Canada: Board Governance Of Social Networking

This article originally appeared in the Director Journal, a publication of the Institute of Corporate Directors (ICD).

Twitter, YouTube and other forms of social media have swept past teenage toys and now represent a key part of society's communication fabric. The chances are that the organizations you serve as a board director are already using social media to engage in social networking. If that's so, it's time for your board to turn its attention to board governance of social networking. When matters are strategic, or the associated risks become material, the board's oversight role needs to engage. And that is what is happening with social networking.

Board oversight of social networking requires more than an understanding of the underlying technology. It also calls for an understanding of the sociology and the implications of the phenomenon. To explain this, it may be helpful if I give you some background on my discovery voyage of social networking.

My children are now in their thirties and for years they never returned my phone calls and rarely returned my emails. But I discovered they both almost instantly reply to my text messages. This was a eureka moment as I realized, "I'm on to something here."

Therefore I signed up for Facebook. When asked for my personal information, I entered an extract from my resumé. It's public information anyway. Then I accepted the Facebook invitation to take my picture with the camera on top of my laptop. I was rattled that they could do that, but my picture then instantly went on my Facebook page. I thought the photo was okay, but almost immediately, I received a text message from my daughter. The message said: "Change your picture or I will unfriend you."

To widen my experience base, I signed up for Twitter in preparation for my ICD presentation. Twitter presented me with a big box and invited me to make my first tweet: I wondered what I wanted to say to world. So I said; "I am participating in a panel on Board Governance of Social Networking, Any suggestions?" There were none. But when I mentioned this at a university board of governors meeting, I got followed by three people at the meeting and they retweeted my message. But as of this date, no one had any tweets with substantive comment on my request.

I concluded that my subject of "Board Governance of Social Networking" has less interest to Tweeters than Britney Spears' 30th birthday, which was the subject of voluminous exchanges. This is not to say that all Twitter is twaddle. For example, medically minded followers of @twitjournalclub gather on the site every other Sunday evening to discuss new journal articles in comments of 140 characters or less. It does mean, though, that learning how to find followers is one of the barriers to entry.

These opening comments were drafted to demonstrate that there are barriers to entry in social media. They involve not just the use of the technology of the medium, but also the sociology of its use. I found that individuals have to make a technology jump in moving from word processing and email into social media. But you also have to master a sociological jump in overcoming or at least managing privacy concerns, and understanding the use of the medium before you can become a participant in it.

I serve on a number of boards, all of which employ social networking to varying degrees. Here are two examples that represent the social-networking spectrum and some of the associated risks.

  • ING Direct: Social networking is heaven-sent for ING Direct, a bank that does not have a physical branch network. It relies instead on direct advertising, call centres, and the Internet to attract and maintain contact with their customers. ING Direct has been engaged in social networking since 2007. They do 6,000 social interactions every week. They have thousands of followers for the ING web pages. The recent launch of their Thrive chequing account resulted in tens of millions of impressions.

Some organizations believe that social media can be used first to promote brand. This is pre-social media thinking. Instead, ING's strategic concept of being a customer advocate positions its approach to social networking as: 1) listen to what is being said; 2) where desirable, engage directly with the customer, either through social networking or by direct contact; and only then, 3) product and thus brand promotion. The company's public engagement with individuals is the key aspect of the commercial use of social media that distinguishes it from traditional media and advertising.

  • Revera Living is Canada's largest provider of retirement homes, long-term care facilities, and home health care. It is a seniors company. One might think it has a long runway before social networking becomes relevant, but it is moving actively to ramp up its social-networking presence. That's because the decision makers for seniors are often their children, many of whom are already comfortable with social networking. Moreover, a growing number of seniors are on Facebook to keep up with what their grandchildren are doing.

These examples are drawn from the private sector. But the opportunities and risks of social media can be equally applied to Crown agencies and the not-for-profit sector. The following story demonstrates one of those risks.

Social networking can easily go off the rails. For example, on YouTube, there is a fad where many students from a university participate in a "lipdub" video, lip-synched to a popular song. Part of the routine is for the university's president to make a cameo appearance on the video. This was recently done at a Canadian university. After the video was uploaded to YouTube, it was drawn to the president's attention that some of the words of the selected tune could be regarded as sexist. The result was that the university faced the reputational risk of having the president participating in a sexist video on YouTube.

From a board-governance perspective, those board members who are comfortable with social networking will only face the challenge of adopting a governance framework for a subject that is within their area of expertise, or at least literacy.

For other board members, and at this date I would suspect for the larger proportion of us, the challenge will be to provide oversight of a governance framework in an area in which we lack basic literacy. This lack of literacy in social networking does not relieve us of our governance responsibilities.

It is not uncommon for board directors to need to provide oversight for areas in which they lack literacy. Preferably, however, the grid used to identify needed board competencies should be expanded to include the need for someone on the board to have experience in the area of social networking.

