Companies' new risk: Assault with a deadly social medium
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Earlier this year, H.J. Heinz Co. chief William R. Johnson commented to analysts that social media such as Facebook, Twitter and other online programs are "the most powerful marketing tool today."
But it seems Heinz officials recognize there are two sides to that coin.
In a recent regulatory filing, the Pittsburgh food company added a new note acknowledging that its growing dependence on "information technology and expanding social media vehicles" could present a potential risk to investors.
Just ask McDonald's, which has been battling a fake photo making the rounds on Twitter that implies the fast-food chain is racist. Or Sony and Citibank, both of which have had systems hacked and customer accounts breached.
Incidents such as these can threaten a company's reputation and can damage its value. "Investors don't really know what the floor is if something happens," said Nir Kossovsky, CEO of Steel City Re, a Downtown-based risk and reputation management company.
That's where the filings with the Securities and Exchange Commission come in.
Public companies are required to regularly describe risk factors so that anyone considering buying their stock will have an understanding of how many things could go wrong.
Typically such risks might include threats like tough competition, supply issues, changing customer taste or -- more recent additions -- unexpected weather disasters and terrorist attacks.
Mr. Johnson, at Heinz, noted in his February address to analysts that digital communications had boomed in Asia, with 200 million wireless application users and 420 million people on the Internet in China alone. He said countries such as India and Cambodia had more cell phones in use than toilets.
Heinz, a global operator, has been active in reaching out through social media. The main Heinz page on Facebook associated with its ketchup has 780,000 fans, while the Ore-Ida page is up to 275,000. The company also has systems set up to track social media conversations and to respond directly to consumers.
But, as the official SEC filing says, "Negative posts or comments about us on any social networking website could seriously damage our reputation." And the company recognizes it's hard to keep up. "Identifying new points of entry as social media continues to expand presents new challenges," the Heinz statement said. "Any business interruptions or damage to the company's reputation could negatively impact the company's financial condition, results of operation and the market price of the company's common stock."
First Published June 29, 2011 12:00 am
