media originated content. This is of limited value for investor communications. The very aspects of social media that make it so valuable for consumers who are hunting for products or politicians who are trying to find out the public opinion of a proposed policy (i.e., its informality, personal and democratic nature, and the ability to speak in relative privacy to individuals, specified groups, and random strangers) make it unsuitable for disclosure of material corporate information. After monitoring social media discretely for a while, you will be able to decide whether it would be useful for your company to engage in particular social media channels or not. If a large proportion of your target audience uses a social media channel, then engaging in this channel must be considered. However, clear rules must be established for content creation and verification to prevent inaccurate or otherwise damaging content.
Selecting the Right Social Media
Social media show great variation in the following:
1. Penetration of the particular target audience that the company wishes to reach
2. Credibility of the site for corporate messages
3. Richness allowed in the message communicated
4. Access to the site, whether a personal profile must be created before access is granted or whether access is available for all
5. Ability to recall or edit messages
6. Ability to block negative comments
7. Ability to store messages in an easily searchable form
These are the factors that allow a company to select the right media for its investor communication.
Mobile Websites and Applications
Most FTSE100 companies now facilitate the use of their website on smartphones or tablets, either through the provision of a distinct URL that reformats the content to allow easier use on a device, or a dedicated downloadable application. The BASF plc mobile website is designed for smartphones and is pictured in Figure 12.6:
Figure 12.6 Example of an IR website adapted for smartphones (© BASF 2013)
Pirelli offer a “Corporate App” designed for iPads, which is accessible free via Apple’s iTunes store.
Using Social Media for Disclosure
Regulators in the United States and United Kingdom have exhibited glacial speed in issuing guidance on the use of the Internet for corporate disclosure. The Financial Reporting Council in the United Kingdom has to date (Feb 2015) still issued no guidance on the acceptability of the Internet for disclosure. Even in the United States, the birthplace of the web, it wasn’t until 2008 that the U.S. Securities and Exchange Commission (SEC) issued guidance on using the Internet to disclose. The 2008 guidance stated that whether a company’s web site is a recognised channel of distribution will depend on the steps that the company has taken to alert the market to its web site and its disclosure practices, as well as the use by investors and the market of the company’s web site. (SEC, 2008)
The United States’ Financial Industry Regulatory Authority (FINRA) first issued guidance in January 2006, with the release of Notice 10-06. This generated lots of queries and FINRA-issued clarification with answers to 14 FAQs in August 2011 in Notice 11 to 39. FINRA neither encourages nor discourages the use of social media. The picture in the United States is complicated by the existence of state laws on the same matter; 11 states have so far passed legislation prohibiting employers from seeking access to personal social media accounts of employees, which might prevent companies in these states from complying with the FINRA guidance on employee supervision.
In April 2013, the SEC finally ruled that social media could be used to disclose financial results, following the case of Netflix Chief Executive Officer Reed Hastings, who on July 3, 2012, posted June’s record monthly viewership result of 1 billion hours to the 200,000 followers on his personal Facebook page rather than in an SEC filing or news release.
Five months after the post, in December 2012, the SEC threatened Netflix and its CEO with enforcement action, with the issue of a “Wells Notice” to each of them, considering this as a potential selective release of material information and breach of “RegFD” (Regulation Fair Disclosure) and Section 13(a) of the U.S. Securities Exchange Act 1934. Four months after the threat, in April 2013, the SEC issued a statement which criticized Netflix noting that neither Hastings nor Netflix had previously used Hasting’s personal Facebook page to distribute company information, and the SEC found that the company had not taken any steps to make the public aware that this could be used. The SEC, however, declined to state whether the information concerned was material and also declined to prosecute, instead using the opportunity to issue additional guidance on how companies should interpret RegFD4 and the 2008 guidance in their use of social media. The 2013 update makes clear that the 2008 principle that states that the investing public should be alerted to the channels of distribution a company will use to disseminate material information applies with equal force to corporate disclosures made through social media channels.5
Given the lack of clarity in the United States and United Kingdom about what constitutes selective disclosure, particularly the absence of a definition of what constitutes “material” information, all actors (companies, investors, analysts, and journalists) would be wise to adopt a conservative stance and deploy the cautionary principle on disclosures, neither requesting nor providing nonpublic material information outside of the recognized methods of public disclosure. Publishing information on a narrowly defined communication vehicle such as Twitter and Facebook will not make that information “public” in the sense that all investors will have the information at the same time.
The main principle to follow is that since appropriate notice must be given to investors of the specific channels a company will use, the safest approach is that all material investment information should be available via the IR corporate homepage. An extra precautionary principle is that all new information must be e-mailed to everyone who has signed up to e-mail alerts; the link for which must again be available on the IR home page. The social media posting should include a link to the full announcement on the company website so that all users are guided to the “one place.”
If what Netflix did on July 2, 2012, was a material release (and the stock price uplift following the announcement might suggest that it was), then the company breached the 2008 guidance. They escaped a fine because the offense was mitigated by the absence of formal guidance, the wide coverage that the post received, the marginal nature of the information disclosed, and the long delay in the SEC’s response. Firms that subsequently perform the same mistake may not be treated so leniently. The breach can be avoided by: (1) a clear understanding of what constitutes “material” information, (2) a clear procedure for handling material releases via the CFO or IRO, (3) use of a single place for all material information, and (4) prohibiting managers from releasing any nonpublic information about the firm on personal sites.
Any site that is not immediately available via a single click from the company homepage is not suitable as an exclusive location of corporate information. Any social networking site that requires a login (such as Facebook or LinkedIn) should not be used for disclosure, since the sites exclude nonmembers from access.
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1 http://en.wikipedia.org/wiki/List_of_social_networking_websites [accessed December 30, 2013]
2 http://en.wikipedia.org/wiki/List_of_virtual_communities_with_more_than_100_ million_users [accessed December 30, 2013]
3 http://en.wikipedia.org/wiki/List_of_virtual_communities_with_more_than_1_ million_users [accessed December 30, 2013]
4 Reg FD was issued by the SEC in August 2000 and requires that public companies communicate material information to investors on a broad, nonexclusive basis, in order to prevent favored analysts or investors obtaining extra information or early information. Reg FD is very conservative and a report on Form 8-K is the only method that categorically complies with it.
5 www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513574#.UsG9H_vuVHc