Cooperation Can Easily Bribe the SEC: Guest Post by Lindsey Craig

The SEC is an organization with limited funds and resources when it comes to enforcing the various acts they have put in place. When it comes to the smaller acts, such as the Foreign Corrupt Practices Act (FCPA), most of these offenses take place overseas and to gather witness and evidence can be quite costly. In the case of the Ralph Lauren Corporation they earned the first non-prosecution agreement for a FCPA case because of their cooperation with the SEC on their recent violation.

The Ralph Lauren Corporation was doing an internal audit of the company with compliance programming when they discovered discrepancies in their cash flows. The head of their Argentina subsidiary supplied the bribes by writing things as “loading and delivery expenses” and “stamp tax/ label tax”. The Ralph Lauren Corporation paid a total of $593,000 in bribes to Argentine officials. These were paid off in handbags, perfume and clothing. These bribes were effective in allowing the corporation to pass illegal merchandise through customs. Check out this Bloomberg for a great explanation. (http://www.bloomberg.com/video/ralph-lauren-corp-fined-in-argentine-bribery-case-m78X0JF6Qq67QbvhLXSYOQ.html )

During the discussion on what the SEC was going to do about the violation, the stop price dropped to its lowest price in months, down to $165.66, and then when the SEC offered to give Ralph Lauren the non-prosecution agreement the stockclimbed over $11. Because the SEC was lenient on the corporation their stock and investors avoided any harm. 

According to the NY Times, (http://dealbook.nytimes.com/2013/04/29/ralph-lauren-case-shows-the-benefits-of-cooperation/ ) the small settlement of $700,000 by Ralph Lauren to the SEC is a small price to pay for the transgression. The corporation did go above and beyond when trying to help the SEC in the investigation. Not only did they report themselves, they also:

—  Reported preliminary findings of its internal investigation to the staff within two weeks of discovering the illegal payments and gifts.

—  Voluntarily and expeditiously produced documents.

—  Provided English language translations of documents to the staff.

—  Summarized witness interviews that the company’s investigators conducted overseas.

—  Made overseas witnesses available for staff interviews and brought witnesses to the United States

The penalty could have been much worse from the SEC and DOJ if they hadn’t cooperated, and the SEC hopes to use this as a template for other companies who violate the FCPA. They used the Ralph Lauren Corporation as a guinea pig to show future violators just how beneficial it can be to provide them with help. The SEC allowing cooperation to change the way they think about punishment is helpful for them with the amount of resources they no longer have to expend, but it is almost a form of bribery to these companies to help do the work and you will have to pay less.

It may be considered a trade-off, since the companies are paying what the SEC would be anyway. Yet, the SEC took a NPA instead of filing a larger claim and actually taking action. By the SEC taking the NPA approach it also helped the stock price of the company rebound at a faster rate, further encouraging companies to turn themselves in and being an unforeseen benefit of cooperation. The SEC is here to regulate industry in a productive manner, but we’ll see how their ruling on the Ralph Lauren case changes the future of the FCPA. 

Social media is the newest fad: Guest Post by Collean Toupin

Social media is the newest fad, for everything, for everyone. New platforms are being developed to try new and interesting means of communication, but one important factor remains: you can no longer avoid social media. Social media is even crossing over into our work lives, with its use in the professional world becoming more and more apparent. With the SEC’s blessing on using social media for fair disclosure (you can read more here in a blog written by Dennis Walsh explaining the new rules, the VP and director of Social Media for Sharon Merrill - http://blog.investorrelations.com/2013/04/08/sec-gives-social-media-for-ir-its-blessing/), the business community has seen social media has move into the spotlight over the last few weeks. Companies are finding all sorts of different ways to use social media to help develop maintain and strengthen their brand.

One way some companies have been using social media, is to involve their CEO. While it has been found that only 16% of CEOs are currently using social media to connect with their constituents, IBM predicts a 256% increase in the use of social media by CEOs in the next five years (http://www-935.ibm.com/services/us/en/c-suite/ceostudy2012/infographic-01.html). Some CEOs, like Peter Aceto (the CEO of ING Direct Canada - https://twitter.com/CEO_INGDIRECT), are ahead of the ball-game and have been using social media for quite some time, and have used social media very well to develop their brand. He uses his Twitter page to connect to users on the daily, frequently replying back to tweets, about all different sorts of topics. Much of the content developed by Aceto is business related, but he makes sure to disseminate pieces that are relatable to the everyday person, such as a tweet posted on April 15, about having the how-to-save-money talk with your teenager. In an article written by Forbes magazine, Aceto is quoted as saying “Being open, sharing more about ourselves, showing a relatable side, are all extremely valuable and can be real competitive advantages,” when commenting on the type of content he tries to deliver through his social media use” (http://www.forbes.com/sites/carminegallo/2013/01/30/a-bank-executive-they-call-the-social-media-ceo/). Aceto understands that social media provides transparency for his constituents. His constituents, by reading his page, can see and read about him being a father, posting about guiding your children to save money, can see and read about him being a citizen, his comments on different social events that are occurring and can see and read about him being a professional by reading the business posts. Aceto also warns against some risks that come with social media as well, here.

