Why? Why Bother With Social Media In IR At All?

As I discussed in an earlier post, What? Social Media In The IR Industry, investor relations is the strategic management and dissemination of information to current or potential investors and other stakeholders, where the IR team assembles and integrates information about a company’s business activities, finances, marketing, and securities law compliance, among other things, and then coordinates and implements the communication of that information to relevant stakeholders. From this perspective, it is important to realize that IR is not a passive part of a company’s overall communications plan, but rather is both reactionary and proactive. The IR division of a company must respond to crises when they arise, but must also constantly and consistently work to communicate with all relevant publics so that small issues do not escalate. The objective of investor relations is to enable an effective 2-way conversation between a company and its investors, the financial community, and other constituencies.

Where the investor relations function may run into problems communicating effectively is in the breakdown of a company’s investors. Investors are those people who have a financial stake in a company, and therefore can be thought of as “owners.” However, employees can also have stock in the company for which they work, as can customers. Additionally, employees can also be customers. Both of these publics, employees and customers, become investors when thought of in this sense. From this example, it is easy to see that all the various publics to which an investor relations team must communicate overlap. Thus, the need for consistency in communications is paramount as influence and information crosses stakeholder borders. Mike Steinharter mirrors this insight in his post, Social Media And Financial Institutions, where he highlights the importance of understanding both the workforce’s and the customers’ perspectives.

From a different perspective, the primary objective an investor has is to see stock prices go up. While this may seem consistent with the company’s goals of increasing profits and obtaining a good “bottom line,” this objective is often in conflict with those of other constituencies. For example, employee layoffs are a common solution to investors’ pressure on management to cut spending, but this, of course, directly affects and hurts those affected employees.

Ultimately, it is the IR corporate communicator’s job to contribute to a company’s shares achieving fair valuation. To do so, the IR team must work to provide the information analysts need to recommend stocks, and investors need to have confidence in the reliability of that information. Investor relations avoids slick marketing and promotion, works to be in compliance with all financial industry regulations, and works to target all relevant publics specifically. Relatedly, Social Media Memo posted FINRA Funds Social Media Program, an illustrative piece describing how the industry regulator has just granted $100,000 for the starting of social media education programs. This example demonstrates the need for IR professionals to provide information clearly, as more and more potential investors become increasingly educated.

Social media has, in fact, become indispensable to the work of a competent and successful investor relations team. Traditionally, the IR team distributes information to constituencies through mail, news releases, annual reports, and viewbooks or 10-K forms. Now, with Web 2.0, detailed and interactive corporate websites, podcasts, webcasts, blogs, corporate profiles, and email are available for targeted use to reach stakeholders. As Dan Chambers comments in his post, How Social Media Is Reshaping The Financial World, more than 50% of consumers today use Internet tools to make their financial decisions. This example illustrates the need for IR professionals to meet consumers where they are when accessing information, online.

Even though most companies and investor relations teams may be somewhat afraid of social media because of the opportunities for feedback from constituencies in the 2-way conversation model it creates (especially the vulnerability for negative comments), a prudent IR team recognizes that appropriate use of social media provides substantially more benefits than detriments. Interactive, dynamic, and Web 2.0-based approaches to communication fosters transparency, credibility, and an enhanced company reputation.