The YouTube lipdub story described above also illustrates how difficult it can be to come to grips with the governance of social media. It was initially proposed that the lipdub video would be shown to the university's board of governors as a kind of good news story. But second thoughts were expressed when it was learned there might be a sexism problem. This was discussed at the executive committee. Some members of the committee argued that it should be shown – with appropriate caveats – to demonstrate both the potential and the risks of social networking. Others argued that it should not be shown, caveats notwithstanding, because it could be regarded as an endorsement by the board of governors of those sexist statements.

This story underlines the reputational-risk issues than can arise from social networking, and the need for preestablished guidelines to deal with them. This is a key social media issue for organizations, as any employee has the ability to affect the brand.

ING's social-networking guidelines summarize the point by saying that a reputation that has taken years to build can be destroyed through social networking in a matter of minutes. In terms familiar to those in the market, social networking has volatility with very fat tails.

ING Direct encourages its employees to be actively engaged in social networking, even though only some employees are actually responsible for managing ING's official social-media programs. That's because there is nothing new about social networking as a concept. Individuals are the starting point for communications that become mass communication. Word of mouth, however, tends to spread slowly. The email "Reply to All" and "Forward" buttons give a hint of the communication power of technology, but social networking amplifies both the rewards and the risks.

Social networking will take place whether you forbid it or not. From ING's perspective, they want all employees to be ambassadors for the company. Thus ING encourages participation rather than forbidding it. For ING, the risk is less than for other companies because ING has sky-high employee-satisfaction scores.

But ING does have guidelines for engagement. For those officially involved, a "four eyes" policy (not counting eyeglasses) is practiced before any message goes into social channels. As for those who are not directly involved, the guidelines set out how to become involved and prescribe appropriate social-networking behavior. These are reinforced by provisions in ING's Code of Conduct that extend the code to social networking.

So the board's first role is to understand the extent to which the company is involved in social networking based on the general areas of monitoring, engagement and promotion referred to above. One doesn't need to be social-media literate to understand that information.

Secondly, the board should ensure that the company has social-networking guidelines which set out expectations for anyone involved in it, officially or unofficially.

I'd be inclined to cover social networking in the Communications Policy, but cover employee behaviour in the company's Code of Conduct. Usually, approval of the Communications Policy and the Code of Conduct are board responsibilities. These should be at the policy level, with the detail in guidelines developed within the company at a level where the necessary expertise exists. If creating the guidelines themselves becomes the responsibility of the board, you run the risk of their being approved by people who aren't the experts. This is never a good idea. In addition, it leaves the door open for the real experts to later say about the guidelines that, "We are not accountable for them because we didn't draft them." This is also a bad idea.

A second type of risk in social networking is technology risk, the oversight of which is also a responsibility of the board. The technology risk is magnified because, in social networking, engagement means a two-way conversation flowing from the company's own technology base. Therefore, steps should be considered to ensure that there is a firewall between the social-media engagement platform and that of the organization's core technology. Here I think that the board should already have technology expertise among its directors to take leadership on this issue; other board members should look to those directors.

Third, there are privacy issues relating to social networking. It is important to distinguish between email and social media. With email, unless one pushes the 'reply all' button, you can be reasonably confident that, besides the recipient, only government watchdogs, the technology staff of various server groups, and the occasional hacker will have access to any confidential information provided. Conversely, on YouTube, Twitter, and even on Facebook with open settings, confidential information, say about a client's account or an employee's shortcomings, will end up in the public realm. It is fair to say that there is a gap between the obligation to keep confidential information private and the utter disregard for privacy observed by many social networkers.

Finally, I would observe a growing element of regulatory risk that could arise through social networking. Sending a message over Twitter or Facebook could well be considered a public distribution by the company. So a tweet that says, "Wait until you see the new chequing account we are launching" might be regarded as a forward-looking statement and should thus be accompanied by the usual disclaimers about forward-looking statements. This is hard to do in 140 characters.

The board's role with respect to private and financial disclosure is to ensure that the organization has given full consideration to the implications of social networking on privacy-related matters and financialdisclosure issues. It should seek confirmation that all relevant policies of the organization have been extended to cover social media.

It is reasonable for the board to ask if the internal audit department has conducted an audit of the organization's social-networking function. We did such an audit at a company with which I am associated. Happily, no major problems were found, but enough concerns were identified to underline the continuing importance of internal audit oversight of social networking.

So where is all this going? Information generated on social media can go everywhere. Boards of directors will need to ensure that policies are in place to govern what and how information is disseminated. In the future, it will be impossible to differentiate between the messages sent to customers, shareholders and regulators. Clearly business is going to become a lot more transparent as a result of social networking. If effective board policies are in place, that is surely a good thing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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