The risks pointed out by Aceto are real, and with the SEC allowing social media to be used for fair disclosure, they will become even more apparent as the social media trend develops. Companies choosing not to partake in social media may find themselves facing criticism for not extending the lines of communication with their constituents. Aceto also states that if posts are not authentic and real, there is a reputational risk. We all know that lying doesn’t get us very far, ever.

But, with some social media training (and common sense- what is acceptable in public, is acceptable on social media, what is not acceptable in public, is not acceptable on social media), social media will drive business results. There are plenty of different resources that can be used to learn how to use social media effectively. One, a video blog by Tim Howard, the CEO of IRSmarttInc provides guidelines for a personal profiles online and how to use them effectively.

Another great resource is Peter Aceto’s Twitter page, it will show you different examples of topics to use
to interact with the public. Twitter searches will provide great results for social media guidance. Resources are readily available all over the web. It is important to have a full understanding of social media, its risks, benefits and how-to’s before you dive in and use social media. But it is important to learn quickly, smart social media use gives your business a very competitive edge.

SEC Guidelines on Social Media: Guest Post by Erin Mannix

On April 2, 2013 the U.S. Securities and Exchange Commission issued new rules regarding the disclosure of key information. The SEC gave the OK allowing companies to use social media as a main source of communication among their investors. However, with this change to section 13(f) of the Securities Exchange Act of 1934 comes several ethical rules that companies must abide by.

Before releasing company information, companies must inform all of their investors where the information will be posted. If companies do not follow this important rule, using social media as a form of communication will not be worth it; it will only be able to be seen by certain investors. Investors must be alerted of the release of new information, and they must be alerted at the same time, giving no one investor a leap ahead of the other. If information is only released to certain investors, it leaves others behind on the latest news and updates. One group of investors or shareholders should not be given an advantage just because a company is selectively withholding important information from others.

Due to this new change to section 13(f) of the Securities Exchange Act of 1934, business communication will never be the same. With the constant changes and improvements with technology and social media sites, companies will have to continuously change and adapt to keep up. If companies are serious about using social media as a main source of communication, they must use it consistently and remember to continuously update, inform, and monitor what is being said about them. Using social media can jeopardize or improve a company’s reputation. If a company only posts a minimal amount of information, investors may begin to question how invested they are. With that being said, if companies take advantage of this new rule, posting information and constantly updating, social media sites can also gain something. Companies can help social media sites to grow and become bigger than they may be already. Companies can exchange information and feelings on how one site may work better to release certain information over others. If companies work well with the social media sites, both can advance and grow.

Social media is a quick and easy way for companies to spread important information as long as they are doing it correctly. Companies must be aware of what they are writing on social media sites and letting the public into. Whatever you place online is public information; it is how investors and the public perceive you and your company.

Hoping that all of the company’s investors are on the social media sites to obtain this information, companies should take advantage of this new change in the Securities Exchange Act of 1934. Using social media can be a great way to improve a company’s image. It can show what the company’s views are on certain topics, while releasing fast information for all of its investors to obtain.

No one can know what may come with the future and companies using social media. The future of company’s and the use of social media to release information is entirely up to the company and if they can quickly adapt and change with the technology. If they choose to take advantage of this new rule, they should not forget to interact with their audiences.

Sponsors’ Reaction to the Lance Armstrong Crisis: Guest Post by Kristen Murphy

Public relations professionals are needed to stop a crisis from occurring, or clean up what the crisis has caused. But when the damage is done, how does the calamity effect the investor relations department of a company when they are entering a correction or a bear market?

Lance Armstrong was a role model for many people. Fans worldwide wore LiveStrong bracelets proudly on their wrists, supported his seven title wins of the Tour De France from 1999 to 2005, and were inspired by his testicular cancer survival. Unfortunately, in 2012, it became public news that the cycling conqueror was doping and using illegal performance-enhancing drugs during his prime time as leader in the world of cycling.

We hear of this often. The face of a company suddenly is under scrutiny, causing the whole company to go down with them. Shareholders feel that their relationship is destroyed with the company when the common figure associated with that company’s reputation is tarnished. We know what PR people need to do, but how do the Investor Relations professionals react when shareholders and the press bombard them, in order to keep shareholder’s trust? Investor relations officers have both financial and communication skills that are needed and relied on heavily from a day-to-day basis.

Companies that sponsored Armstrong, such as Nike (NKE), Oakley (OO), Dasani (KO), Bristol Meyers (BMY), and Michelob Ultra (AMGN), have run for the hills to try and escape the collateral damage sparked by Armstrong, and to not get involved in the mess of loosing millions of dollars. Also, most of these companies came out with statements regarding their disapproval of Armstrong’s actions. Even LiveStrong developed a statement saying that Armstrong “misled” them, but “Lance is no longer on the Foundation’s board, but he is our founder and we will always be grateful to him for creating and helping to build a Foundation that has served millions struggling with cancer.”

