More On Social Media and Investor Relations

My goodness gracious, but social media seems to bring out divergent opinions among investor relations professionals. My post last week elicited more responses, both in the form of comments on this blog and in emails, than anything I’ve written over the past two years. Interestingly, the opinions voiced were pretty evenly split; half of the people were proponents of the use of social media in investor relations and half didn’t see the point. Even more interestingly, the half that supported the use of social media were generally those that posted a comment on the blog, while the half that admitted that they, like me, didn’t get it, sent me a one-on-one email.

I thought it might be useful to distill down some of the things I’ve learned over the past week as I have dipped my toe into the waters of social media. In no particular order, here are some of the things I’ve found:

1. Sign up for things and people will start finding you.

In doing research on this topic, I set up accounts on facebook and twitter and worked on updating my linkedin profile. One thing I discovered is that all of a sudden, people started to ask to be my friend on facebook. I don’t know how they knew I was out there, but they found me. The same thing, to a lesser degree, happens on linkedin, but there I can at least see how it happens, as the site shows you how people are linked.

2. You may already be on Twitter.

After I signed up for twitter, I discovered that you can sign up to follow a link called IRbloggers. Lo and behold, when I went there, my latest blog post was listed with a link back to the blog site. Who knew? A close analysis of some of the statistics from my blog shows that for the last month, twitter is actually the fourth most frequent means by which people get to my blog. This is a recent phenomenon, as the same analysis over the past year shows twitter well down the rankings as a referral site.

3. Twitter can get your message out fast.

Perhaps the most common reason cited for the use of twitter is its ability to let people know quickly that more information is available elsewhere, with a link back to the full information set.

4. Twitter can let you know what’s going on in the virtual universe.

Assuming you subscribe to the right feeds, or follow the right people, twitter can give you fast insight into what people are thinking in the webosphere.

5. You can waste a lot of time on this stuff.

Following all the links and feeds takes time, which for most of us is a precious commodity. Robin Tooms, of Savage Design and a social media maven, during Q & A at her Social Media Boot Camp at this year’s NIRI Southwest Conference estimated that she spends an hour to an hour and one-half per day on social media. Personally, I don’t have that kind of extra time in my day and if I did have the extra time, I would want to be somewhere other than in front of my computer.

6. A lot of the stuff is irrelevant or garbage.

Even on a twitter follow site as targeted as IRbloggers, 90% – 95% of what comes across has no relevance to me. Do I really need another distraction in my day wading through the dross to find one or two relevant pieces of information?

7. The digital tsunami is descending on us and we might as well learn how and when to swim.

Where all this comes out no one really knows. The proper etiquette has yet to be figured out. There are certain to be fits and starts into how it comes out in the end, with plenty of unintended consequences along the way. Just because you can be connected 24/7 doesn’t mean that you should be. I’m always amazed when I see analysts who have flown thousands of miles to attend a meeting with management ignore the person in front of them, assume the “Blackberry crouch” and start dealing with emails and other items on the web. Not only is this incredibly rude, but it also makes you less effective for both tasks that you are undertaking. Maybe they’re trying to find the extra hour or two to deal with all the additional information they are being deluged with. In a counter reaction to this type of behavior, this year, for the first time, at the Jones Graduate School of Business, we have to include a statement in our course syllabus banning the use of laptops and cell phones during class because the preponderance of students were not using their laptops for note taking.

I could write more, but I have to go now and update my facebook wall…

A Jaded View of Investor Relations

Last week my investor relations class at Rice was privileged to have Rob Rohn, a principal with Sustainable Growth Advisors, come in and talk about what investor relations looks like from the Buy Side.  Rob has been in the business of investment management for over twenty years at some great money manager shops and has a wealth of experience trying to parse through what companies are really saying.  Rob started the class with a short tongue in cheek piece he titled “Jaded View of IR” that I thought was worth sharing with a larger audience.  Herewith, accompanied by a few explanatory notes is what Rob presented: 

The textbook I wrote for the Investor Relations class defines investor relations as follows:

“Investor relations is the process of a company conveying appropriate information to investors in order to allow them to make an informed investment decision regarding that company.”

Rob’s impression of how many investor relations people see their function:

Investor Relations is the art of selling the story without providing useful information while guarding the door to senior management.

Rob then went on to explain how to translate statements form management:

Management: “We are in a challenging environment”

What this really means: Business sucks.

 

Management: “We have not changed our earnings guidance”

What this really means: We might have to lower guidance.

 

Management: “Because of the uncertain environment we are suspending guidance”

What this really means: It’s getting worse.

 

Management: “We see signs of stabilization”

What this really means: It still sucks.

 

Management: “We see opportunities for efficiency improvements”

What this really means: Big write-offs and lay-offs are coming.

 

Before everyone gets offended and huffy about someone dissing the profession, please understand that these remarks were intended as tongue in cheek and I, for one, thought they were pretty funny.  Goodness knows we can all stand a dose of humor during these tough economic times.  Also, just to add my two cents, I think there is more than a kernel of truth to much of what Rob says.  Investor relations people often spend a lot of time and energy trying to put the best face on things, particularly when writing press releases.  This is just a reminder that we’re probably not fooling anyone, particularly not the professional investors.

The Regulatory Mindset of Investor Relations

Last week I attended the Rice Marketing Case competition where eight of the nation’s best business schools came to Rice and in the course of 24 hours analyzed a case and made a presentation of their recommendations to a panel of judges.  It was quite interesting to see how the same problem generated significantly different responses.  I am happy to report that students from my business school alma mater, Kellogg, won the competition, besting teams from, among others, Harvard, Yale, Wharton, The University of Chicago and (alas) Rice.

