The Board, Governance & Social Media

Is it really that important for a board of directors to understand Social Media? It is today. They don’t need to understand how to use Twitter or the tiny details of Facebook. But what they do need to understand is a) how people use Social Media and b) how it can affect a large, mid-cap or small-cap public company or even privately held company.

Why?

Here’s a look at how activity can impact a public company, board governance and strategic direction (which is what a board is responsible for.)

1. Directors Liability: A crisis, such as JetBlue or the oil disaster in the Gulf of Mexico currently underway, can lead to huge public discussion online. Citizens can use Social Media tools to organize protests and gather information which can be used in litigation and puts members of the board in a liability suit situation. During and after a crisis, monitoring Social Media channels can help counsel better assess risk and potential outcomes.

2. Union Organizing: Unions are making very good use of Social Media tools. A board not paying attention to Social Media channel chatter may be blindsided by a rallying attempt at their company. One that they could have been aware of and prepared for.

3. Whistleblower Crises: It may be that a whistleblower starts placing information in select channels, such as a blog, that could lead to threats of congressional hearings or legislative changes. A whistleblower can quickly build community.

4. Legislative Impact: Groups opposed to a company’s activity (i.e. oil sector) can use Social Media tools to build potentially damaging evidence against a company. This can result in citizen connecting with their legislative or elected officials with the result of legislation that stops the company in its tracks on a proposed project.

5. Stock Price Volatility, Insider Trading Claims Etc.: An employee may post in a blog (intentionally or accidentally) information that could lead to a sell-off or drive a sudden hike in price and buy activity resulting in an SEC investigation. It may lead to board changes or the need for board members to actively engage in reputation management and public statements. It may also lead to insider trading charges and more.

There are more than these five, but they are key issues that a board may need to understand in terms of governance and strategic direction. Social Media has already impacted the board of JetBlue with their crisis a few years ago and there are likely other examples.

The challenge is that in over 90% of these companies with such board structure, it is likely the board is of the upper end of the boomer generation and may not grasp the effects of these technologies in many cases and suspect they’re only used by “youth” who couldn’t rally to impact a company. This can be a deadly mistake.

(Author: G. Crouch, MD)