When looking as an investor relations officer in the sticky situation during the event of a meltdown, investor relations officers want to stay visible, and emphasize the long-term relationship with shareholders and the strength of their balance sheet. To be honest with your investors is the best guiding principle, and they will respect the company for doing so. The company has to make sure they understand their disclosure policy in order to dictate how and when confidential information should be shared to the public.

Every company, investor relations officer, and crisis is different, and there is no right way to answer to all crises. It is seen as though the best way to respond to a crisis of this severity was to drop and dart, because that is what most sponsors have done.

Crisis management is most likely not going to change in the near future. Unfortunately, these types of predicaments occur all the time. I hope that social media will have a larger impact in the future, because having a constant feed of the company’s progress could help shareholders to trust in the company a little more. Crises could be anything, and there is no way to prepare a company for it. The only way to prevail through a crisis is to have a well-trained management team on hand, who is ready to react to anything that comes their way.

The role of social responsibility in investor relations: Guest Post by Kristen Eklund

Social responsibility has a heavy weight in the investment field. Both ethical and moral views are put on the forefront when investing in a company. They are weighed by the stakeholders as well as companies. Social responsibilities could potentially make or break a company and their shareholders. Social responsibility investing represents the ethical and core beliefs of a company and its publics.  With the ability to withhold funds from a company  the shareholders are able to restrict business with that company and limit there ability to run effectively. In conclusion a company's share price may be negatively affected if these unethical behaviors are being carried out. This leads the company to take in to consideration the core values of their company and publics.

Nike has been at the forefront of social responsibility scandals. Being one of the leading brands in the world in 1992, Nike was accused of disregarding social responsibilities within their factories throughout the world. The first case came up in a 1992 edition of Harpers magazine. A young Indonesian worker named Sadisah was questioned about the conditions of the Nike working factories. Sadisah was working 6 days a week for 10 hours a day. Her wage was for 14 cents and hour. With a company being owned by the sixth richest man in the world, stakeholders and customers were outraged by the working regulations. After exposing the company, Nike had began to receive negative publicity. This scandal spanned out for the course of five years. Protests against the company had begun, and Nike retail stores were suffering immensely. Groups were formed to protest against the slave like conditions, while many sports teams pulled their sponsorship deals with the company.

ESPN covered as story about St. Johns University that withheld their 3.5 million dollar sponsorship deal with Nike. Jim Keady an assistant soccer coach at the University refused to wear the Nike product and in return the company suffered. Slave wages, abuse, and neglect were just some of the terms used to describe the market leading brand.  With dominating the market for so long, Nike was under severe criticism and needed to implement crisis control tactics. The report includes a section regarding workers and factories. This section provides information about how the company reaches out to the workers and how they regulate what is now going on in the factories. Given by a third party survey the employee satisfaction survey was administered to workers in 24 factories in China and Vietnam. The survey was composed of questions regarding: training and development, living conditions, working conditions, work hours, compensation and supervision. The company also implemented a 6 point plan which would help Nike monitor conditions while raise minimum wages and work requirements. Following this, Nike also set up a CSR department which communicated directly with Phil Knight along with publics which heavily criticized the company.

Over the years, Nike has attempted to slowly rebuild its reputation. In order to continue, Nike must be able to communicate to the public and its stakeholders their ethical responsibilities. Nike reported in 2005 that they have been working with factories to builds their human resources skill san improve the environment. Since the ongoing scandals that erupted in 1992, Nike has still continued to emerge as a company that suppresses its factory workers. Articles  continue to emerge about Nikes treatment of workers in factories across the world . A recent article in 2011 stated that workers in Nike factories were physically and verbally abused.


In terms of future development, the company must continue to work with factories throughout the world. Nike must directly monitor these factories in order to ensure they are running safely. Nike must be able to communicate their efforts to their stakeholders as well as customers in order to rebuild a relationship. They must gain trust back from these publics in order for them to invest in the company.

It is evident that the Nike controversy has continued to drag on. Being one of the market leaders Nike continues to be a powerhouse. It is evident that there main goal is to gain a profit from their customers regardless of the negative publicity. In order to gain a positive reputation, the company must be able to directly oversee workers and factory conditions. Nike must import jobs back to the United States to ensure that the company is able to oversee the production rather than shipping jobs over to a third party. Though this could potentially affect the company? profit, it will positively affect their image and the shareholders trust with the company. It is the concept of weighing ethical values against profit.

The new task for IRO’s that’s gaining momentum—Sustainability Disclosure: Guest Post by Victoria Seggio

In the highly competitive and rapidly changing economy, staying ahead of the curve can be vital to the fate of a company. A focus on intangible assets has been an integral part of investors’ analyses of a corporation, but there’s a growing trend that has put some companies ahead of the game.

