Investor Relations: Do You Chat With Investors?

Do You Chat with Investors? Talk about an open-ended question!

We recently came across this question with a particular focus on the usage of instant messenger. The question presupposed that MiFID II will drive more direct interaction between companies and the buy-side. While the initial question got everyone’s attention, the real question posed was do IROs use instant messenger to communicate with investors? Let us break down (1) whether an IRO should chat with investors, and (2) should an IRO use an instant messenger service to communicate.

My gut reaction to whether an IRO uses an instant messenger tool was are you nuts! I have not used AOL instant messenger in over 10 years. Why would I talk to investors via instant messenger? My usage of an instant messenger service to communicate with investors is limited. There are two anecdotes that provide really good color on why I view usage of IM the way that I do.

First, when I worked at a small boutique firm (this was my six-week sabbatical from Stifel after it bought Thomas Weisel in 2010), I had to register my instant messenger handle with compliance. Therefore, anything that I wrote on IM would be captured by the compliance department. Not really sure I want to be communicating formal information in an extremely informal setting of communication.

Second, a couple years ago, I interviewed with a company that I used to cover on the sell-side. The CEO spent time describing to me how several of my competitors typically IMed each other during the company’s earnings calls in order to drive the questions asked on the call. First, I found this odd because I did not realize competing sell-side analysts collaborated in such a way. More importantly, I think this story illustrates the fact that communicating over instant messenger presupposes the information sought has real-time value.

My analysis presupposes that all information sought via instant messenger has real-time value, and therefore trading value. I am not sure many buy-side investors will look to IM after-market hours.

Chatting with Investors

Should IROs chat with investors? The answer is a resounding Yes! Regular conversations with the buy-side and sell-side are helpful to gauge investor sentiment and can help you understand random moves in the stock. Chatting over the phone or in person allows you to better assess tone and body language versus trying to read in between the lines of an e-mail. These conversations can help you better understand sentiment heading into earnings, learn more about what you are doing right and wrong, both from an IR and management standpoint.

How to Chat with Investors

We think the primary tool to converse with investors is the telephone. The telephone remains the least tracked form of communication via regulators, so not only are you managing your downside risk, but also you can elicit greater candor from your investors. If as an IRO you want constructive feedback, you will want to converse in a format where the commentary will not live on forever in infamy. Maybe the investor wants to provide feedback, but s/he may be worried it will offend someone and hurt his access to the company. If you really want the insight, you will never get it via IM or email.

Instant messenger

Instant messenger services are just that instantaneous communication. These services represent a less formal and less structured form of communication compared to e-mail or the telephone. Our presupposition is that an investor looking to converse via IM will (1) only do so during market hours, (2) will likely look to IM if something crazy is going on, and (3) because of the “instant” nature would likely look to trade on the information provided by the IRO. If Reg FD represents a major pain point for you as an IRO, then I would recommend against using an IM service to communicate. In my view, the instantaneous nature of communication associated with IM just opens you up to a selective disclosure problem.

Comment on Regulation

The online discussion yielded a question of why does usage of IM matter if I am only providing already widely-disclosed public information? In theory, there is no problem communicating such information via IM. Again, the test for the IRO revolves around downside risk.

Let’s look at an example from my analyst days involving Twitter. As an Internet analyst on the sell-side, Twitter became a very useful tool for me to unearth interesting information for research. An important way to develop an information network via Twitter revolved around following others, Tweeting thoughts, and re-Tweeting the Tweets of others. Overtime, I developed a network of 294 followers, and roughly 1,100 sources I followed. The network was created by re-tweeting what seemed to be relevant Tweets associated with our stocks that could be news articles or white papers.

Over time, the compliance department clamped down on even this seemingly innocuous usage of Twitter. At one point, Stifel required the creation of a new “Stifel” branded Twitter account, which was problematic because it would have required me to recreate my extensive Twitter network. Instead, I went cold turkey and stopped re-tweeting, which led to network atrophy to some extent.

I think re-Tweets on Twitter is a relevant example of how even innocuous information flow can cause indigestion for regulators. Part of the problem is that your Tweet can be hijacked or end up as part of a conversation with someone, albeit unwittingly, that could end up as part of a larger SEC investigation. There are examples of BioTwitter personalities getting hit with SEC sanctions.

Final Thought

Some use IM to disseminate pre-formulated information that provides no new data disclosure. Great, if you feel comfortable using the system to communicate do so. The usage of IM is all about how the IRO feels about managing downside risk. For me, IM has a lot of downside because of informal communication format, the compliance tracking, and likelihood of wanting to trade on that communication. Really, to use an IM or not really represents a function of how you as an IRO see IM driving downside risk. Just like Axe Capital, an IRO's job is to eliminate downside risk. The question about using IM is who is going to pay that downside risk premium, the IRO or the investor?