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When Social Media Matters: a Guide to the Board of Directors for better Governance

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In 2009, the  Deloitte Ethics and Workplace Survey explored attitudes about social networking and pointed out the significance of social media for board of directors. 58 percent of executives felt that the reputational risk associated with social networking should be a board room issue. Yet,  only 17 percent of executives said that they currently had programs in place to monitor and mitigate reputational risks that may arise with social network usage. Boards have since largely left it to management to figure out its social media strategy. When informally asked in a boardroom, Competia found that less than 5% of directors admit having ever used and participated in social media. Mistrust is widespread and the issue of privacy is of utmost concern. The implications of social media for the board far outreach reputation risk. As the use of social media is rapidly spreading and challenging every single company business model and strategy, it is time for directors to understand the implications for corporate governance.

Why boards should understand social media


Reason #1: To manage reputation risk better

As executives, employees and board members blurr the boundary between their professional life and their personal life on social media, the reputation risk is growing for companies. In the 2009 Deloitte Ethics and Workplace Survey nearly three-quarters of the employees interviewed agreed that using social networks make it easier to damage a company's reputation.

In July of last year, the SEC announced its recognition of corporate blogs as public disclosure:

"...company disclosure should be more readily available to investors in a variety of locations and formats to facilitate investor access to that information". "Guidance on the use of Company Websites" issued last August outlines the boundaries for sharing information as well as holding companies and their employees liable for the information that they post on blogs, networks, communities, and discussion forums."

 

BP has learned this lesson the hard way. During the crisis of the oil spill, BP's unofficial site has reached 165,000+ followers (see here ) and had become the main source of information for shareholders, surpassing by tenfold the official account (see here with 30,000 followers). To this day, the gap has not been filled.

 

Reason #2: As a channel of communication to the public and to shareholder

Companies globally already have started leveraging social media, and in particular Twitter, to announce new nominations and changes in the board of directors. Although the corporate world is still lagging behind non for profit organization, this trend is likely to continue.

The National Investors Relations Institute ( www.niri.org ) recently held a Webinar entitled "Trends in Technology and Disclosure." Three IRO's from Microvision, BGC Partners Inc., and Sun Microsystems each discussed how they have integrated social media tools such as corporate blogs, implemented notice and access releases and enriched investor communication portals to enhance and increase interaction with shareholders ( see more here )


Reason #3: To manage directors Liability

Social Media tools can be used during a crisis to federate protesters, and gather information that can be used in litigation, putting board members in a liability suit situation.

Whether justified or not, claims can be hugely damaging  - not to mention the time board members must invest dealing with the situation. Nestle has learned its lesson in 2010 ( see Nestle Social Media Mewltdown- A Case Study ) when an iniative by Greenpeace led to an unprecedenced boardroom crisis - peaking when intruders literally dropped in the shareholder's meeting (see here ). The Kit Kat video that launched the campaign ( and sequels) have now been viewed over 1 million times.

Source: Greenpeace.com


Reason #4: To protect against insider trading claims

Information posted on Facebook, in a blog or any other social media could results in a sudden change in price or buy activity resulting in an SEC investigation. On the on the Martindale-Hubbell Connected network for legal professionals, Virgina Henschel, Rob Robinson, Mike Mintz and Steven Weinberger share how Disney got caught into the social spider web:

On May 26 of this year, the SEC filed a complaint against an administrative assistant at The Walt Disney Company and her boyfriend, who sent numerous hedge funds anonymous letters offering to provide the funds with inside information about Disney's quarterly earnings in exchange for a fee. They were busted by the FBI when they sold the information to an undercover FBI agent posing as an investment manager.

When the administrative assistant thought she was going to get away with her crime, she posted the following status update on her Facebook account:
I go shopping, shopping, shopping.

As a result, the defendant's Facebook status is being used against her by the SEC, to prove a mindset and motivation to do the crime.

 

Reason #5: As a source of independent intelligence

In oder to avoid solely relying on market and strategic information been provided by management, and therefore subject to biases, boards are starting to build independant source of intelligence to feed their discussions. Social media offers unfiltered access to feedback from customers and stakeholders about the company and offers therefore an aditional source of insights.

Yoram Wind, professor at the Wharton Scool, quoted in the article "Rethinking the Board"

To make informed decisions, boards would need to have independent sources of information, with their own budgets for conducting studies, and gathering information (...) to gain independent insights about the health of the business.

Social media is by definition unfiltered - and is not easily manipulated. It offers therefore an additional tremendous source of information about the company.