         

In order to compete, companies now need to be cognizant of their triple bottom line—environmental, social and economic performance. According to a study done by the Investor Responsibility Research Center (IRRC) Institute, shareholder support for environmental and social actions has doubled since 2005.

                                                              

Shareholders are now challenging boards, more than ever before, to improve their extended disclosure around hot-button social issues. Environmental and social proposals lead all other major proposal categories of shareholder proposals according to Ernst & Young. These proposals also receive the highest levels of approval, especially those targeted at sustainability in companies facing corporate governance issues or if they seek higher levels of disclosure. Voting patterns provide convincing evidence that investors link a company’s social and environmental policies to its financial performance. Starbucks shareholder’s recently demanded sustainability initiatives in a resolution voted on at the Starbucks annual shareholder meeting.

This growing trend and number of proposals has expanded the role of the CFO and IR department. IR communication needs to provide more in-depth sustainability reports. CFO’s and IRO’s must stay up to date on sustainability initiatives across the organization. As corporate social responsibility issues have become intertwined in business strategies, more and more companies have begun to disclose their sustainability efforts.

According to the Governance & Accountability Institute’s 2012 Corporate Corporate ESG/Sustainability/Responsibility Report the number of S&P 500 companies reporting sustainability efforts has doubled last year, growing from 19% in 2011 to 53% in 2012. This reporting not only pleases investors, but also adds to company’s competitive advantage and bottom line. Sustainability disclosure allows companies to build trust with their investors and the community, and allows them to gain access to new investors who practice sustainable and responsible investing. Sustainable efforts give companies a competitive edge in the marketplace. “Green” practices allow them to differentiate their brand while incurring reduced costs from reduced use of energy and raw materials.

While these disclosures are not yet regulated, companies are reaping the benefits of getting ahead on this trend. They are protecting their freedom to operate by getting ahead of the issues facing their respective industries. They circumvent the threat of regulation by managing these issues themselves.

This trend will only continue, as more and more companies respond to the pressure to disclose social and environmental information from shareholders and competition. While the pressure won’t let up, sustainability reporting will face the same problem other intangibles face, lack of comparability and consistency in measurement. This reporting is voluntary, and companies use different guidelines in their reporting. Investors going forward will be faced with the challenge of how to compare one green initiative with another. 

IR APPS: Is Investor Relation adequately using their technological resources? Guest Post by Kellie Duffy

If you need to check the correct conversion of money during your trip to Italy, there’s an app for that, want to block the number of your ex so you will stop calling them, yup there’s an app for that, too. From checking the weather and traffic, to checking your bank statements most things you need are all in the palm of your hand, but has Investor Relations (IR) reached their potential with using these applications?

Surprisingly, IR has yet to make any ground breaking effort to full integration of our app filled world. An industry reliant on getting information to a vast number of people at the same time, you may assume, would have apps being widely used and developed.

There is a website, theIRApp, focusing on quickly creating App’s for publicly traded companies in order to have information such as stock information, fact sheets, audio conferences calls, etc. available to whoever downloads their apps. The resources for companies to create and manage a smartphone app are available; it is up to the companies themselves and possibly the profession of investor relations as a whole to jump on board with creating the applications.

With most things involving Investor Relations, a big question and problem is with the regulations in place and making sure Investor Relations professionals and companies are abiding by them. If these IR apps were to become apart of the culture of publicly traded companies, I believe it would affect the way companies can disseminate their information while keeping in mind Regulation FD. These apps could potentially be the sole way to get information out to their shareholders and potential shareholders. Nowadays, most people have a Smartphone and the large majority is beginning to also acquire products like tablets that also rely on applications to draw in customers. App’s are what make these highly sought after products worthwhile, and companies as well as Investor Relations professionals should be aware that their current and potential shareholders have these products and use App’s for a lot of their day to day activities.  Keeping this in mind, they should push to make app’s for their companies a go to for information regarding potential investment and stocks.

As IRwebreport.com highlights, there are definitely some companies using apps to get information about their companies out there. One app is a Mexico based cement company, Cemex. I downloaded the free app for Cemex to see what it was all about, and it is a good example of what companies may look to focus on when designing and app with Investor Relations in mind. The home screen has all the fundamentals with tabs linking to “my needs, best practices, product documents, and contact us”. The Cemex app, which was created in 2010, is a positive framework for what an app can provide to potential and current shareholders.

Although there is some prevalence of these apps for IR, there still remains a lot of room to expand. With a focus on Relational Investing as well as importance of intangible assets, an app for a company with information on stocks, decisions companies are making and how it could affect shareholders, could no doubt, assist with creating relational investors in a company which in turn can create a more profitable and successful company as a whole.

