Investor Relations 101

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Issue Date: IR Alert - July 9, 2009,

Social Media and the SEC: Where Do You Stand in the Investor Broadcasting Vs. Investor Relations Debate?

By Brian Solis, Principal, FutureWorks

Last year, the SEC announced that it would recognize corporate blogs and potentially other forms of social media as a recognized form of meeting public disclosure requirements under Regulation FD—in some cases. After much fanfare, analysis and debates, the spotlight on the socialization of IR dimmed. Did public companies and their communications and IR teams even truly take notice?

I believe it's time to bring the discussion back into the forefront so companies can make informed and strategic decisions regarding social media, as well as preventing SEC or investor backlash.

The SEC announcement was a significant validation of a widely recognized medium for facilitating information between companies and stakeholders. Jonathan Schwartz, CEO of Sun, among many others, successfully lobbied over the years for official recognition of blogs and the SEC finally took notice.

While PR, marketing, advertising, branding, HR and customer service are rapidly adopting participatory methodologies, IR has perhaps wisely observed the landscape to ascertain risks and opportunities present within the new SEC guidelines.

In reality, social media is reshaping disclosure and the practice of investor relations. As the social web begets a human voice and genuine transparency, it also raises the risks of meeting and maintaining legal compliance. It's true, the SEC has recently modified its stance on blogs, but as new social tools continue to innovate and gain traction, a gap may be widening between the ability for companies as well as the SEC to keep pace with a rapidly evolving landscape of social networks and the means to meet investor demand as well as the emerging opportunities for engagement and communication.

Analyzing SEC Guidelines

According to the SEC,"As we have developed EDGAR to facilitate and promote electronic availability of information, we also have encouraged companies to make their Commission filings and other company information available on their web sites. We believe that company disclosure should be more readily available to investors in a variety of locations and formats to facilitate investor access to that information."

The SEC published a 47-page report that outlines the boundaries for sharing information as well as holding companies and their employees liable for the information that they post on blogs, networks, communities, and discussion forums.

If public companies are not proactively analyzing these guidelines and establishing internal policies, frameworks and penalties, then they are exposed to the dangers that loom in the form of overly enthusiastic employees who are enamored with new and shiny social tools and objects. One wrong, irresponsible, or casual post, comment, tweet, status update, can produce a domino effect of consequences that have yet to establish precedence. While a tweet, for example, may seem harmless, the activity and response sparked by an update could result in repercussions that trigger SEC and shareholder retaliation. Corporate and marketing executives who rely on self-restraint and common sense across the organization aren't employing common sense at all.

Integrating New Technology with What Works Today

It's the company's responsibility to reach people where they are actively seeking and sharing information, but the SEC also cautions communicators in doing so. Just because blogs, social networks and micro communities such as Twitter and FriendFeed are the current flavors of our digital generation, their conversational roots and culture do not relinquish companies from their responsibility to share data in a way that complies with federal securities laws. The SEC guidelines clearly state,"While blogs or forums can be informal and conversational in nature, statements made there by the company (or by a person acting on behalf of the company) will not be treated differently from other company statements when it comes to the antifraud provisions of the federal securities laws. Employees acting as representatives of the company should be aware of their responsibilities in these forums, which they cannot avoid by purporting to speak in their ‘individual' capacities."

Companies MUST NOT abandon or sacrifice the bridges and services that already effectively connect information to people today and also comply with SEC regulation. It's the responsibility of any community-focused organization to use the tools and channels that extend and supplement each other.

While press releases are among the top choice for meeting disclosure, they are not necessarily inexpensive, and therefore encourage the exploration of new conduits. Companies report spending $15,000 to $50,000 or more per year on issuing press releases in order to satisfy Reg FD. Traditional and social solutions can also be considered as they are sometimes as or more effective than a traditional press release, especially in a recession where every penny counts. The sometimes-exorbitant costs of meeting disclosure have also fueled the study and technological evolution of corporate blogs, wikis and social media releases. They represent exciting, modernized possibilities to adapt to and connect with constituencies and influencers in ways that some rely upon in order to make decisions and also process and produce content based on material company information.

Playing by the Rules: Amplifying Corporate Reach and Resonance

There's a difference between mandates and guidelines and it's your responsibility to understand the nuances in order to comply with Reg FD, while not missing the prospects associated with new and influential online communities.

