With the launch of the Microsoft on the Issues and the GE Reports blogs, by two of America's leading companies, it is now arguable that blogs have gone mainstream. No longer the province of hobbyists and casual essayists, the use of the journal form to communicate a company's position and perspective while soliciting multi-way conversations has earned its place as a valid engagement medium. The topical is fast replacing the canonical. In this post, we show how this trend will impact investor communications and its benefits.
This week, Microsoft, the software leader, launched Microsoft on the Issues, a blog that would address legal and policy issues as they affect the company. This is a particularly burning topic for Microsoft, as its market position makes it especially vulnerable to charges of abusing of its pricing power and distribution ubiquity.
Perhaps the most high profile case involving the company was the €899 million European Union fine imposed on the company in February 2008, for exploiting its near-monopoly position to entrench anti-competitive practices. This figure was in addition to other heavy fines already imposed on the company.
Brad Smith, the company’s General Counsel, writing the first post, explains why the company chose blogging as the preferred medium for opening a dialogue with its stakeholders on the relevant issues. According to him, the blog is supposed to:
. . . open another, more direct line of communication that will enable us to quickly and succinctly provide our perspective on the pressing technology matters of the day. We do not want this to be a one-way conversation. We want to create a transparent dialogue with readers and stakeholders. We want to enhance our participation in discussions that propel policy-making at local, national and international levels.
Microsoft clearly recognizes that as regulatory oversight on its operations and business practices expands with possible significant costs of implementation, and even the loss of market position as a consequence of compliance, it would need to invite its stakeholders into conversations that impact its business performance. And Microsoft is not alone here.
Among major companies that blog, Dell, the computing solutions company, was the first Fortune 500 company to start an investor relations blog with Dell Shares in November 2007. In an engaging interview, Lynn Tyson, vice president, investor relations at Dell discusses the company’s motivation for starting an investor-focused blog, the various issues the company plans to address on the blog as well the management and legal issues regarding disclosure on the blog.
In her first post on the blog, Tyson writes that:
While we speak to thousands of current and potential investors every year using traditional communications tools, this is an evolution to communicate using some of the web-based tools that foster more interaction. To keep growing and enhance our relationships with investors and others who might be considering our stock, we see that markets, information sources and how people want to interact are changing. Credible and relevant organizations today are taking advantage of technology and the Web to share information and connect directly with customers, suppliers, employees and other stakeholders… We hope Dell Shares will be among your choices of places to come for perspective and commentary on Dell.
It is notable that Tyson recognizes that investors have other sources of information on the company that may provide alternative, and sometimes competing theses on the company with those provided by its management.
In addition to numerous sources of critical information, which may be biased, misleading, malicious or plain false, from newspapers to social media to word-of-mouth, there are also a number of prominent blogs with articulate guerrilla narratives targeting companies. These include:
The Nortel Insider blog focused on Nortel, the telecoms equipment maker.
The Boycott Novell blog focused on Novell, the IT company.
The Walmart Watch blog, focused on Walmart, the super-mall chain.
The Wakeup Walmart blog, focused on Walmart, the super-mall chain.
Dell provides an excellent example of a company walking its talk in investor engagement with social web technology. In this video, Robert Williams, Director of Investor Relations at Dell, speaks about the company’s commitment to blogging as an investor communications and engagement channel.
Another company that is actively using blogs to update investors about important developments is GE. In July 2008, the company announced a reorganization at GE Capital, its financial services arm, that would bring all its financial services businesses under a common franchise. Four months later, the company posted an update on the reorg on GE Reports, which included a video interview with Bill Cary, Chief Operating Officer of GE Capital.
The interesting part about this post is the number of lively comments it generated. One commentator, J McCabe makes his views clear.
While I appreciate the recent announcement about the restructuring and the potential to save $2 billion in 2009, this level of communication is not sufficient to dispel concerns about the unit/company. Witness the share price decline below $13.
GE must do more to disclose how it is truly managing this unit. Discussions on risk management policies is key. Please define GE’s guiding risk principles and numerical target ranges and publish them on your web site. Publish loan risk statistics by type and industry. More fully disclose Board and management actions in this area. Establish a Board risk management committee on a par with Audit. Demonstrate that you have realigned compensation with both short and longer term risk return targets. Raise the profile of the risk management office in GE Capital shown on that very simplistic org chart on this web site.
. . . Please reconsider your financial reporting communications. The public is demanding more active action statements. My observation is most recently supported by the tough questioning of the auto industry executives who are being pressed for more detail on their business strategies and ability to match supply to demand and repay debt. What I have seen on this website does not even come close to what is really needed. What I call the reorg video provides no significant operating information and does not add to my comfort level regarding Mr. Neal’s management skills.
Two weeks later, GE issued a press release giving more detailed information about its plans for GE Capital. While we are not implying that J. McCabe’s comment was solely responsible for GE’s decision to provide a more detailed description of its financial businesses reorganization, such feedback communicates to management the importance of such disclosure to investors. Since comments posted on the blog are open, other investors who support the commentator’s demand can also weigh in, and in fact begin a conversation among themselves about the quality of disclosure for company reorganizations, which can provide invaluable guidance for GE.
Such participation and intelligencing would never have been possible in the traditional website with its monologue format. At best, the concerned investor would send an email to the company. Other interested investors, not knowing about this, may also send emails with the same request to the company. In the end, the result would be a volume of requests with a minimal level of dialogue. What if another investor had sent a comment requesting that the company provide more guidance on its mortgage exposure, and another, on its consumer loans exposure? By building on comments already made by other investors, the quality of conversation is greatly improved, which improves the chances of visitors returning to the site and telling colleagues about it. Tools like Intense Debate and Disqus can be used to enhance the whole commenting exchange. The content generated in the Comments area, also increases the search engine discovery of the blog as key words are more likely to used more often.