HNZ Insider Trading Suspicion: Guest Post by Lindsey Craig

No company is immune to the risk of insider trading. As Heinz recently found when the day before an acquisition of the company by Warren Buffet’s Berkshire Hathaway and 3G Capital its stock was abnormally traded on the market causing the SEC to question if there was any foul play involved.

As shown in the graph fromthe Wall Street Journal on February 13^th, the day before the deal was announced, there was a large volume of trades among the ‘call’ option contracts. Without prior knowledge of a deal the stock price activity should have been relatively quiet until after the announcement. The stock had been steady for months, which made the volume of trading suspicious. This news of a merger also reflected in the stock prices raising over ten dollars in one day. 

The merger between Heinz and 3G Capital is the second to draw the attention of the SEC. Not all investigations of insider trading actually lead to lawsuits, but shouldn't the SEC take special care in looking into these claims since it is the second suspicion?

The larger question in the lawsuit is how will the SEC prove either side of the merger leaked information to day-traders? The people who sold the stock made over 1.8 million dollars, which is an obvious motive. As shown in a You Tube post, the SEC has no solid proof at the moment. Although, it did freeze a Switzerland- based account that was connected to the merger that was under Goldman Sach’s name. 

According to Corgentum, the SEC and the FBI are involved in the investigation, but it is hard to track the identity of the trader. The problem isn’t whether insider trading was done, but who did the actual act. The SEC can track the volume of stock trading before and after a merger, but they can’t always tell who the leak originated from. It seems to be a flaw in the SEC’s system of heavy acts about fair disclosure.

According to CNBC the perfect way to avoid being caught by insider trading, is to not sell shares at all. Yet, if people don’t sell the shares they won’t make the money that insider trader is hoping to make. The key to insider trading they insist is to not get caught, but any insider trader can do that as long as they keep a paperless trail and are ambiguous.

In an investor relations class we went over the importance of knowing who the investors are in a company, but it is also important to know the key players in a company and their connections to the investors as to minimize the risk of insider trading. No company is immune to the possibility of insider trading when big mergers come along, but to keep the flow of information fair investor relations professionals need to err on the side of caution when it comes to fair disclosure.

Investor relations professionals should know the people they work with, as they are the boundary spanners both internally and externally. It is managing the relationships with investors and the employees to ensure that the right people know the information at the right time. Since 3G Capital had just run into the same issue when they acquired Burger King, there should have been more preventive measures taken for the Heinz acquisition. 

French Connection: Guest Post by Maddie Cowen

Throughout the world one of the major industries that is well-known and continues to expand and grow is the fashion industry.  People who work in the fashion industry know it is an incredible industry. Some would describe the fashion industry as being glamorous and exciting. However, like any other industry people need to start at the beginning in an industry such as fashion. There are many aspects that are new to the fashion industry such as “virtual closets, flash sale businesses, new designers and people who use technology in clever ways.” The challenge is there are many entrepreneurs who try to make it in the fashion industry and they end up missing the mark. Some issues that are common within the fashion industry are designers copying or coming up with the same concepts for a fashion line or to Vogue magazine acknowledging the fact that models have an anorexia problem. This poses a problem for the people who invest in the company or magazine because they are worried that the message that women should be skinnier if they want to be in the fashion industry. This also poses a problem to younger girls because the models are opening young girl’s minds and showing them that they want to look like the models they see. In all reality these models are showing what not being healthy looks like. The magazines are now showing healthier models and they are trying to change their image of what women should look like.

 Another problem that the fashion industry is facing is in the manufacturing industry since employment in the industry has declined by more than 80 percent. The number ranges from 900,000 to 150,000 jobs. This means that there are less people who are making the clothes that people wear and how so many people lost their jobs in the fashion industry. However, the labor productivity in the United States has more than doubled from the year 1987 to the year 2010. This shows that people are working hard to make the clothing we wear daily and how more clothes are being sold in malls and online. One company that has been able to be a success is French Connection, an international brand.  The goal the company set on September 19, 2012 was to outline initiatives applied in order to improve the performance of the retail business. The highlights of the company were their revenue being at 102.8 million Euros and how the company is underway to improve the retail business.  The goals of the investor relation professionals are to make sure that the numbers for the companies are correct. However, being a European fashion company there are likely to be some problems.

 One of the major problems that French Connection faced occurred in the last six months. For French Connection it has been very difficult for French Connection's UK/Europe retail business. As stated in an article by Paul Sonne “The company also faces some other troubles which include closing some of the stores that are in the United States and had “a plan to close all 21 of its Japanese stores and the retailer also agreed to sell its upscale brand Nicole Farhi brand to a Los Angeles, California based firm OpenGate for up to 5 million Euros” (Sonne, Paul). This means that people who have stocks in the company and want the company to be a success.  It shows that French Connection is one company that has ups and downs but is still able to be a success. 

