From Infy to BAT: Firms wake up to flip side of social media

From India's Infosys to MNC giant British American Tobacco, companies across the world have begun to realise the severe reputational risks posed by social media alongside the big business opportunities.

In their latest regulatory filings and investor communications, a large number of companies have started explaining the risks they face from the increased public scrutiny through the social media, regardless of the factual basis of the assertions being made on these platforms.

Some of these companies, including the IT giant Infosys, have expanded such 'risk factors' and feel that responding to such "inaccurate posts" and allegations could divert the attention of their boards and senior management away from the business and adversely impact the company's reputation.

An analysis of regulatory filings made by the companies listed in the US shows that a large number of them have flagged such risks in the recent weeks for their reputation as well as for the investor sentiments and share prices.

In case of Infosys, its latest annual report filing with the US Securities and Exchange Commission (SEC) shows that the risk factor in this regard has been expanded considerably since the previous year to include the reference to the board of directors.

"Media coverage and public scrutiny of our business practices, policies and actions has increased dramatically over the past twelve months, particularly negative and in some cases, inaccurate posts or comments in the media, including through the use of social media," said Infosys which has been subject matter of a plethora of reports about alleged rift between its management and some promoters.

The company further said that any negative media coverage in relation to its business, board or directors or senior management regardless of the factual basis for the assertions being made has in the past and may in the future adversely impact its reputation.

"Responding to allegations made in the media may be time consuming and could divert the time and attention of our board of directors and senior management away from our business. Any unfavourable publicity may also adversely impact investor confidence and affect the price of our equity shares and ADSs," it added.

Similar warnings appear prominently in the regulatory filings made by British American Tobacco (BAT) and the Reynolds American Inc (RAI), two big MNC tobacco giants currently undergoing an estimated USD 50 billion mega merger.

Talking about the regulations the merged entity may have to follow in different countries, they said the combined group may be subject to claims for breach of such regulations or for failure to uphold standards of corporate behaviour from time to time.

"Even when proven untrue, there are often financial costs and reputational impacts in defending against such claims, in particular, considering the speed and spread of any accusations through social media," one such filing said.

Another global major, Canada Goose Holdings Inc, said it has been the target of activists in the past, and may continue to be in the future.

The company, whose offerings include certain animal products, including goose and duck feathers, said protesters can disrupt sales at its stores, or use social media or other campaigns to sway public opinion against its products.

"If any such activists are successful at either of these our sales and results of operations may be adversely affected," it added.

Brown-Forman Corporation, a global liquor giant with brands like Jack Daniel's and Finlandia, said that adverse publicity or negative commentary on social media outlets, particularly any that go "viral", could cause consumers to react by avoiding its brands or choosing brands offered by its competitors, which could materially negatively affect the company's financial results.

Among Indian companies, another IT major Wipro said in its latest annual report filing that the media coverage, including on social media such as blogs, of its business practices, employees, policies and actions has increased dramatically over the past several years.

"Any negative media coverage, regardless of the accuracy of such reporting, may have an initial adverse impact on our reputation and investor confidence, resulting in a decline in the share price of our equity shares and our ADSs," it warned.

Incidentally, Wipro has also mentioned in the same report about the big business opportunities offered by the social media and said it has invested in advanced technologies that will empower its customers with support across all channels of communication including social media.

The global companies having identified the pitfalls of social media in their respective regulatory filings also include China's online giants Baidu and Weibo groups, as well as major corporations like Embraer and certain Coca Cola entities.

Embraer has said it has provided internet and e-mail for working communications but its code for employees does not allow use of electronic systems, Internet, email or social media to transmit, receive or download content that may impair the performance of the company's work activities or interests.

"Social media, at work or in any other place, must not be used to expose the company’s private or confidential information. It is also forbidden to upload content that exposes the image of the company, its products or its employees," it says.

Bob Evans Farms, Inc, a leading producer and distributor of premium pork sausage and frozen food items, said the risks to its financial results include "the effects of negative publicity that can occur from increased use of social media".

It also said that many of its rivals were increasingly using social media networks to advertise their products and if it was unable to compete in this environment, the company's financial results may be affected.

"Media campaigns related to food production and the use or misuse of social media may have an adverse effect on our business and financial results.

"Media outlets, including new social media platforms, provide the opportunity for individuals or organisations to publicise inappropriate or inaccurate stories or perceptions about us or the food industry," the company said while adding such practices may damage its brands or the entire industry.

Athenex, a global biopharmaceutical company working on therapies for cancer treatment, said it may increasingly become a target for public scrutiny, including through social media and malicious reports, which may severely damage its reputation and materially and adversely affect its business and prospects.

"Negative publicity about our directors or management, even if untrue or inaccurate, may harm our reputation," it added.