 

Reason #6: To avoid blindspots

As new business models emerge that leverage social media and challenge conventional players, the board need to understand the risks posed by potential new competitors who know how to harness the power of social media. Directors should relentlessly investigate emerging new players - especially those coming from adjacent industries, and challenge all their assumptions about existing industry boundaries. Examples abound:

  • Facebook has the potential to challenge the banking industry with peer to peer lending and "internal" currency ( read more here )
  • Google Voice is directly competing with telecommunication players, offering free long distance calls ( read more here )

 

Steps the board should take to get up to speed

I am certainly not advocating the individual board members to start blogging, although individual members might want to experiment privately. However, here are a few steps I suggest the board considers to start harnesting social media:

 

1.     Get an outside expert

Hire an outside expert to come and demystify social media during a board meeting. Specific points to be addressed should include:

  • how the company's specific target market uses social media;
  • a comparative analysis of what competitors are doing ;
  • research on reach and future trends in social media; criteria to use;
  • the difference between inbound and outbound social media;
  • a measure of ROI
  • the role of contingency plans

 

2.     Ask management to analyze and discuss the impact social media could have for the company

In particular, focus on emerging competitors, potential changes in the value chain, and customer relationships shifts. As corporate board member  Julie Hill points out in "Boardroom Relevance":

  "Social media must be as much about listening as talking.  What customers tell us may be reason to review our policies, not just our products.  Selling the right products may be a marketing issue, but doing the right thing is a Boardroom responsibility."   -Quoted in www.boardmember.com

 

3.     Make sure the company occupies the space

Similar to the web, where owning one's domain names  has been key to secure a strategic space in the mind of clients and consumers, management should have secured by now the names on all social media pertaining to the company, its brands and key products.

For example, Egon Zehnder, one of the world's largest recruiting agency, does not have the ownership of its Twitter "handle" (@egon_zehnder  or @egonzehnders ) associated with its corporate name. It is in my mind opening a loophole for the future. Competitors Heidrick & Struggles and Korn Ferry have secured their corporate names ( see here and here ).

 

Key questions boards should be asking management about social media


Do we have a social media policy for employees ?

  • Is this policy part of the employment contract?
  • Does it define how the employee engages in social media, whether in their own name or in the company name?
  • Is it made clear who owns the intellectual property ( see recent article Lawyers, Guns and Twitter- Who owns your Twitter account illustrating how the BBC lost 60000 twitter followers to ITV ( see here )
  • Are employees getting coaching and training ?

 

Are we listening ?

  • Which sources are we listening ? Does it i include review sites, blogs, Twitter and Facebook, as well consumers forum ? Does it include LinkedIn  and Google+ ?
  • Who is listening ?
  • When are we listening ? My clients in the media industry found that their digital experts needed to come into the office after hours - when their clients watch shows and share comments. Similarly, Procter & Gamble founds during the Pampers crisis last year that employees in charge of monitoring social media  could not effectively monitor social media during work hours: worried mothers discussed potential diaper rashes in the evening, after kids go to bed at night ( see more about this story here 

 

 


Do we have a response plan in case of digital crisis ?

  • Is there a contingency plan when a crisis hits ?
  • Who is managing it ?

 

Who is in charge of social media in the organization ?  

  • Is it handled by pyblic relations, and then focused on communication on a corporate level ?
  • Is it under the responsibility of customer insights, or marketing, suggesting a more significant focus on - and interaction with customers ?
  • Where does social media fit in our risk profile? To whom does it report?

 

What results do you get when googling the names of key executives ?

  • Does this information portraying differ from the official biography ? Putting yourself in the shoes of  your stakeholders or customers, the messages portraying in the first page of results might be as important as the ones displayed in the official biography on the website.
  • Is the message consistent across platforms ? For example, how is the social profile comparing with the professional one ? There are now a few great tools to obtain the social media profile of executives online: 123people.com or Pipl , Social Mention are great integrators of the data.


Do we have a whistle blowing process via social media?

 

In conclusion

The risks - and missed opportunities - of ignoring social media is significant across all industries, and for companies of all sizes. The question really is not whether boards should know about social media, but how they can afford NOT to know about it.

 

Additional resources:

 

Twitter lists:

 

Further reading:

Into the Fray: A View from the Board of Directors about social media  http://ow.ly/6ghpW  by @deloitte

The Board, Governance & Social Media http://ow.ly/6glhu

About social media, investor relations and web disclosure #corpgov http://ow.ly/6ghxW

Corporate Blogs and 'Tweets' Must Keep #SEC in Mind http://ow.ly/6ghLI

Lawyers, Guns, and Twitter - Who Owns Your Twitter Account via @sejournal http://ow.ly/6ggdk

NASDAQ releases new board iPad app to go w/ its Directors' Desk program RT @boardroominside #corpgov http://ow.ly/6iQ3F

Insider Trading 2011: How Technology and Social Networks Have 'Friended' Access to Confidential Info http://ow.ly/6miWC 

Rethinking the Board ( pdf) http://ow.ly/6pBmR

 

 

 

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  • Posted by Alex SV. said:

    12/01/2013 2:36pm (1 year ago) board should take this problem in complex and provide a structured framework that will help anyone at any level build the necessary support to make their social media aspirations successful

  • Posted by Mohd Shahnawaz said:

    12/09/2011 2:13pm (3 years ago) Informational post. Many corporations still do not deploy great reputation management tools and prime case was BP disaster. One of the best blogs I read on the subject is http://outspokenmedia.com/guides/orm-guide/

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