Abstracts from IR Update, November 2017 published by NIRI – the National Investor Relations Institute
In the November issue of IR Update, which is published by the National Investor Relations Institute to its members, the feature article is concerned with the most recent trend – fake news (also known as alternative news, post truths etc.) – i.e. news laced with half-truths and alternative. It may not come as a surprise, but this development is also spreading to fallacious business articles causing problems for public companies and the investors they attract.
The problem is that separating fact from fiction can be difficult for investor audiences. Institutional investors often rely on their own research to debunk the validity of a thesis. Retail investors use multiple sources to formulate opinions about whether an investment makes sense. The onus is often on the investor relations professional to ensure information is spoon-fed in a way that helps all investor constituents understand a company’s business model.
Proliferation of media outlets
In the US sixty-two percent of adults get news on social media; two-thirds of Facebook users get news on Facebook and nearly six-in-ten Twitter users get news on Twitter according to a study by Pew Research Center. To combat fictional narratives, it is recommended to attempt to identify the underlying source of the content by looking for slight variations of typos in the author’s account name, profile, email address and other signs that the writer may be an imposter. It can be a tall order with such a proliferation of media outlets, and it is very time consuming to police social and traditional media channels, particularly for high-profile companies – and most IR teams are already stretched thin on time.
How and when to respond?
Misinformation that elicits damaging consequences, such as stock price fluctuations, personal attacks on executives or consternation among employees should prompt some form of a response from a company since fake news can spread like wildfire. Management teams also must decide on the most effective medium to issue the response as press releases, tweets and Facebook posts all have different effects on how messages are received. A response needs to cover enough ground to ensure it rectifies wayward information and serves as a guidepost that will remain available for public consumption even after a crisis has subsided.
There has been an information revolution, and everything can come from anywhere at any time. And even though there has been significant change in the flow of information, most companies have not adapted to the change. Instead, companies continue to react to issues when they surface, as opposed to planning during peacetime. Preparing for fake news needs to be addressed in enterprise risk management – not during an emergency board meeting. IROs need to work with marketing executives, and marketing executives need to work with financial executives etc. to ensure that everyone can contribute quickly when attempting to detonate a flagrant rumor. If a rumor breaks about a company people will usually look at the company’s website or social media channel to deconstruct the rumor.
Algorithms and artificial intelligence
The propagation of social media and fake news has given rise to a cottage industry of fintech companies saying that they can monitor social media chatter and its potential effect on a company’s stock price. Some are tracking what is being said about companies on social media in real time and selling predictive information to hedge funds. Fake news is rooted out by looking at abnormalities. But it is important and quite illuminating that IROs understand why something trending on social media may be influencing a hedge fund to buy or sell. Companies need to understand how semantics influence trading patterns when communicating with investors.