stanford closer look series 2
Monitoring risks before they go Viral: is it tiMe for the board to eMbrace social Media?
accused o destroying rainorests. Te company waseventually orced to issue a public apology and re-structure its supply chain to source rom sustain-able providers. Had the boards o these companiesbeen monitoring the discussion online, both mighthave been alerted earlier to these risks and movedproactively to address them. In this way, inorma-tion gathered through social media can supplementthe data provided by management regarding key risk actors acing an organization (see Exhibit 2).Survey evidence suggests that many manage-ment teams would welcome the participation o theboard in a discussion about social media. According to a Deloitte study, 58 percent o executives believethat reputational risk associated with social media should be a board room issue. Only 17 percent o companies currently have a program in place tocapture this data.
Still, there are reasons why the board o directorsmight not want to have access to this inormation.First, the responsibilities o the board o directorsare separate rom those o management. Directorsare expected to advise on corporate strategy, thebusiness model, and risk management, but they arenot expected to handle these activities themselves.Reviewing detailed inormation rom social media aggregation providers might encroach too closely on activities under management’s purview. Second,in perorming its monitoring obligations, the law explicitly provides that the board may rely on inor-mation urnished by management. Unless there areobvious “red fags” regarding the trustworthiness o management, the board o directors is not expectedto develop alternative means o inorming its deci-sions. o this end, the board o directors might not want to review inormation rom social media un-less it is provided by management. Tird, the inor-mation captured through social media might not beaccurate. Directors might eel compelled to act onnegative inormation, even i it is not representativeo the general sentiment o stakeholders, becauseailure to respond would expose them to legal li-ability. Finally, directors might be encouraged toengage directly with stakeholders. Tere are severalexamples o CEOs engaging in social media only to have their actions backre.
Directors might be wary o repeating these mistakes.
Why thIs Matters
1. Social media introduces a new level o detail andcomplexity to inormation gathering regarding a company and its stakeholders. Why haven’tmore boards o directors made certain that man-agement has a process in place or collecting,analyzing, and responding to this inormation?Do boards actually know what questions to ask?Can boards distinguish between a good systemor monitoring social media and a bad one?2. Te examples above suggest that social media can provide early warning o risks acing an orga-nization. Should the board ormally review thisinormation, or does this represent an encroach-ment on managerial prerogative? Which socialmedia metrics should be presented to the boardand which excluded? Where do the responsibili-ties o the board end and those o managementbegin?3. One important task o the board is to monitororganizational reputation. How is this currently done? Should overall sentiment derived romsocial media sources be a primary input in thisanalysis?
Nielsen, State o the Media: Te Social Media Report. Q3 2011.
Sample consists o internet users and thereore might not be rep-resentative o general population. Source: Fleishman Hillard, 2012Digital Infuence Index Annual Global Study.
Fay Feeney, “Leading a Board at the ‘Speed o Instant,’”
Te Corpo-rate Board
, March/April 2011.
Interview with Lucy P. Marcus, “Why Boards Need to Adopt SocialMedia,”
, March 22, 2012.
Tis is particularly useul or nonnancial perormance measures—such as employee satisaction, customer satisaction, supplier reputa-tion, product/service ailure, and product innovation—that are di-cult to measure.
Robert McDonald, “Inside P&G’s Digital Revolution,”
, November 2011.
Examples include Sysomos, Converseon, ListenLogic, Scout Labs,NM Incite, Cymony, Synthesio, Radian6, and Visible echnolo-gies. In general, these companies or products provide metrics aroundcompany avorability, infuencers, topics and themes about a com-pany and its competitors, positive/negative sentiment, text analytics,geography, and demographics.
Deloitte, 2009 Ethics and Workplace Survey.
For example, in 2007, John Mackey, CEO o Whole Foods, cameunder re or regularly making anonymous posts on Yahoo! Financemessage boards. While an SEC investigation cleared Mackey o wrongdoing because he did not prot rom his actions, the boardo directors modied the company’s code o conduct to bar seniormanagement and directors rom making posts about the company,its competitors or vendors on unsponsored websites. See Andrew Martin, “Whole Foods Executive Used Alias,”
Te New York imes
, July 12, 2007; and David Kesmodel and Jonathan Eig, “Unraveling