Social media spells new opportunities in investor relations. Twitter, Wikipedia, LinkedIn and others cannot replace personal contact and traditional communications. But used intelligently, social media does open new doors, not least in financial communications.

By Urs P. Knapp, knapp@farner.ch

Companies that conduct investor relations know the respective institutional investors and analysts well. Dialogue with these target groups relies on one-on-one contact. Another key element of investor and financial communication is managing current and potential investor expectations, transmitted through traditional media and by means of regular and ad hoc reporting.

Social Media as a Relationship Management Tool

In the context of managing relations with the financial community, today’s social media can help solidify contacts. Blogs and Twitter can provide access to more contacts and wider groups. Such social media tools can also help spot emerging trends early, set agendas, convey messages, and thus boost the company profile. Social media can initiate the kind of close interaction with private investors that was the exclusive province of institutional investors in the past.

No question, companies should use social media in investor relations as a complementary tool. And with the objective of actively participating in raising public awareness and forming the company’s reputation through its presence in the network community. One must keep in mind, these channels create their own set of imponderables: controlling the flow of information is more difficult and contacts tend to be less personal. Not to mention that in areas such as real-time stock quotations, Facebook, Twitter and the like are not equal to traditional communication channels.

The Wall Street Journal reported on the case of Netflix. The CEO caused an uproar when he shared some news via Facebook; he noted that Netflix had more than one billion hours of streaming video in a month. The stock jumped sharply on the news, which raised a minor firestorm and sparked a germane question: If corporate executives or companies share information via Twitter or other social media platforms, is that a violation of fair disclosure laws? In December, the U.S. Securities and Exchange Commission SEC said it was considering bringing charges against Hastings. But after looking into the issue for several months, the agency came to the conclusion that social media is indeed okay, with certain restrictions in place.

New Communication Culture

Let us not mistake the social media as the exclusive province of adolescents. The influence of the everlarger internet and the social networks it has given rise to is vast and keeps on growing. We are used to having instant, 24/7 access to information, wherever we may be. And we are used to using virtual platforms to gather information and build opinions on companies, products and people. Financial figures and investment opportunities are often discussed in forums and online communities.

Companies ignore their potential opinion-shaping power at their peril. Active participation is the appropriate response. While institutional investors and analysts might perceive social networks as threats to their personal contacts, for most businesses monitoring and involvement in the social media are musts because today, professional investors trawl electronic networks for information and opinion-shaping tools as much as private investors.