Do Private Meetings with Investors Undermine Fair Disclosure? Guest Post by Ryan Mullett

One of the issues which has evolved over the past decade is that of fair disclosure. With the implementation of Regulation Fair Disclosure (Reg FD), IR professionals have had to battle with the issue of trying to remain legal throughout all of their reporting to investors. While Reg FD has tried to level the playing ground by ensuring all investors have access to the same information, a recent study undertaken by David H. Solomon from the University of Southern California and Eugene Soltes from the Harvard Business School titled; “What Are we Meeting For? The Consequences of Private Meetings with Investors” suggests that this may not be the case.

            The paper looked at records from a NYSE traded firm over a six-year period during which there were over 900 meetings in order to see whether or not the meetings were associated with the trades and whether people made more informed trades after a private meeting with the firm. The authors of the study found that funds that met in private meetings with the firm were able to get higher returns than those that did not meet. “When the trades of funds are aggregated, a one standard deviation increase in purchases by funds who met with management predicts an increase in stock returns of 3.7% over the following month” state the authors, “By contrast, the trades of funds who did not meet with management show little predictive power for future stock returns.”

            This data is quite interesting and suggests the Reg FD may not cover all the bases. While the authors do state that it is possible that some investors are simply better able to process information, however it is still very clear that private meetings provide a great benefit to investors, who according to the authors were able to trade much more successfully in the time period after a private meeting with the firm.

            As an article from irwebreport states, private meetings are often arranged through things such as bus tours with the more active trading clients. Information from these meetings is often hard to come by because many times it is not kept on record for “liability” reasons.

            Overall, I would say that there is a clear correlation between a private meeting with an investor and more successful trades, but I cannot say that it is very clear why this is. I would be hesitant to state that those investors who met privately are violating Reg FD and receiving an unfair advantage because we simply do not always know what was stated in those one on one meetings.

           

            It could be that these investors are simply better at looking into what they hear in these meetings, however it is very hard to tell without actually seeing the meeting live in order to know exactly what was discussed. I think that the best course of action moving forward would be to require any private meeting to be documented via video or audio, kept on record, and made public. This change would settle any and all claims of unfair play because if as an investor who was not at the meeting, you still have access to it you have all the same answers that the people at the meeting are providing.

Investor Relations: The U.S. Economy’s Influence on Global Investors: Guest Post by Kerry Healy

The U.S. economy’s success and struggles impact global investors. Jeffrey Morgan, CEO of the National Investor Relations Institute (NIRI), explained during a Skype call with my investor relations class, global investors will take into account what is going on in the United States, whether it be a political issue or economical issue, they look at America’s market when discussing businesses and stocks. Although international investors do look towards the US economy, they do not always need to react. 

Morgan made it clear that all global economies interact differently whether they are currently in recovery, a healthy state, or on a downfall, no economy is the same. Because of the differences in current activity, global investors may not always be influenced by what is going on in the United States.

Although America might not be as large as an influence as we may think it is, global investors were concerned during the last six months because of the state of the economy. One of the main struggles America faced recently was the fiscal cliff threat. Despite this being an American issue, global investors faced problems and had their own concerns with this money matter. According to a survey by Bank of America Merril Lynch 42% of global investors said the fiscal cliff was the “tail risk” for investors.

SeekingAlpha.com defines tail risks as “…strategies are essentially designed to perform well in the worst of market conditions. They act as insurance policies, requiring investors to pay in to a losing strategy until something bad happens. Tail-risk hedges are said to be most effective in environments where market participants see declines of at least 20%, providing much needed liquidity while the rest of their portfolio is spiraling toward the bottom.”

Although a tail risk is a very unlikely problem, investors still looked towards the US economy’s downfall as a hurdle, and tail risks can present problems if the hedge fund goes wrong.

“America’s influence over the global economy is still overwhelming,” said Mike Lenhoff, the chief strategist at Brewin Dolphin in London. Not only is America the leader in the world’s stock market capitalization with about 32.7%, (shown in the graph), but America is also the leader in the world’s equity market according to BeSpoke Group.

America is still leading the world in market capitalizations, and because of this, the United States will continue to have some type of an influence on surrounding countries and their global investors as we continue into the future. 

Is Facebook Learning from its Investor Relations IPO Disaster? Guest Post by Ashley Kopacki

Just over one year ago, Facebook, Inc. ($FB) filed for an Initial Public Offering (IPO). On May 18, 2012 public trading of the company’s stock began on NASDAQ. The IPO was a disaster, as were the problems for Facebook that arose months beforehand, all stemming from investor relations mistakes.

                           

The stock was over-hyped and over-valued, demonstrating an IR failure, as communicating fair valuation is a core goal of the profession, according to NIRI’s official definition.

Facebook looked unreliable when it came to light that large institutions such as Morgan Stanley, may have received disconcerting financial information about Facebook that was withheld from smaller investors. This claim proved damaging to Facebook’s reputation.