When you read the SEC guidelines, you'll quickly realize that they do not provide specific instructions and boundaries that dictate permissible and prohibited procedures and activities. In its current form, direction is gray at best. However, analyzing the guidelines based on the framework implied by the SEC, as it correlates to the culture and interworking of any organization, provides a blueprint for constructing a compliant and most likely, more effective, communications infrastructure.

Companies will need to consider whether and when postings on their sites, communities or networks are"reasonably designed to provide broad, non-exclusionary distribution of the information to the public."

While the SEC specifically mentions websites, forums and blogs, it does not specifically name popular networks such as Facebook or Twitter—at least not yet. But that does not mean that they are excluded from the potential communications channels companies can use to reach stakeholders today.

The guiding principle is pervasive throughout the document and essentially advises that companies use the tools and services that reach constituents when, where, and how they rely upon receiving timely information,"In order to make information public, it must be disseminated in a manner calculated to reach the securities market place in general through recognized channels of distribution, and public investors must be afforded a reasonable waiting period to react to the information."

Ebay is one of the widely referenced examples as it relates to disclosure and the"Social Web." It also spotlights an instance when an individual employee is at the forefront of traditionally guarded and controlled information production and distribution process. In this case, Chief Blogger Richard Brewer-Hay maintains a blog and Twitter account where his personal presence is as dominant as his affiliation with eBay.

In January, Ebay released fourth-quarter results and while listening to the earnings call, Richard Brewer-Hay posted live updates to Twitter. The legal team was alerted and after analyzing the medium, possible liabilities, and also associated potential, the team documented a series of 140-character disclosure statements. One tweet reads:"The presentation of this financial information is not intended to be considered in isolation or as a substitute for GAAP financial measures."

As its"internal reporter," the company empowers Brewer-Hay to transparently share company activity to shape the brand and inject personality and perspective through a strategic and proactive outbound communications program.

But he's not alone in his efforts to humanize the corporate voice in and around financial reports, disclosure and earnings obligations through blogs, Twitter and other social presences.

Johnson and Johnson recently reported, for the first time, minutes from the company's annual meeting via Twitter.

EMC Corp. also uses Twitter to extend the reach for company news, while also tracking the opinions of employees, investors and peers.

Dell publishes Dell Shares, an investor relations blog that complements the company's blog network dedicated to providing transparency and insight related to corporate activity, technology, and products.

In May, Intel Corp. allowed shareholders to ask questions via the Web and vote online during its annual meeting. But for now, the company isn't yet integrating blogs and Twitter for use in investor relations until further research and analysis can provide a solid and meaningful connection between Intel and investors.

The Society of New Communications Research tracks over eighty-one Fortune 500 companies that publish blogs, including Wal-Mart Stores Inc., Chevron Corp. and General Motors Corp.— with 20 linking to corporate Twitter accounts (not all are yet utilized however). The SEC also maintains a Twitter presence via SEC Investor Ed and SEC News.

Corporate Twitter Accounts include (partial list):

- Best Buy
- Cisco Systems
- Toys 'R' Us
- Dell
- Johnson & Johnson
- Wells Fargo
- Microsoft
- Time Warner
- FedEx
- New York Life Insurance
- McDonald's
- Oracle
- Google
- Avnet
- Amazon.com
- CBS
- Texas Instruments
- EMC
- Monsanto
- Whole Foods Market
- Rubbermaid
- Symantec

Corporate Voice vs. Individual Personality

Indeed, the SEC is recognizing company-sponsored blogs and networks, which can include CEO blogs and investor relations blogs, among other communities, as official presences in addition to company websites,"Companies can use these for a variety of purposes, including allowing for the exchange of opinions and ideas between a company's management or certain other employees and its various stakeholders. The open format of blogs makes them an attractive forum for ongoing communications between and among companies and their clients, customers, suppliers, shareholders and other stakeholders. Similar to blogs, electronic shareholder forums can serve as a means for investor to communicate with companies and each other and to provide investor feedback on various issues in a real-time basis, and we have adopted rules to encourage their use."

These rules raise concerns as to the extent of transparency and humanization of the information shared, requiring a delicate balance between personality and objectivity. Remember, it's not just what you do say and how, but also what you don't say that can lead to speculation and movement based on interpretation and speculation.

