Social media has revolutionized how stakeholders receive information about companies. An estimated 1.79 billion people used social media in 2014; 2.44 billion will by 2018.[1] Despite such staggering statistics, social media has not been leveraged to its full potential in Canadian proxy contests. According to a 2013 survey,[2] a majority of directors on the boards of Canada’s largest companies acknowledged that they did not know much about social media.

This is the first of two posts about harnessing social media in Canadian proxy contests. It reviews the use of social media to influence public discourse and proxy contests in the U.S. and Canada. Our second post will review some legal considerations applicable to the use of social media in Canadian proxy contests.

Social Media: Why is it a resource?

Social media includes a diverse range of interactive user-generated online activity. In contrast to traditional media, users of social media actively create and distribute content rather than merely consume it. Popular social media platforms include Social Networking websites (Facebook, LinkedIn, MySpace), Blogs/Microblogs (Twitter, Tumblr), and Video/Picture sites (YouTube, Instagram).

In the context of proxy fights, it is important to note that social media content:

  • can easily be created by users at little to no cost;
  • can simultaneously be shared by multiple users; and
  • allows for interactive unfiltered feedback on a real-time basis.

Social media has already been used to announce and influence corporate governance disputes. Consider the following examples:

Grassroots activism: Yahoo Inc. and “Plan B”

An early example of social media being harnessed to advocate for corporate governance change was a 2007 YouTube video posted by a retail investor of Yahoo Inc. called “Plan B”. The amateur video, coupled with a blog, promoted a message of change to other retail shareholders. It attracted the attention of non-institutional and institutional investors alike and, arguably, influenced events leading to Yahoo’s then CEO stepping down.[3]

Shining the spotlight on issues: the Icahn/Apple and Icahn/eBay sagas

In August, 2013, Carl Icahn tweeted his beliefs that Apple was undervalued and that it should implement a larger share buyback than was currently planned. Icahn’s tweets, by themselves, probably did not sway Apple’s repurchase of an astounding $45 billion of its stock in fiscal 2014.[4] But they undoubtedly generated signification media coverage. Within an hour of his first two tweets, Apple’s market value jumped by about $17 billion.[5]

In early 2014, Icahn campaigned for eBay to spinoff PayPal. He tweeted updates on his position and links to longer open letters to eBay shareholders. Some of his tweets cut deep. For instance, on March 10, 2014, Icahn tweeted, “[w]e believe based on evidence we have newly uncovered that Donahoe’s incompetence cost eBay holders over 4 billion”. In April, 2014, a tweet announced that Icahn and eBay reached an agreement to avoid a proxy contest. As a result of the agreement, Icahn nominated two members to eBay’s board and he dropped (publically at least) his call for a PayPal spinoff. Then on September 30, 2014, eBay announced plans to spinoff PayPal.

Fighting back: Ackman vs. Herbalife

In December 2012, after shorting Herbalife, Bill Ackman publicly alleged that it was a “pyramid scheme”. Federal regulators are investigating this allegation. Herbalife fought back using social media. In January 2013, it advertised on Twitter such that a search for Bill Ackman’s name directed users to a YouTube video promoting Herbalife. Herbalife also apparently registered Bill Ackman domain names for a campaign against him.[6]

A Canadian example: International Datacasting Corporation

In 2012, a director of International Datacasting Corporation (“IDC”), a TSX listed company, took to Twitter and Tumblr to gain support for a dissident slate. The tweets ranged in tone from neutral news to provocative punches. For example the following tweets were made during the contest:

  • International Datacasting Proxy Battle Heats up; Adamou responds | Cantech Letter…[7]
  • RT @idc_positive: Your Choice In Pictures: There’s only one Positive Choice http://t.co/IvOODGCi #BlueProxy #IDCpositive $IDC.CA #IDC[8]
  • RT @idc_positive: International Datacasting Limits Access to Shareholder Information http://tmblr.co/ZWQQxuPSxDZq #IDCpositive[9]

In response, IDC issued a news release cautioning shareholders about “under-handed tactics” that were being promulgated through the dissident’s social media accounts.[10] Although the dissidents were defeated, their use of social media in this Canadian proxy contest was novel.

Strategic issues to consider

Will social media influence opinion?

Social media’s influence in a proxy contest may be limited by the nature of the issuer’s shareholder base. Skeptics have argued that social media may not be effective in swaying sophisticated institutional investors who will vote, for the most part, based on recommendations from proxy advisory firms. This criticism is somewhat valid. However, it ignores two new developments.

First, as noted above, in the U.S., social media is increasingly being employed to achieve objectives prior to and during proxy contests — with some success.

Second, social media is increasingly driving investment decisions. A 2014 survey[11] reported that 70% of nearly 500 institutional investors and sell-side analysts surveyed said that digital media will have a greater impact in future investment recommendations and decisions. Additionally, there are automated strategies that trade on market sentiment captured from social media.

Will control over the message be lost?

Another strategic concern when using social media in proxy contests is that control over the message may be lost. A party weighing this concern must balance the advantage of shaping the discussion as opposed to doing nothing.

Using social media for corporate governance matters is still considered novel. We believe this novelty will wear thin in the upcoming proxy seasons. Hardly a bold prediction. In a recent survey of senior corporate executives and activist investors, 88% of U.S. respondents expect social media increasingly to be used to promote activist campaigns.[12]