This week, the Securities and Exchange Commission (SEC) moved corporate disclosures into the year 2013, or at least 2010. In a release on Tuesday, the agency recognized that social media channels—including Facebook and Twitter—were acceptable methods of disclosure. The SEC included one caveat: investors must be made aware ahead of time that the company will utilize these channels for disclosure.
This move comes following scrutiny surrounding a tweet from Netflix CEO Reed Hastings in November 2012, which announced that subscribers had passed the achievement of one billion hours viewed. The SEC issued Netflix a Wells Notice, announcing the investigation of Hasting’s potential violation of Regulation FD, which requires companies to disseminate information in a way that does not favor one investor group over another.
The SEC’s decision to allow corporate use of social media to disseminate information is not completely unexpected. Since 2008, the agency has permitted the use of corporate home pages to disclose sensitive information—the subject of its release, “Guidance on the Use of Company Websites for Disclosure Purposes.” In fact, SEC representatives have encouraged delegates to NACD’s advisory councils to use corporate websites when providing additional details that go beyond what is required by public filings.
For directors, a group notoriously slow to adopt social media, the SEC’s decision could mark a significant shift in how companies disclose sensitive information, and investor relations generally. Starting with the 2009’s Proxy Disclosure Enhancements and reinforced by Dodd-Frank, the length of corporate filings has increased with the number of required disclosures. As a result, directors have been recommended to “tell their story,” going past boilerplate language to explain the rationale and strategy behind decisions.
First and foremost, it is critical that directors understand their company’s consumer and investor base. If these groups are active on Facebook and Twitter, the SEC’s decision to conditionally permit these as communication channels could provide a new method of engaging increasingly active stakeholder groups.
For all the hyper-connectivity in today’s world, CEOs and boards have precious few opportunities to reach out to shareholders in a way that is personal, memorable and compelling. Most communication between the C-suite and investors is filtered through multiple handlers and channels. The requisite legal and regulatory compliance language is often such a distraction that the real meaning, and the real intent, of the message can be lost.
The annual letter on the “state of the company” included with a company’s annual report is an ideal tool for CEOs and board chairs to more closely communicate with all shareholders, from global institutions to the smallest investors. Yet too few companies fully seize on this ready-made opportunity. Many CEOs are content to just keep it short and focus on the financial story, offering little context on the events that defined the past year and no articulated vision of what investors can expect in the future.
It’s a missed opportunity, as CEOs could and should be using the annual letter to provide all shareholders a glimpse into who they are and how they’re running the company. They could and should be sharing their best thoughts in their own voice, spotlighting issues and topics in a way that will build confidence among investors that the right management team is at the helm.
The undisputed master of this forum is (no surprise) Berkshire Hathaway Chairman and CEO Warren Buffett. Buffett’s annual letter to shareholders topped the recent NACD Directorship magazine’s list of Best Annual Shareholder Letters, which evaluated the entire Fortune 200 list.
Buffett’s letter is understated yet highly informative, giving credit where credit is due, reinforcing the corporate business strategy, and setting the table for how he wants investors (and others, including analysts and media) to perceive the company and its leadership.
On each of the five criteria that NACD Directorship uses to analyze CEO letters, Buffett was in a class of his own. His letter provides a dynamic assessment of the corporate performance, full transparency, a clear outline of the steps Berkshire Hathaway is taking to tackle its challenges, a strategic process that accounts for environmental changes, and insights into the corporate management style. Buffett transforms the shareholder letter from a simple formality into a major influencer on how his company is perceived.
As a tool that actually builds shareholder value, Berkshire Hathaway’s letter is in a class by itself but certainly not the only notable example. Coca-Cola, FedEx, General Electric, General Motors, Google, and Wal-Mart all stood out as companies that go beyond formalities by utilizing the annual report letter as a critical communication tool.
NACD Directorship also singled out others—including the Bill and Melinda Gates Foundation, Abbott Laboratories, Amazon, Avon, Exelon, Hewlett-Packard, News Corp., and Zipcar—for how their letters coherently explained and evaluated special circumstances that had arisen.
All of the letters on this year’s list of the best offer a real insider’s view—and it is, after all, the essence of effective IR to help investors feel they’re personally part of the team. Executives act like leaders when they show their stakeholders how they lead.
For more examples of great shareholder letters, visit www.NACDonline.org/Power-of-the-Pen. We hope they inspire you to utilize some powerful communications strategies of your own.