Rumours may burn Kardashians but can raze entire companies
Social media has become the favourite platform for anti-establishment messages by politicians and other influencers.
From Donald Trump to anti-immigrant Dutch far-right politician Geert Wilders, French presidential candidate Marine le Pen and, closer to home, Julius Malema, these politicians dominate the online discourse with anti-establishment messages, exposing the "corrupt" elite and purporting to represent the will of the people.
More recently, the phenomenon has also infiltrated the world of finance.
SA has seen a number of short sellers emerging from the shadows to dominate the discourse online, with the stated aim of seeking to expose nefarious corporate practices.
Viceroy, which used to be the ultimate "faux" French aperitif, has entered the popular lexicon as the ultimate corporate slayer after releasing a report online just as Deloitte balked at giving a clean audit report to Steinhoff.
If the annual analyst awards had been held at the end of December, Viceroy would have made a clean sweep.
A social worker and his two youthful Australian acolytes had successfully exposed the Stellenbosch establishment.
If a three-man firm based in the US could see this collapse coming, how can it be that portfolio managers, analysts, bankers locally and globally all missed it?
Some hailed it as real proof that the experts had in fact been captured by the very same institutions they were meant to critically assess.
Others cried double standards, as if private sector corruption justified the malfeasance uncovered in the public sector.
The Dunning-Kruger effect was in full flow, with many online commentators claiming that they too would have uncovered Steinhoff as a fraud. Financial markets have always been schizophrenic animals.
In January, the S&P 500 celebrated more than 400 trading days without a 5% pull-back – a new record.
By February, the S&P was 10% off its high and the VIX fear index had a record percentage move from all-time lows.
Funds shorting volatility in the US got crushed.
And many scratched their heads as to why experts again never saw this coming.
Despite having a wider array of information available via the internet, many of us prefer to source views and opinions from online influencers.
While this may be inconsequential when it comes to celebrity gossip, the repercussions in financial markets are more serious, where a crisis of confidence can have adverse business consequences.
When Viceroy ominously tweeted that another local corporate was in their cross hairs, anxiety gripped our markets. Was it Aspen? Resilient?
Fear dominated as a killer was on the prowl.
The Viceroy Effect was born.
And then finally, in February, the big reveal: Capitec.
The share price wobbled but Capitec management fought back – every allegation and innuendo was countered with fact; every inaccuracy exposed and corrected.
But more importantly, in all this, the principal battleground was online.
The very depositors and retail clients of Capitec, which have enabled it to break the big four retail banking hegemony, leapt to its defence.
The opinion makers who had previously lauded Viceroy’s prescience now lambasted their shoddy work.
The tide turned but a seed was planted and after releasing a third tirade it became clear that even an obscure research house based in the US could have reach on our shores.
Leveraging off the power of information cascades, the JSE is at risk of witnessing a number of copycat assassination attempts.
Another short seller covertly released a report on the Resilient group of companies and the share prices unravelled.
And not even management’s attempt to respond to the allegations appeared to help.
In the 1950s, psychoanalyst Carl Jung became concerned that communist propaganda would create "massmindedness", which would allow individuals to be manipulated.
On the one hand, there should be a realisation that the only effective way to fight a whisper campaign is to put out the facts and communicate clearly and openly.
It is one thing for a celebrity to defend against innuendoes and fight back against celebrity stalkers by threatening a defamation suit.
However, in the financial world, where reputations are built over years and investor confidence is a key element, a rumour campaign can be devastating, especially where companies under attack enjoyed darling status and were priced for perfection. The nature of the market has evolved such that long-term investors are being eclipsed by short sellers, who can at any time exploit any chinks in the corporate armour.
This even allows opportunists to exploit any information vacuum to profit by triggering artificial stampedes where selling the rumour becomes the order of the day.
This will require corporates to respond quickly and realise that the way to arrest contagion when it comes to opinions is to engage promptly and be able to articulate facts and address concerns head on.
Post the global financial crisis it is clear that the ability to demonstrate squeaky-clean governance, while executing corporate strategies effectively, will increasingly become a key business imperative.
Just as in politics, the country has turned a page from the "big man" syndrome with its accompanying stench of corruption, and the corporate world should also ready itself for the dawn of a new era.
• Rassou is head of equities at Sanlam Investment Management.