What the CEO should be telling the Board about social media and online reputation management
Early this year we posted this blog about the role of the Board in relation to social media. We’re reposting it today in response to increasing interest from clients regarding governance obligations relating to social media.
It’s now axiomatic that even for the most reluctant organisations – many in financial services being among them – when it comes to social media it’s a case of not if, but when. Because the truth is, if your financial services organisation is still at the ‘if’ stage, then it’s not just seriously dragging the chain. It is putting itself – and its Board of Directors – at significant risk.
Social media and its powerful potential role (both positive and negative) in many organisations’ fortunes are now well established. As such, it should be directly recognised and addressed in a company’s governance arrangements.
ASX and ASIC requirements
Financial services organisations seeking evidence of this need look no further than recent guidelines and regulations issued by peak regulatory bodies such as ASIC and the ASX.
The ASX’s release late last year of a substantially rewritten draft Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B, is just one case in point. One of the key messages from this new guideline, drafted in close consultation with ASIC, is that to achieve compliance with continuous disclosure requirements companies should be monitoring both traditional news and information sources and significant social media sites that regularly include information and posts about the company. The GN8 highlights the importance of having adequate monitoring and response systems in place ‘especially in the age of social media’.
In cases of breaches of continuous disclosure requirements, under section 674 of the Corporations Act 2001, both administrative sanctions and, in serious cases, civil and criminal penalties may apply.
A question of effective governance
More widely, in terms of corporate governance and a Board’s responsibility for risk management in general, a mounting body of legal decisions clearly shows that companies whose policies and procedures fail to specifically address use of social media – let alone ignoring its existence – do so at their own peril.
The ‘line in the sand’ case on this is the Fair Work Australia decision on Linfox, which found that the company not having a social media policy was simply ‘not sufficient’ in the ‘current electronic age’ when so many other large companies have ‘taken pains to acquaint their employees with these policies’. Bottom line: when it comes to social media it really is a case of ‘keeping up with the Jones’s’.
Hitting home even more directly for Board members are issues such as privacy and confidentiality in relation to important financial (and other) announcements. Energetic boardroom tweeters have more than once found themselves at the business end of a stern regulator when they’ve released information about Board proceedings via social media – before the appropriate public disclosure is made. It’s clear that effective policy and guidance on social media use applies to every member of an organisation.
More recently case, the Federal Court found in Sea Folly v Madden that Facebook posts on a personal page about a corporate competitor may still be considered comments made ‘in trade or commerce’ – and constitute misleading or deceptive conduct under section 52 of the Trade Practices Act 1974 (superseded by the Competition and Consumer Act 2010).
Cases such as these make it clear that the line between personal and corporate identities are blurring. This is a situation that, unless appropriately addressed, brings with it a broad and, for many company directors, unfamiliar range of risks that more than warrant the attention of a company’s highest officers.
It’s all about reputation
If the straight legal and regulatory situation weren’t enough to persuade a heel-dragging Board that it’s past time to tackle social media head on, there’s also a spectacular choice of reputation fails to choose from.
The Alan Jones Twitter lashback and consequent withdrawal of program sponsorship dramatically reduced both the revenue and share value from Macquarie Radio. Then there’s the great Qantas ‘luxury pyjamas’ fiasco, the McDonald’s ‘McFail’ #McDStories case and countless others. It would be very difficult in the face of these instances for any Board facing a serious social media crisis to maintain that they failed to protect shareholder value because they had no way of seeing it coming.
Getting social media on the Board
It’s perhaps unfortunate that the most immediately compelling reason for many financial services organisations to appropriately address social media – and that is, at Board level – is purely for the purposes of risk management or, more specifically, online reputation management.
Why? Because the other side of the social media coin spells serious value for companies that get it right. Building brand and reputation that converts to bottom line performance; improved stakeholder engagement that leads to better products and services; the ability to leverage a de facto ‘workforce’ of brand ambassadors and the opportunity to tell your company’s story without the duchessing and expenditure associated with using traditional media are just a few.
However, the reality for a Board that’s committed to best practice governance is that risk management often comes first. For a CEO seeking to guide his or her Board on the vexed issue of social media, these pointers should be more than enough to find social media a regular spot on the Board calendar.
Of course, once social media is firmly where it should be on the Boardroom agenda, a range of other issues and questions arises. These include, among others, the questions the Board should be asking about social media as it relates to reputation; information transparency and disclosure; crisis policy; strategy; and company culture and leadership.
In future blogs in this series, we’ll cover more of these Board level issues.
In the meantime, if you need further persuasion – and some topline guidance on answering some of the questions cited above – this article from the Global Corporate Governance Forum offers a cogent and persuasive summary:
BlueChip Communication has also developed a useful step-by-step checklist to help organisations seeking to protect their online reputations. To receive a copy, email us at firstname.lastname@example.org.