Opinion: Social media’s effect on share price

Tuesday, 01 November 2011


    Sharon Williams explains how a poor social media policy could dent your share price.

    A question that is sure to send chills down the spines of directors everywhere: can social media affect the share price of your company?

    The answer is a resounding yes! The use of social media can and has directly affected the share price of major Australian Securities Exchange (ASX) listed companies across the globe. As a director, it’s best not to put one’s head in the sand. You have a responsibility to shareholders to be managing online commentary about your own personal brand and your company brand. Why?

    Initial results from a Pace University study of Coca-Cola, Starbucks and Nike indicate there is a "statistically significant" correlation between social media popularity and share price.

    As little as five years ago, the world only heard what the media said. Companies talked at consumers. We had no opportunity to respond, except to call centres and perhaps by mail, or choosing to purchase their goods and services.

    Now in our uber-connected world, consumers listen to what they want, when they want to, and most importantly, are listening to each other first.

    It’s public affairs on steroids. Is your company managing your corporate and personal "digital resume"?

    Social media platforms like Facebook and Twitter are now mainstay channels for world events, trends and issues that are immediately picked up, followed and shared among millions of people around the world.

    As company directors, we need to extend our crisis management plans to account for the speed social media will take a crisis to market. Not doing so can affect shareholder value within hours.

    On 4 November 2010, Qantas noticed a fall in its share price due to a rogue tweet from an Indonesian girl saying a Qantas plane had crashed. According to the Wall Street Journal, CEO Alan Joyce noticed share prices decline between 12c and 15c in just half an hour before taking a week to stabilise. Qantas was exposed on a social media back foot and had it already established a relationship with the online community and been monitoring comments on the airline, the rumours could have been quashed in seconds.

    Posting on Facebook is like a tattoo – act, don’t react. It could cost you $180 million.

    In 2008, the share price of United Airlines plummeted a massive 10 per cent (with $180 million wiped from the company value according to The Times Online) after demonstrating "social media unreadiness" in the light of a customer complaint. The occurrence is blamed partly on a public relations nightmare where passenger Dave Carroll witnessed his luggage being thrown around on the runway by baggage handlers. After numerous failed attempts to get his damaged guitar repaired by the airline, he wrote a song about the incident and uploaded the music video onto YouTube. The video went viral and views soared into the millions. United Airlines’ initial reaction was to ignore the video and disregard Carroll’s complaint. Crisis ensued. The airline offered to repair the guitar, in what was now a media circus, and compensate for damages. Too late, however! The passenger was able to expose reputational risk by highlighting the slow response to customer complaints and the company’s lack of appropriate social media strategy and planning.

    Social media intelligence has to be the domain of every company individual – starting at the top.

    In fact, I would argue the responsibility starts at chairman level. It really is that important.

    I am not inciting panic or over focus, but it does mean from at least management down, individuals need to be aware of the implications of posting an inappropriate status update, video, photo or comment.

    The unfortunate case of pizza company Dominos is now social media folklore. Two employees of Dominos uploaded YouTube videos showing food being contaminated before it was served to customers. The negative public relations was far reaching and the company’s share price reportedly tumbled 10 per cent in a week and took months to fully recover. Dominos president Patrick Doyle cleverly followed Crisis Comms 101 and went to the medium where the issue was first exposed. He made a YouTube video apologising for the actions of staff members and explained the rectifying measures put in place. A good recovery was made.

    Prevention is the best cure, but if the proverbial happens, at least know what to do.

    As company directors, the best people to teach us the basics of social media use are our young. Start by getting a real understanding beyond inane comment. The effect of a personal tweet after (or during) a cocktail party could be catastrophic as the stock markets open. Examples of social media risks are easily found with a quick search of the internet. Despite good online employee policies, mistakes can still slip through the net without regular reinforcement and mentoring. Test run your crisis communications team for a social media fallout – it really is crisis communications on steroids.

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