What's important to realize is that maintaining a presence on the"Social Web" is not formulaic, whether it's PR or IR. The answer lies in what matches existing company culture and also appeals to stakeholders in ways that they favor. The spirit of the"Social Web" seems to galvanize the presence of a person or persona, but perhaps interim corporate accounts could help ease the foray into uncharted waters for many organizations. This is all driven and steered by community feedback. By not participating or listening to communities across the Web, however, companies gain nothing in terms of value, advice or feedback—no matter what stage of participation companies fall within. This is not the time to plug our ears and close our eyes in the hopes that this social fervor will subside.

Creating an Effective Communications Network

A critical theme within the SEC documentation is the stipulation that companies are more likely covered under the Fair Disclosure Act if they publish information equally and accurately through a variety of traditional and digital passages. More important, companies should create a hub that documents all available mediums to receive information as it is made public. For example, list all press release services you employ; provide a directory of relevant blogs with URLs and RSS Feeds; list Twitter, FriendFeed, Facebook or other relevant social network profiles; share podcast links and presences on other audio networks such as iTunes; embed electronic documents and link back to host accounts such as DocStoc and Scribd; and also link to a traditional or social media newsroom if this isn't already the directory where this information resides.

News and intelligence should not reside in any one place. Concurrently, new channels should not suddenly appear without proper attention and disclosure. The SEC advises the practice of writing and distributing Notice and Access press releases to alert stakeholders to upcoming material announcements and pointing them to the place of distribution. Notice and Access is the SEC's attempt at helping companies reduce costs associated with traditional press releases, while still utilizing the tools they use today to receive information. Since these releases dramatically reduce the word count, they also minimize the typical expense per release.

The advantages associated with Notice and Access also extend well beyond the financial savings or meeting disclosure. Notice and Access provides a cost-efficient vehicle to condition investors and influencers towards any given format companies choose to prioritize, including corporate blogs and websites.

Wherever possible however, the operation of traditional and new media cross pollination enables companies to broadcast information to a distributed compilation of networks that deliver information instantly, serving the appetite for immediacy where people choose to consume news.

Investor Broadcasting vs. Investor Relations

Traditional investor relations serves analysts, investors, stakeholders and influencers through a combination of strategic outreach and the ongoing distribution of material information using compliant channels and processes. With the extension of the model to now include social networks and also the experimentation of publicizing personalities in the process, companies are potentially emphasizing the"relations" in IR. This opens up a particular area of focus as maintaining relations with analysts for example, is considered outside the realm of traditional disclosure. Engaging in conversations with investors in the public timeline (statusphere), on websites and in the blogosphere can potentially place companies in jeopardy of backlash and legal action.

How and went to engage in social media was a shared concern in a recent discussion I had with several corporate bloggers, social media strategists and also IR professionals. While each were divided in their position on corporate brand versus personal brand when distributing information in social networks, they were united on two important fronts that set the tone for any organization exploring and documenting best practices for participation. The first contends with individuals, particularly those of influence, who share glaringly incorrect information that will most likely have a negative impact on trading and value. Every person I spoke with agreed that a public response in these cases is most likely necessary and that the tone of the response should introduce information poignantly and factually without added perspective or personality. In the instances when public discussions bash or question company decisions, news or value, all were in agreement that these conversations are better left untouched.

These are monumental times in which new regulation and interactive communication channels are established and shaped as marketing and legal teams reach accords based on their interpretation of Regulation FD, the migration and shift of investor consumption patterns and the experiences associated with evolving corporate experimentation and participation.

The New SEC guidelines will most likely mirror much of what's already discussed in this article. The lessons shared here indicate that an ambitious program to extend corporate communications combined with a conservative, truthful and unbiased voice may best serve the function of corporate disclosure and investor relations in the near future. In the end, while companies embrace the"Social Web," its prevailing spirit may actually work against the desire or ability to fully engage in the very conversations that power and define it—at least from any dialogue that involves financial performance or material, undisclosed information.

Brian Solis is principal of FutureWorks, an award-winning PR and New Media agency in Silicon Valley. He is also co-founder of the Social Media Club and is an original member of the Media 2.0 Workgroup. He blogs at"PR 2.0," and Tweets here: @briansolis.