Board Matters Quarterly, April 2014

The business of social media

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Strengthening and protecting your brand

Social media has changed the relationship between companies and their customers, employees, investors, suppliers and regulators.

This phenomenon has set the stage for a free flow of information and, in some cases, shortened processes that used to take days or weeks down to just hours or minutes.

In addition to the many opportunities that social media generates, there are also many challenges, including data security, privacy concerns and regulatory and compliance requirements. Because of the many possible and potentially far-reaching consequences, social media challenges have become a board-level concern.

Social media has assumed a more powerful role in helping to shape buying behaviors, amplifying the volume, frequency and effect of word-of-mouth marketing and guerilla advertising.

While social media users are generally younger, the average age is increasing as more people with higher discretionary income and buying power go online. This trend is expected to continue as advances in technology amplify the impact of social media.

Consumers and internet users who have grown up in an environment saturated with social media, mobile computing and constant connectivity continue to gain financial influence and will increasingly leverage their newfound power to control — at least indirectly — pricing, product selection, distribution and marketing efforts.

"Because of the many possible and potentially far-reaching consequences, social media challenges have become a board-level concern".

Understanding social media risk

Board members understand the importance of building and maintaining a brand, which can quickly become fragile and vulnerable to the millions of newly empowered consumers coming online every day — all with a potential voice.

The social media elements that generate business opportunities for companies to extend their brands can also present risk. Reputational issues are at the top of the list of potential social media risks that can ultimately cause erosion of customer loyalty, market share and revenue.

Users are able to create profiles and appear to communicate on behalf of a company on popular websites such as Twitter, Facebook and LinkedIn.

This easy access can cause customer confusion and reputation risk if policies and practices are not clearly defined and communicated.

Companies that want to avoid social media challenges simply by ignoring, limiting, restricting or prohibiting their use may slow down innovation and growth, allowing competitors to move ahead or have a stronger online presence. Building relationships with customers that extend beyond their preference for products and services can offer a strategic advantage.

Protecting and strengthening your brand

In response to concerns, many companies are investing in holistic, enterprise-wide social media strategies that support efforts to protect and strengthen their brands and are flexible enough to accommodate constantly changing technologies.

Companies can benefit greatly if they have a well-established and understood strategy for using social media.

An effective social media strategy should cross all organizational lines and embrace the concerns of all affected business functions including human resources (HR), information technology (IT), legal, marketing and sales departments, as well as customers, clients and suppliers.

It is also beneficial to have a decisive action plan to respond to any social media activities that can expose the company to risk. Companies caught ill prepared may risk the loss of customer confidence, share value and overall market reputation.

Organizations with an integrated, holistic strategy and solid governance will be better equipped to survive rampant change and capture opportunities; and boards should understand where social media fits into their business objectives and how related risks are managed.

Questions for the board to consider


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Questions for the board to consider

  • Does the company have a social media strategy that has been communicated with the board? Is the strategy integrated with the company’s corporate communications strategy?
  • What governance systems with measurable criteria (key performance indicators) are in place? Have policies and guidelines been defined? Are the employees aware of the policies and guidelines? Have they been trained?
  • Do the company’s social media policies comply with the relevant national, international or industry-specific rules and regulations?
  • What are the company’s most significant reputational risks arising from social media? What is the company’s strategy for mitigating reputation risk from social media?
  • Are there mechanisms in place to leverage any customer insights and lessons learned from social media monitoring?
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