Moreover, CEO Mark Zuckerberg was not present at some of the road shows that took place just before the IPO, preventing the company from establishing relationships with long-term investors, and therefore potentially driving the stock price lower.

Then when trading was to begin, a technical glitch with NASDAQ delayed trading by about 30 minutes. The final Facebook IPO price was $38. Investors and analysts expected the stock to ‘pop’ as most do in the first days of trading. Instead, at the end of the first day the share price closed at $38.23. NASDAQ assured that the glitch did not affect the low share price and apologized for the inconvenience. Today the Facebook share price is even less, opening on February 26 at $27.15.

This IPO debacle led to serious critique of Facebook, thus proving need for investor relations practices to respond to the numerous factors that can drive a company’s stock price up and down, including hype, fear, company news, and company earnings (HowTheMarketWorks.com). Facebook experienced all of these in the past year.

After the stock peaked at just $45, investors began to question its value. Then Facebook announced it would increase spending in the upcoming year to improve its mobile app, further distressing investors.

The Wall Street Journal points out another alarming event- CFO David Ebersman and COO Sheryl Sandberg sold millions of dollars worth of their Facebook shares. At the same time, Zuckerberg stayed out of the public eye, leading advisors such as Jeff Corbin to call this time the “Quite Period.” Investors asked themselves if the company has a plan and strategy for the future.

The good news for Facebook and its shareholders is that the company appears to be learning from all these IR mistakes. Facebook released its quarterly reports, and posted them on its website. The company also reported its plans to participate in the Morgan Stanley Technology, Media & Telecom Conference, to be held on February 27, which will be broadcasted live.

While Facebook IROs are starting to follow the two-way symmetrical communications model, it still has far to go. Facebook will need to hold shareholder meetings, show investors it will generate revenue, and maintain users to drive the share price upward.

Facebook has a lot to overcome. The company started off on the wrong foot when the IPO did not meet its expectations. As a young company, Facebook is not yet viewed as credible in the financial community. Additionally, according to a Bloomberg article, the industry itself makes increasing share price difficult, as social media is an intangible entity and investors tend to see this is as a riskier investment.

If Facebook can continue to create new applications, generate revenue, impress investors and consumers, and openly communicate with its publics, its share price will likely increase. The IR team for Facebook should focus on targeting growth investors, as tech companies and social media platforms have many opportunities to develop new capabilities.

Image courtesy of the Wall Street Journal.

The Rising Use of Twitter in Investor Relations: Guest Post by John Muzzy

The business world has come to embrace social media and investor relations seems to be the next big field to do so as well. In just the past few years the impact Twitter has had on IR has gone up dramatically. While investors still primarily rely on the companies themselves for information, Twitter has become increasingly important.

The Brunswick group recently conducted a survey of over 500 investors and sell side analysts in Europe, US, and Asia and the results showed 30% use Twitter, which is a 19% increase from the last time this study was conducted two years ago. One eighth of those surveyed say they made an investment decision based off something they saw on Twitter. Twitter has also proven to be a very important first step for investors. 28% of those surveyed said they searched for information on an issue they originally saw on Twitter. Stocktwits, the IR specific Twitter related social networking site created in 2008, now has a community of over 200,000 investors, marketing professionals, and private companies.

While the usage of digital media continues to rise traditional media sources are become less and less used. The number of investors who see the importance of traditional business media online was down 13% from where it was two years ago. However, even with these changes in the media landscape, getting information directly from the company is still the preferred information gathering method for investors. While that is currently the norm, the future of social media is not lost on those investors. Social networking sites like Twitter are constantly growing industries and 56% of the investors in this survey see the role of digital and social media increasing as time goes forward. Here is the infographic from Brunswick on the left.

Right now the more common practice is to use Twitter as an information gatherer rather than an information distributor, but both practices are on the rise. One plan some companies have developed is creating a specific Twitter account for IR. World Wrestling Entertainment (WWE) has the most followed company specific IR Twitter account with over 11,000 followers. For them it was all about understanding their audience and the correct way to direct their message. WWE’s proactivity in this field is what has led to their success. They quickly and effectively advertised the creation of their IR account which helped garner followers. Their investors have enjoyed having one simple source to gather information and it’s made their lives easier, something that investors always appreciate.

The WWE has become the example for other companies on how to establish and execute an IR specific account. Those managing these IR Twitter accounts continue to find ways to utilize them including but not limited to sharing stories, providing links to previously disclosed materials, live tweeting meetings, directing followers to other social media outlets, and engaging with followers. As companies continue to understand the ways in which they can utilize social media the use of these resources will continue to rise, especially Twitter, which has the potential to become a highly used intermediary between companies and their investors. This is still a fairly new medium for companies to apply and all signs point to a continuous significant growth in the utilization of Twitter in the coming years.

What is public relations? Students define public relations. Part 2.

Here is the second group of students from Principles and Theories of Public Relations class answering the question of what public relations is. Here is their definition of public relations.

