The Securities and Exchange Commission in April 2013 today issued a report that makes clear that companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will be used to disseminate such information. (Source: Securities & Exchange Commission)
Since then, many public companies have added to these tactics to their information distribution strategy. Others, like micro-cap companies and penny stocks, have made it their news information platform. In a world where companies strapped for cash have listed theiy company over the counter to increase investor liquidity, disseminating news and material business activities over social media is not just an option, it a cost-effective solution to reach current shareholders and potential investors.
“Besides other legal issues and pitfalls, public companies developing a social media policy should consider compliance with Securities and Exchange Commission (SEC) regulations.” (Source: ©1996-2019 Davis Wright Tremaine LLP)
Regulation FD requires exactly what is says, FAIR DISCLOSURE.
“One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information,” said George Canellos, Acting Director of the SEC’s Division of Enforcement. “Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don’t know that’s where they need to turn to get the latest news.” (Source: Securities & Exchange Commission)
This is why it is important that an investor relations department have an investor relations social media policy created and established.
Regulation FD effectively requires an issuer to consider whether the issuer adequately disseminates information to the public. When it adopted Regulation FD, the SEC indicated that public disclosure “may be made by filing or furnishing a Form 8-K, or by another method or combination of methods that is reasonably designed to effect broad, nonexclusionary distribution of the information to the public.” (Source: Morrison Foerster)
The need for a strong investor relations social media policy is evident by The U.S. Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy (“OIEA”) issuing an Investor Alert to warn investors about fraudsters….
While social media can provide many benefits for investors, it also presents opportunities for fraudsters. Through social media, fraudsters can spread false or misleading information about a stock to large numbers of people with minimum effort and at a relatively low cost. They can also conceal their true identities by acting anonymously or even impersonating credible sources of market information. (Source: S.E.C.)
The road to utilizing social media for investor relations has not come without hesitation and skepticism on both sides of the fence: the public company and professional investor relations firms.
Investor relations professionals and institutional investors have long been in a catch-22 scenario regarding social media. Though each side has been curious as to how to use social channels to engage their counterpart, both exhibited hesitation, hoping the other party would kick off using it as a business medium. In NIRI’s 2016 Social Media for Investor Relations Survey, the majority of survey respondent Investor Relations (IR) professionals (72%) noted that they did not use social media for work functions, a two-percent decrease compared to NIRI’s 2013 study. When asked why they aren’t tweeting, blogging or posting on Facebook (FB), IR professionals said it was primarily due to “lack of interest in the medium by the investment community.” And for those few IR teams that are using social media, very few were utilizing metrics to review the performance of their efforts. (Source: CommPRO Global, Inc for Equities.com. “What’s the Role of Social Media in Investor Relations?”)
But times have changed and the fact is that many investor relations professionals did not understand social media, a Millenial creation making waves in an industry run by baby boomers. In its early days, Social Media was overlooked by Investor Relations professionals. But the industry has matured a lot since those times, offering publicly traded companies real-time performance analysis, an incredibly targeted reach, and if you are running paid ads, lower costs. In some cases, social media was viewed as a Public Relations firm service area.
The impact that social media can have on stock prices isn’t just borne out in charts and financial documents – researchers have studied it, too. One 2012 report from New York’s Pace University looked at a number of popular publicly held consumer brands on Facebook, such as Nike, Coke and Starbucks, over a period of a year. It found that consumer following, or fan counts, of these brands showed statistically significant correlations with their respective company stock prices. (Source: SOCIAL MEDIA MONITORING IS CRITICAL FOR INVESTOR RELATIONS, CISION LTD.)
In general, social media investor relations are becoming more prominent and understood between both public companies and investor relations firms. Social media channels like Facebook, Twitter, YouTube, Snapchat and more have a deep pool of data on existing and potential investors that can be used to target advertising. In addition, it cost nothing to establish and social media account and publish information about a company. A press release commonly cost between $199-$2000 depending on the breadth of the distribution offered by the newswire. Some, newswire services providing by some over the counter markets and stock exchanges only appear on their websites, making distribution and viewership limited. Meanwhile, social media channels house billions of people that are on the platforms constantly. And advertising or promoting this news is not only easy but cost-effective.
We can boost a Facebook or Instagram post for $1 per day and reach between 2,000-10,000 people per month. That kind of return on investment, in the marketing world, is unheard of currently. (Source: -N. Coriano, principal at Cervitude IR)
Need help putting together a social media investor relations policy, social media ir strategy, social media investor relations campaign, or monitor your public companies social media investor activity? Contact us today.