 

After the competition, I naturally headed for the reception.  Listening to four hours of marketing presentations will build up a mighty thirst.  I was busy easing that thirst on about my second glass of wine, when a fellow attendee I was chatting with turned to me and asked, “What companies do you think do a really good job in investor relations?”  I think she was trying desperately to come up with a topic to talk about because a few minutes earlier when I told her I did investor relations consulting, I was met with a blank stare. (Well, what can you expect from marketing people?)  The thing is, I was stuck for an answer.  My apologies to all of you out there with terrific IR programs, but none came to my mind.  After an awkward pause, I explained that generally I worked with companies that had need of improvement in some area, so I couldn’t name any single company that did everything right.  To keep the discussion going at that point, she then asked me “What is the most common failure in investor relations that companies have?”  Now here was an answer I could sink my teeth into, and I will devote the rest of this post to discussing my answer to her.

 

The single most common failure that investor relations programs have is that they approach the function as a regulatory function rather than one that conveys strategic information about the firm.  In other words, because the minimum disclosures about a firm are regulated by the SEC, many firms view that as being all that they should say about their business. 

 

In the early days of my career, I worked as a corporate attorney.  My practice encompassed everything from real estate to corporate law to securities regulation. One of the things I learned about attorneys that work in a regulated industry is that when they are confronted with a question, they have two default positions.  The first is to examine the facts and see if they fall within the language of the regulations.  If the regulations didn’t allow you to do what you wanted to accomplish, the second step is then to see if there is an exemption available.  If no exemption exists, then the answer is “No, you can’t do that”.

 

To a large degree, this sort of thinking has infiltrated the practice of investor relations.  Disclosures are highly regulated, lawyers and accountants review everything, regulation fair disclosure hangs over everything you say and the threat of lawsuits for misleading statements is omnipresent.  The result is that the default position for most companies is to say as little as possible.  Most lawyers’ advice is that if you stick to saying only what is required by the regulations, you won’t get in trouble.  Of course, your stock is not likely to get much of a valuation, but that’s not their problem.

 

One of the common frameworks of investor relations is: company performance plus the perception of future performance equals stock price.  If a company is sticking to the bare regulatory minimum of disclosure, I would argue that they are only giving investors the half of the equation relating to company performance.  Regulations do require companies to talk about forward looking initiatives, but frankly, if you’ve ever spent any time reading through Form 10-Ks there is generally so much weasel language and so little meat on those disclosure bones that an investor can’t make a reasoned decision based on what they read.

 

So my advice is for companies to open up about how they achieve their results and where they see themselves going.  Talk about the key drivers of your business.  Discuss your view of the markets and where you need to go to be successful. Engage in meaningful disclosures between quarterly filings.  Be upfront about corporate initiatives and update them frequently with meaningful statistics.  There will be rough patches - new initiatives rarely go smoothly, but in the long run investors will understand your business better and assign it a valuation that combines both where you are and where your company is going.

 

I got done with my answer, feeling pretty smug about what I’d said, then I looked at the person I was talking to.  She had a dazed expression on her face, looked at her wine glass, said she needed a refill and wandered off towards the bar.  I guess good investor relations is enough to drive a person to drink.

The Academic Side (or Lack Thereof) of Investor Relations

I’m happy to report that I have recently been appointed a lecturer in management to teach a class on investor relations at the Jones Graduate School of Management at Rice University. Teaching is something I’ve wanted to do since leaving the corporate world about eight months ago, so I’m delighted to have this opportunity, especially at an institution of the caliber of Rice.

Once the first blush of enthusiasm wore off, I started thinking about how to teach the class. Naturally, I immediately decided to do what all investor relations people do, which is to engage in peer comparisons. (Gale Wiley, the teacher of this class at Rice in previous years, has been generous in his advice, but I also wanted to try to get a larger picture.) I freely admit that if I could find good classroom materials and case studies, I would use them, as I had no desire to recreate the wheel. (I prefer to think of this as good research, not copying or plagiarism.) It turns out that the course on investor relations taught at Rice is the only class taught to MBA students that I could find. Northwestern, where I went to business school, chooses to teach investor relations out of the Medill School of Journalism, but beyond that I have found no other graduate school programs. There are certificate programs at several universities and a number of stand alone seminars in the subject, but no other graduate school programs that I could find.

Naturally, this started me thinking, why does this subject sit in academic limbo? Every publicly traded company has to deal with investors and is intimately concerned with its stock price, yet most business schools assume that if you just sort of throw the accounting numbers out there, the market will price the stock efficiently. What this ignores is that the stock price is a discount of future cash flows, and much of the future depends on management and their plans for the future. It is very difficult to figure much of that out without seeing management, hearing what they have to say and placing it in context. To put it another way, past performance coupled with the perception of future performance translates into stock price. The role of investor relations is to provide information both about why past performance was the way it was and what the expectations are for the future. Any finance professor will tell you that lack of information or asymmetric information leads to inefficient markets, so to put an academic spin on it, the role of investor relations is to make the market operate more efficiently by providing more information.

So perhaps this is the start of a campaign to bring more academic respectability to investor relations. When you think about the total value of stocks traded every day, it might make sense to pay a bit more attention to how information gets from companies to investors and the effect that has on investor behavior. On the other hand, it just might be the start for me of a long slide into academically obscure topics. Perhaps “Multidimensional Aspects of Asymmetric Information Flows Between Companies and Investors in the Equity Markets” would be a starting point.