Can you say: PEE! ARR! Say: PEE! ARR!

What is public relations? Students define public relations. Part 1.

Students in my Principles and Theories of Public Relations class were asked to create a user-friendly explanation of what public relations is. This explanation was to be aimed at a person who has no clue about public relations rather than at an expert or a public relations scholar.

This is what the first group came up with: 

Investor relations for multi-industry conglomerates

I really enjoyed the article, Straddling Market Sectors, by Kate Sidorovich, IRO at eHealth, in the September’s issue of IR Update. When company operates in several different businesses, the typical analyst’s approach of finding comparable companies becomes useless or at least very challenging – Sidorovich talks about her company that is in healthcare and e-commerce. So, some analysts end up comparing them to financial institutions, some to insurance companies, and some to technology companies.

My experience of working for a multinational conglomerate was very similar. We produced submarines, tankers, nuclear reactors, off-shore and on-shore drilling rigs, excavators, motorcycles, variety of steels and other metals, and provided banking services, insurance services, real estate, and so on. Now try to find a comp for that!

And it is impossible to use one conglomerate as a comp for another – the combination of market segments they are in will also be very different!

So, I had analysts from almost any imaginable sector of the economy (plus, the emerging markets!) following us and talking to us – each with their own set of comps based on their industry. That was always a lot of fun to conduct conference calls or other investor meetings.

IR Update’s article concludes with one of the recommendations to “embrace education.” And I 100% agree. It was my job as an Investor Relations Officer to educate our investors and analysts on all our industries, products, market positions, and so on to help see the big picture of where the company is going rather than just one of our businesses.

Can Regulations Help Investor Relations Officers Learn Why Shareholders Buy The Stock?

I finally got to reading the August’s issue of IR Update, a publication of the National Investor Relations Institute. The first article of the issue, Institutional Ownership: No More Secrets, makes a good claim that it is vitally important for companies to know who their shareholders are. Even more, it is also important for companies to know why the shareholders buy that particular stock.

When I worked in investor relations, I devoted significant efforts into the shareholder research. It was even more difficult in my case since much of the stock was in the American Depositary Receipts or Global Depositary Receipts. I would only see Bank of New York, ING Bank or Euroclear as the recorded owners of shares, when in fact they were just holding them for the owners of depositary receipts. I had to go through many layers of nominal shareholders before I could get to the actual beneficial owners.

What I find naïve, however, is the solution that the IR Update’s article seems to propose: change in regulations, namely 13F, 13d, and 13g filings. The only thing this change can accomplish is providing faster information on who owns the stock, but no legislation can help IROs learn why these shareholders buy, sell or hold on to the stock. Learning the answer to that why question would always be on the IROs themselves and their ability to develop good relationships with shareholders as well as sell side.

This is why I believe investor relations is a professional occupation – it requires specific skills and knowledge set in finance, communications and law. And this is also why I cannot stand when some companies put unqualified people to run their investor relations departments, from former financial analysts with no ability to communicate to former journalists with no understanding of business or finance. But they at least have a chance to learn on the job (especially with the help from great NIRI events). What I think is even worse is so-called “rotating” appointments, when a person get assigned to the investor relations duties for just a year or two. Even if a good solid professional relationship can be developed in a year, there is no guarantee it will transfer to the next “rotating” person. Having that rotation, in my mind, shows lack of respect from the company to its shareholders – I do not know of any company doing rotating assignments to their CEO, CFO, or COO positions!

How Investor Relations Contributes to the Corporate Bottom Line

I just published another scholarly article focusing on investor relations: How Investor Relations Contributes to the Corporate Bottom Line. The article reviews academic and professional literature on investor relations contributions and claims that there are four major ways in which investor relations’s contribution can be evaluated:

1. Share price

2. Trading volume

3. Analyst coverage

4. Relationships with the financial community

Then, the study subjected these four theoretical contributions to the scrutiny by the investor relations professionals through the so-called Delphi panel methodology (a method initially developed by the U.S. military to evaluate dangers of the potential USSR attack!).

The results indicated that derived-from-the-literature contributions do not always meet the reality test and must be specified.

Share price largely depends on the performance rather than on investor relations efforts, however, investor relations can help that share price be “fair” – in other words, reflecting the actual value of the company rather than “the higher the better.”

High trading volume or lower trading volume can be equally bad for the company – so, it is more important to look at the efficiency of the market in a stock and broadness of the shareholder base.

Similar situation is with the analysts coverage – not just only good or only bad, but rather its accuracy and uniformity.

Finally, building relationship is a measure difficult to quantify, yet fully supported by the professionals. Investor relations officers, however, must look into costs and benefits of various relationships – hedge fund vs pension fund or private shareholder vs institutional investors.

The full article is published in the Journal of Public Relations Research, 2011, Volume 23, Issue 3, pp.302-324, and is available at the journal web site (although it might require subscription in some cases – then, contact me!)