How Social Media Is Affecting Disclosure Provisions

This week in class we discussed the issue of financial disclosure. The article for last week described voluntary disclosure, the constant flow of information about a company, and the required disclosure necessary through SEC regulations. With voluntary regulation, it is important to know how to properly provide the public with information, without creating problems with the words and actions taking place. The article for class discussed the value of disclosure of negative information early on. Being honest with investors through voluntary disclosure is very beneficial since it reflects favorably on the management, increases liquidity and reputation, while decreasing and need and fear of litigation.

While noting the importance of disclosure to the public, I decided to research how disclosure relates to social media networks since the release of information is now available to quickly and through a variety of different forums. Brian Solis wrote a recent article about “Corporate Tweets and the SEC: Sometimes It’s Better To Keep Your Mouth Shut”. I was interested to see what his opinion on disclosure was in relation to the information we read in the article’s Chapter 5. Solis discusses social media as a human voice, yet its use is able to heighten the risk of a company’s ability to comply to legal standards.

The SEC has created at 47- page report about the specific rules corresponding to the issue of disclosure in social media forums. The report also mentions that companies and employees will be held response for information discussed and posted on their blogs, networks and discussion forums. Solis comments that “If public companies are not proactively analyzing these guidelines and establishing internal policies, frameworks, and penalties, then they are exposed to the dangers that loom in the form of overly enthusiastic employees who are enamored with new and shiny social tools and objects”. In order to correspond with the SEC companies need to provide specific guideliens of the type of company information that can and cannot be blogged to make sure the organization is not in danger.

Social networks are successful in that companies are having dialogues with consumers and attempting to improve their public relations. Although the items being discussed through internet forums must be corresponding to the language and timing of the traditional press releases put out by the company. The comment made on these forums will be treated like any other statements that violate antifraud provisions. While companies can use new media as a public forum where they can immediately post information, it is important to do so in a way that corresponding to the SEC’s blogging regulations.

In order to show how important social media has become to Investor Relations, Solis states that 81 of the Fortune 500 companies current utilize the blogging forums (in 2009). While companys use these blogging sites, the article notes the necessity for continued use of traditional media in order to make sure the company’s information is being properly disclosed in as many places as possible.

It is interesting to see that the new media we have discussed during so many class periods, is a direct concern of the SEC and the disclosure regulations we have been focusing on in Investor Relations class.

XBRL And Its Global Implications

In class last week we discussed the various reports that need to be submitted by companies in order for the public to have a greater understanding of their business processes. Reports come yearly, quaterly or immediately when something dramatic happens within the business that needs to be relayed to the public. With finanical reporting being an important feature in business, there has recently been a creation of Extensible Business Reporting Language, or XBRL as an interactive way for businesses to report their financial statements.

The advent of technology and the different influences it has had provoked me to study XBRL for my blog post this week. Greg Zegarowski wrote an article about the uses of XBRL and how it has begun to be used in many ways globally. XBRL has become quickly important since it is able to improve timeliness, accuracy and accesbility of the yearly, quaterly and immediately released reports. These improvements have been made tagging financial information into formats that can be read easily by a machine. This technological advancement can thoroughly streamline reporting into one standard format, assist when moving data to a different system, along with incorporating data to different countries and languages.

XBRL started about 12 years ago in the United States has quickly been adopted by countries around the world who also seek to utilize the easy and effiecnty of tagging information in their financial reports. Global uses of XBRL include China, Singapore, South Korea, Isreal and Japan requiring public disclousres to be submitting though this internet system. Netherland companies now use data tagging to finanical information to dutch authorities. Australian companies has begun to use XBRL in order to save around $1 dollars that would be spent on fninancial reporting without this technological advance. These countries have begun to improvement since serious imporvements to financial reporting can be made with the increased used of technology.

With XBRL reporting will become standarized throughout the world. In class we discussed how people will be able to easily compare financial statistics. This use of the interactive reporting globally will make it easier for companies to understand each other. While XBRL makes things easier for public, financial reporters and auditors, all of this information being located in one place and format can be dangerous to the job positions of Investor Relations professionals. It was interesting to note how XBRL is used throughout the world, yet it will be even more interesting to see the further advancements to reporting since XBRL has already been such a successful technological improvement to this business process.

IR Troubles With Financial Manipulation

For a recent assigned reading, we read about financial reporting and the different information that should be filed about a company. Chapter seven mentions the necessity of income statements, revenues, expenses, balance sheets and statements of cash flow in these financial descriptions. While Chapter 7 does touch on the dangers of these financial reports being incorrect, I decided to research further about how a company’s financial report could be manipulated.

An article by Tory Adkins, explained the different things investors need to be aware of when viewing the financial reports of an organization. The article states that companies frequently manipulate in order to heighten the payment of corporate executives along with the ease of manipulation due to flexibility in the GAAP standards. The other reason why companies decide to change their financial statements is because of the relationship between auditors and the client. The connection between these two groups creates a conflict of interest when the auditors assists clients in recording information that is not correct.

Companies can manipulate statements by inflating current period earnings or just the opposite action, of deflating current period earnings. Dr. Howard Schilit has discovered seven different ways in which the companies can make themselves seem more or less productive than they are. These include recording revenue prematurely, recording fictitious revenue, increasing income with one-time gains, shifting expenses to a different period, failing to record liabilities, shifting revenue to a later period, or shifting future expenses to a current period.

The different ways that companies can trick and manipulate investors is something individuals along with trained IR professionals need to focus on. As a result IR professionals must have a working knowledge of financial analysis along with the different conflict of interests between auditors and companies that could change the financial information being presented.

Corruption and false reporting within Enron, Worldcom and Tyco International should make IR specialists concerned about the fact that the information they are working with can be false. Since IR professionals are guiding investors, it is important for professionals to realize the presence of corruption within the industry and attempt to keep their investors away from these sticky situations.

How Outcomes and Outputs explain IR significance

For my blog assignments I have decided to research and establish the different contributions made by Investor Relations departments. As with Public Relations, it is difficult to see the exact monetary benefits created by these IR professionals.

After only a week of Google alerts and research on the subject, Professor Laskin’s research on the topic has already become prevalent. Many of the articles I have encountered were either by our professor, or cited his research as one of their sources for their established information.

An article I found wrote on what information was needed in order to establish the exact benefits that could be recognized from the organization’s IR department. Outcomes and outputs were listed by David Michaelson. The definition of outputs is listed as the results of a communications program. In order to evaluate the success of a department, the number of analyst reports on the company, quality of analyst coverage and the amount and type of media coverage help to examine the contribution made by these professionals.

While outputs help to examine contributions, outcomes are what is seen as most beneficial within IR. Michaelson states in his article that "However, for investor relations, it is outcomes that are the critical standard for measuring and evaluating success. The one bottom line measurement for the investor relations executive is achieving a fair market value for the stock. Few communications functions have such a readily available – and public – measurement standard. It is an outcome that is tangible and traceable".

We have learned in class that the value of stocks cannot be too high or too, but instead it must be fair. In order for IR to contribute as much to companies as possible, the must keep stock prices at a fair value.

Other forms of outcomes are how the company is selling in relation to its peers, trading volume that cannot be too high or too low, and promotion in business media.

After only a small amount of research, Professor Laskin’s influence seems clear and he seems to contribute research and experiments on the exact contributions being made. In further weeks I hope to learn more about IR contributions research, along with seeing how IR has contributed to certain successful companies.