Blogs offer an incredible opportunity for companies to put their performance reporting and business strategy narratives in context. In a way, blogs provide both an instant MD&A blended with the no-holds barred Q&A sessions of shareholder and analyst meetings. While one expects such access to invite some off-point and plainly vitriolic responses from commentators, which may be moderated, they are an incomparable way to pull in intelligent questions, insights and views on the company.
The old IR website model, which, by the way, still has valid uses, was focused on presentation: presentation of past financial performance, presentation of business strategy, presentation of competition dynamics, presentation of shareholder value creation, and so on. To all intents and purposes, it was a one way speech. It did not solicit feedback on the site and it did not allow a public query of the contents of that presentation. But all that is changing. With blogs and other web 2.0 media, investors, analysts and shareholders can directly participate in that presentation. Unlike the old IR site, the investor relations blog is focused on a freeway exchange between the writer and commentators, on the one hand, and among the commentators themselves, on the other.
Blogs are feedback-centric. The comments received close the loop. In fact, the success of a blog or specific post is often judged by the amount of comments and trackbacks it generates. Although, the investor relations blog will not be ideal for pushing out all types of content, it beats all other channels hands down for its in-built dialogue structure. While any content on the web can generate feedback, only blogs allow such feedback to be expressed on the same cyber-locale as the instigating content.
We believe that the expansion of participation in the financial and business narratives of companies, which for a long time was limited to analysts, high networth and institutional investors only will have important consequences for the practice of investor relations. These will be sparked by at least three events:
The admission of blogs as an acceptable disclosure channel by the US Securities and Exchange Commission.
The proliferation of guerrilla narratives across the social web about companies and their actions.
The current economic crisis , which will force companies to re-examine how they communicate with the investment community.
We discuss each of these briefly and their significance.
In July 2008, the US SEC approved the use of company websites, including company blogs for Regulation Fair Disclosure (RegFD) compliance.
The SEC ruling only affirms what is already a fact. Today, most investors do their research on companies on the web. It only makes sense for companies to adopt the web as an important, and perhaps the most important means of disclosure, so that their sites become primary destinations for those researching information on them.
Still disclosure of the facts is not sufficient. Companies will need to tell much more by placing the facts (e.g., financial results, product recalls, strategy decisions) in the right context so that the company’s actions and performance are properly understood. While ‘context’ does not absolve a company from bad results or poor performance, it at least provides readers with a clearer view of the limited visibility and choices available to the company at the time.
The widespread use of blogs and internet forums to raise issues about a company, and the quality of feedback these can generate are indicative of a growing trend of online discussions that either affirm or challenge mainstream media reporting.
Our own research shows that most visitors and commentators on these blogs and internet forum are mainly drawn there for at least, five reasons:
Knowledgeability, authority and credibility of the writers putting up posts.
The interest of issues raised.
The open invitation to contribute to the post without tedious registration requirements.
Assurance that comments will not be excessively censored or edited.
The quality of feedback from other members and commentators.
Generally, these factors are not exclusive to non-company blogs and companies can recreate the same attractiveness for their own blogs and drive interest there. In fact, they should, since they need to reclaim the locales of dialogues about them. But this does not necessarily mean that a blog strategy must be defined by the creation of a company branded blog on the company’s URL or limited to it. If the defining quality of a blog is the content, then company’s can make posts or start threads about the relevant issues on blog or forum sites that already exist, in addition to their own branded ‘owned’ blogs.
Blogs can serve a number of useful purposes in company-investor communications. For example, Dominic Jones and Pam Agnew of IR Web Report have put forward a number of well-argued points why corporate boards should blog, which is mainly focused on a corporate governance angle. In this post we focus on use of blogs to elaborate on the continuing validity of a company’s investment thesis and the sustained attractiveness of its sector in an economic downturn.
As the global financial crisis has spread to the broader economy, companies face herculean difficulties raising funds to meet operating requirements and make new investments. The credit drought and stock market turmoil have caught companies in the perfect storm. Even as the value of equity in many companies has dropped to abysmally low levels, companies will be obliged to shore up their equity capital in coming months if they are to maintain a balance in their capital structures and resume borrowing. In the present situation, new equity capital may hold the key to the survival of many companies.
The portfolio carnage investors have been victims of due to the acute drop in their asset valuations makes it even harder for companies to convince investors that the crisis is macroeconomic-induced, and not microeconomic-created. Companies need to step out to explain to investors that the stock market performance of their shares is not an accurate indicator of the demand for their products and services, innovation, quality of management and business strategy. Companies need to convince investors that the two are separate, and that while their businesses will experience a trough as a result of reduced spending and liquidity, the fundamental drivers of the company’s success are still valid.
Blogs are excellent platforms for this type of communications because they put a face to the writer and invite reader feedback. The higher the interest of the blog, the higher the chances of it attracting high-quality feedback, and the higher the likelihood that other blogs and sites will link back to it. All these amplify the blog’s message, which work to the company’s interest because its message is getting out.
Finally, as the major corporations lead the way in blogging about events within and outside the company, one thing is increasing clear: the audience for interrogating the corporate narrative has been democratized. Investor relations professionals must be prepared and prepare their boards for the expansion of access. We hope they hear the bells of change ringing.
One cannot help noticing how Niyi Meka Olowola, Oando's Head of Corp Comms, is nodding in approval. Maybe Goldman Sachs can learn lessons.04:47:49 PM January 25, 2012from HootSuite
Twitter: CustomsStreet
