Last December, an anonymous message in a chat room run by search engine provider Yahoo Inc. claimed erroneously that Biovail Corp. chairman and chief executive officer, Eugene Melnyk, was the focus of an illegal insider-trading probe by the U.S. Securities and Exchange Commission.
Shares of the Mississauga-based drug maker fell by as much as 13 per cent in New York the morning the rumour was circulated.
But the stock started to rebound about an hour after Canada's largest publicly traded drug company issued a press release stating that the allegation was false and the result of a typo.
The company -- which took the unusual step of responding to a chat-room rumour after a request by the Toronto Stock Exchange -- said the message referred to an unrelated organization, and that a formatting error had left out a space that should have separated comments about the two.
Welcome to the world of faceless corporate critics who spread misinformation on Internet message boards predicting regulatory investigations, takeovers and bankruptcies that fail to materialize. Such messages can be the bane of investor relations pros, part of whose job is to watch over the disgruntled to make sure they cause no damage to their companies.
While instances where message board postings have forced a company to take action to defend itself are rare in Canada, for IR pros, they nevertheless can provide a snapshot of the sentiment toward their company across all segments of the investing community.
"We just think it is a good idea to know what the investor is saying about us," says Sharon Mathers, vice-president of investor relations at Toronto-based drug developer MDS Inc.
A 2001 survey by investor relations firm Wertheim & Co. Inc. found that many organizations do monitor chat rooms, but few participate in the discussion.
For example, 14 said they monitor chat groups for any reference to their firm, while 25 said they do not and six were unsure, according to Wertheim managing partner Richard Wertheim, who said many IR departments will keep a log of relevant messages.
Only 10 organizations said they would participate in discussions, compared with 25 that would not. The majority said they would be more likely to get involved to correct factual errors than to respond to an allegation or rumour.
"Companies do not need to be concerned about how sophisticated investors will react to comments made by anonymous individuals in chat rooms. These investors are smart enough not to pay them any attention," Mr. Wertheim says.
"The real concern should be the use of the chat rooms by individual investors, who may be more readily influenced by the gossip, information and misinformation being spread on the Web. People who may not take seriously comments made by friends of friends may be more willing to react to something published in a chat room," Mr. Wertheim adds.
MDS is one company that does pay attention to the flow of rumour on the Net, using an inexpensive search engine service to monitor relevant conversations on such investor chat rooms as Silicon Investor, Ms. Mathers says.
"The goal is to identify what independent investors and others are saying about us and to be prepared for any questions," she says, adding most major firms take steps to monitor a short list of chat sites.
MDS scrutinizes reports on chat room activity, but does not partake in discussions. So far, Ms. Mathers says, "we have not had the need to intervene."
Research In Motion Ltd., maker of the BlackBerry handheld device, was recently rumoured in chat rooms and elsewhere to be negotiating toward a merger -- speculation that boosted the stock of the Waterloo, Ont.-based company until an analyst issued a report that said the rumour was unfounded.
Even before that, RIM's IR department would "occasionally manually view a sampling of message boards to help get a sense of some of the issues that are important to investors," says chief financial officer Dennis Kavelman.
But Mr. Kavelman says that RIM does not participate in chat rooms, nor does it comment on speculation about the company as a matter of policy.
Wilma Jacobs, interim president and chief executive officer of the Canadian Investor Relations Institute, whose board is composed of corporate investor relations officers, says the institute advises companies to consider responding to Internet messages only in cases where they cause significant stock market losses.
Ms. Jacobs says it is extremely rare for companies in Canada to act after a message is posted in a chat room. The incident involving Biovail is among the few examples.
"Finally, Biovail had to pay attention and figure out what happened," Ms. Jacobs says.
Biovail investor relations spokeswoman Naomi Nemeth calls the Yahoo incident a "one-off" that did not prompt the company to seek the source of the message.
Ms. Nemeth says that Biovail does not monitor chat rooms, and has not issued specific directives to employees banning participation in on-line discussion of the company.
While potentially troublesome, Mr. Wertheim believes that chat room banter may actually be a force for good corporate governance, since it can pressure companies to maintain proper disclosure through investor relations and other departments -- or risk being the target of damaging speculation on the Web.
"If a company is fully disclosing any material information on a timely basis, then whatever nonsense is being spewed in a chat room should be of no concern," he says.
Still, Ms. Jacobs says IR pros should be aware of chat-room conversations, if only to be prepared for questions from investors and the media.
© The Globe and Mail
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