For corporate communications specialists and reputation-minders in the post-financial crisis universe, distrust and dialogue converge most forcefully on the Internet, especially in the realm of social media. Social media comprise a loosely defined collection of blogs of all sizes and interests, and cyberspace gathering spots such as Facebook, MySpace, Twitter, Alibaba, Craigslist, Orkut … the list is endless—and growing. Traditional media like newspapers, radio and television have seen their revenues plunge as advertisers follow their customers to the Web.

As information consumers have moved to the Web to gather news, opinion and data—increasingly through their cell phones or PDAs—the influence of traditional media has declined while that of the bloggers and other social media commentators has increased.

The numbers around social media impact are compelling. Internet penetration has reached approximately 75% in the US, somewhat less in Europe and far less in Asia. However, 48% of the total population in the US, 36% of the population in Europe and 11% of the population in Asia access social media (corresponding totals for Internet and social media access in South America are considerably lower).

Even more impressively, recent research from Burson-Marsteller reports that in the US alone, there are now 20 million bloggers, some 2 million of whom are paid something for their efforts and almost 500,000 of whom blog full time for a living. To put that in perspective, more people in the US make their living as bloggers than as computer programmers or firemen.

This means that a growing—though not yet dominant—element of the population is forming its views based on sources that are not traditionally filtered or necessarily expert. In addition, the demographics on social media participation are shifting: In the US, 52% are women and 45% men. Women over age 40 are the fastest growing segment.

This wave of information, data and opinion—with its correspondingly receptive audience—both feeds and benefits from the trends towards multi-stakeholder dialogue in corporate communications, particularly as individuals seek to inform themselves and make up their own minds in the post crisis era.

It behooves corporate communicators to develop a better understanding of how social media participants choose and sustain affiliations, form opinions and make their social or economic decisions through these channels.

Recent research by Predictiv LLC provides insights into how this can be done, and what the implications may be. Predictiv measured the impact of social media on a client’s stock price performance. The client company revised its projected 2008 earnings downward, which led to negative media coverage, further impacting the stock price. This downward movement occurred despite concurrent increases in the Dow Jones Industrial Average (DJIA) and the US Consumer Price Index. This confirmed the impact that a single negative event could have on business results.

Analysis of blog coverage correlated on a daily basis with the company’s stock price performance, the DJIA performance and traditional media coverage showed that blogs correlated .63 with the DJIA, but only .35 with the company’s stock price. Blog coverage contributed measurably to both the daily price—$2.77 on average—and quarterly stock price performance—$471 million. In this case, however, the analysis suggests that traditional media coverage drives blog messaging, not vice versa, and that mainstream coverage has a greater impact on market value than do blogs.

It would be imprudent to draw broad conclusions from one example, but this does substantiate two contentions: that blogs have a measurable, quantifiable impact on financial performance, and that as of this writing, communicators in the post-financial crisis environment must pay attention to traditional and social media influences.

Implications and Conclusions

Distrust and disillusionment in the wake of the financial crisis is pervasive among business stakeholders, including customers, investors, employees, opinion leaders and alliance partners. To regain their trust, businesses must be more transparent and willing to engage rather than simply transmit their own point of view.

The fundamentals of business reputation will continue to evolve, but more emphasis than ever before must be placed on the desires—both actual and perceived—of those outside the corporate boundary. Social media may be one avenue for rebuilding trust, but traditional media influence is still powerful and must not be ignored. The onus is on business to demonstrate that they are working to earn the confidence of those whose interests they claim to serve.

Parts 1, 2 and 3 of this series addressed business’ global deficit of trust, the evolving standards of reputation and the changing fundamentals of business reputation, respectively.

Jon Low is a partner in Predictiv, a consulting firm that measures the financial impact of reputation, brand, communications, intellectual capital, sustainability and other intangibles. He can be reached at jon.low@predictiv.net.