Public companies in Connecticut are wrestling with integrating the rapid infusion of social media into everyday business life. But the days of investor relations via Twitter may still be quite a ways off.
Long gone are the days of producing several-hundred-page investor earnings and financial reports and mailing them — yes, old-fashioned mailing via the U.S. Postal Service — to investors. The vast amount of information now readily available about a company, as well as the instantaneous access to that information, has redrawn the landscape of investor relations.
For years, advances in technology have been a leading catalyst for changing the way investor relations is handled. Late in the 90's, "blast faxes" and e-mailing of quarterly earnings news releases by Connecticut's public companies were replacing the common practice of delivering the news by courier to daily newspapers across the state.
Public companies have traditionally been very quick to adapt to new technology for investor relations purposes because of the assurance of faster delivery and wider distribution of investor news at a reduced cost. Although hardly the sole means of communication, e-mailing, today, remains the chief means of distributing investor earnings and financial news.
But, is everyone really prepared to jump on board with the new technology and introduce a full scale social media policy into their company?
Not quite says Jeff Morgan, president and CEO of the National Investor Relations Institute.
"There are a lot of companies that are very cautiously looking at using social media but very few that are in the full engagement mode," Morgan said. Most, he said, are using it as a means to monitor what is being said about their company, rather than for direct communications purposes.
In an August 2010 social media survey the institute conducted with its members, 77 percent of respondents indicated that they use social media, though primarily for personal use. Of the remaining 23 percent who do not use social media, 76 percent stated that they have encountered no demand from their investor constituencies to engage in social media, and 63 percent stated they were reluctant to use it due to their fear of risk exposure.
That fear of risk exposure might be the key reason for the trepidation. How much direct contact with investors is healthy and beneficial to the company? And furthermore, how much does the sharing of information leave a company vulnerable?
The use of social media as an investor relations tool is typically introduced in three phases, according to Morgan.
Phase One: Companies should be monitoring all the conversation that is happening on social media channels.
Phase Two: Republishing information. For example, Morgan explained, not only might a company publish its news release through traditional sources , they may also republish a link on Twitter so people may have direct access to the information.
Phase Three: Full engagement. This occurs, Morgan explained, when people are Tweeting about a company and company representatives are responding directly. This is the highest level of engagement, Morgan said, and the one in which practitioners are fewest.
Caution by most companies and investor relations professionals to becoming more engaged in social media is understandable, Morgan said, and will take time.
"It's a compliance issue," he said. "Because of Reg FD (SEC Regulation FD — full disclosure), we have to be very careful when we communicate to ensure that we are communicating to that broad public audience, and not having one to one conversations. Full engagement in this area is wrought with compliance risk and regulatory challenge. Most companies are back in phase one, where they're using social media as a listening post."
Today, due to the Security and Exchange Commission's (SEC) Regulation FD, adopted in 2000, and the Sarbanes Oxley Act, signed into law in 2002 in the wake of corporate scandals of the late 1990's and early 2000's, plus the explosion of communications technology, Connecticut's publicly-held companies are employing multiple means of electronic and Internet-based technology to communicate with shareholders, analysts, the SEC and others interested in the company.
Further, companies are being forced to adjust to keep up with the unprecedented amount of publicly available information about them through the Internet, including analyst and investor reports and comments, consumer and customer perceptions, rumors and news media stories that may affect their share price.
"With Sarbanes Oxley, there's been an incredible increase in the amount of disclosure required, for instance, when you do your quarterly financial statements," said Marliese Shaw, vice president of Investor Relations for Rockville Bank. "All of it must be audited and all the transactions tested under Sarbanes Oxley. The time to prepare the disclosures has increased as well as the time to audit the disclosures and, of course, its related expenses."
Ensuring that company insider financial transactions are reported in a more timely manner than was required in the pre-Enron scandal days, has also changed the way reporting is performed. For instance, Shaw said, companies now have 48 hours to file with the SEC — online through SEC.gov — and issue news of company insider trades. Before Enron, companies had 10 days following the month that the trade activity occurred to file a paper report with the SEC.
"I think that, clearly, technology has been perhaps the biggest item," said Jeffrey Kotkin, vice president of Investor Relations for Northeast Utilities. "The use of the Internet and web casting of earnings calls, webcasting of presentations to analysts and more; the idea is to give full disclosure. If you go back 10 years, we didn't have conference calls regularly. Now we have them three quarters a year and we webcast our major live presentation to analysts once a year."
Kotkin, a former journalist who has been performing investor relations for NU since 1993, says he tries to be particularly responsive to calls for information and to be as proactive with reporters and the investment community as possible in communicating publicly available information about the company, utilizing as much Web-based and traditional technology as possible.
"IR folks are spending four to five hours everyday talking with investors. Clearly, communicating more is better. Unless there is a competitive reason not to, why not just put the information in the disclosure? You'll get a more accurate analysis for your company and reduce your risk of inadvertently coming up against disclosure issues."
Public companies are certainly using new technology more and more — as are the analysts, investors and reporters who follow them. The question remains just how quickly this transformation will unfold.
"Where you used to have chat boards where people would talk about their stocks, now you have the use of Twitter, Facebook and other similar mediums where people can talk about a company from an investment perspective or any perspective they want to," Morgan said. "From an IR standpoint, we really need to manage all our mediums of communication. We also need to listen more about what our investors are saying and make sure those messages are part of our strategic discussion internally within the company. And that is one of the roles of investor relations professionals."
Kevin Moore is a Connecticut-based freelance writer with experience as an investor relations manager. John Lahtinen is special projects editor at the Hartford Business Journal.