The Prospect of Corporate Governance in the Social Media Age
Executive Governance Summary
Corporate governance in the social media age is crucial for organisations to safeguard their reputation and maintain the trust of their stakeholders. Social media is now a potent instrument for establishing and preserving a good reputation since it has transformed how businesses interact and communicate with their clients. However, it also exposes the companies to a range of risks, including misinformation, negative comments, and privacy breaches. To mitigate these risks, organisations must have strong social media management practices, including clear policies and guidelines, regular monitoring, and a plan for addressing negative feedback. Additionally, while engaging on social media, businesses need to be cognizant of cultural diversity and sensitivities and transparent in responding to customer concerns and queries. Effective social media governance is necessary for businesses to uphold a favourable reputation and foster trust among their stakeholders in the digital age.
1. Introduction
Social media has altered the world as it has made people more connected to one another and created countless new opportunities. Even though social media has been around for almost 20 years, how it is utilised today differs from how it was at the outset. Face-to-face interactions have virtually been overtaken by technology due to how far it has advanced, particularly during the global pandemic phase. Since the epidemic, the potential for technology, especially social media, has increased significantly. Tasks could be completed at work without relocating or commuting as businesses started interacting with clients worldwide without taking long travels. Since the internet expanded its wings and captured majority of the world’s population, all of these have evolved into daily norms.
Social media has many beneficial effects on business, allowing brands to connect with their customers, build a wide audience for their products, market themselves in a unique way and even generate revenue through consumer engagement more effectively. Over the past few years, there has been a growth in demand for social media management services and solutions. While we mainly focus on the positive aspects of Web technology, numerous underlying issues with social media could jeopardise a long-standing legacy. Many organisations are increasingly choosing to work with public relations (PR) agencies because they can bring together people, research, and modern technologies to help their clients reach new audiences and accomplish business objectives.
The following graph illustrates how businesses are increasingly interacting and engaging with stakeholders on social media. This is notably true in emerging markets, where firms are more likely to use social media than in many developed countries.
2. Number of Social Network Users in Selected Countries (2022 vs. 2027 Projected)
Source: Statista (2022). Internet users who use a social network site at least once a month (figures in millions).
| Rank | Country | 2022 (Millions) | 2027* Projected (Millions) |
|---|---|---|---|
| 1 | China | 1,021.96 | 1,212.38 |
| 2 | India | 755.47 | 1,177.50 |
| 3 | United States | 302.25 | 327.22 |
| 4 | Indonesia | 217.53 | 261.70 |
| 5 | Brazil | 165.45 | 188.35 |
| 6 | Russia | 115.05 | 126.37 |
| 7 | Japan | 101.98 | 113.03 |
| 8 | Mexico | 98.21 | 122.07 |
| 9 | Philippines | 84.07 | 92.68 |
| 10 | Vietnam | 72.29 | 81.63 |
| 11 | Turkey | 67.11 | 76.58 |
| 12 | United Kingdom | 61.67 | 65.23 |
| 13 | Germany | 60.88 | 73.15 |
| 14 | Thailand | 56.27 | 59.32 |
| 15 | France | 48.71 | 56.62 |
| 16 | South Korea | 46.09 | 47.61 |
| 17 | Italy | 43.18 | 46.89 |
| 18 | Nigeria | 38.47 | 91.55 |
| 19 | Canada | 34.47 | 38.93 |
| 20 | Bangladesh | 24.49 | 33.60 |
3. Why Social Media Governance Matters: The Tesla Precedent
Before diving into the ripples created by social media in the business world, it is essential to understand how it matters. How the companies perform is defined by their profit on the books, and the profit comes majorly from how a company gains. It is determined by its connection with the consumers and the positive facade it has in public.
The Tesla & SEC Case Study (2018)
Consider Tesla, Inc., which experienced several controversies in 2018 as a result of the CEO’s tweets. In one instance, the CEO stated that he had secured funding to take the company private at $420 per share, which caused the company’s stock price to spike. Later, it was discovered that the funding had not been guaranteed and the claim was untrue. The Securities and Exchange Commission (SEC) filed a complaint following the incident, accusing the CEO of engaging in securities fraud.
The CEO was compelled to forfeit his position as company chairman and pay a $20 million penalty as a consequence. The business also had to pay a $20 million fine and incorporate governance procedures in place to stop future events of such nature. The incident involving Tesla had a big financial impact on the business because it not only led to penalties but also tarnished the company’s reputation and affected the value of its stock.
As a defined set of members decides major decisions about an establishment, it is crucial to define certain rules and practices to govern the social media aspects of a corporate establishment. These members constitute a board of directors and stakeholders who determine what is best for a corporation’s future. This act of management is termed ‘Corporate Governance.’
4. Foundations and Evolution of Corporate Governance
The early 21st century is anticipated to be more concerned with governance than the 20th century, which may be thought of as the age of management. While both phrases refer to controlling organisations, governance has always needed a closer look at underlying goals and principles. The structure and relationships that affect an organisation’s direction and effectiveness are referred to as corporate governance. Corporate governance includes engaging with all the stakeholders, namely consumers, vendors, employees, and creditors, to balance their goals of financial success and social responsibility, with the board of directors playing a key role in both decision-making and governance.
Robert Ian Tricker’s Foundational Definition (1984)
The book “Corporate Governance” was written in 1984 by corporate governance specialist Robert Ian Tricker. He goes on to define it as:
“The way trust is shown, power exercised, and accountability achieved in corporate entities, for the benefit of their members, other stakeholders, and society.”
What exactly constitutes Corporate Governance has changed over the years, and it is a subject which is continually growing in scope. The institutional, legal, regulatory, and ethical atmosphere of society has an impact on the corporate governance system, and the current emphasis is on how social media impacts it.
When most of the corporate codes were crafted, social media tools were still in their infancy and were not part business setup. However, social media is now making a marked impact on business and has also seen a rise in academic articles addressing the topic. After gaining a fundamental understanding of what corporate governance entails, let’s continue learning more about social media.
5. The Mighty Social Media & Industry Impact Metrics
The Information Systems Audit and Control Association® (ISACA) defines social media technology as:
“Involving the creation and dissemination of content through social networks via the internet and is defined by the level of interaction and interactivity available to the consumer.”
Social media is more diverse and deeper than it seems to be. The effects it has can directly impact individuals, celebrities, and even massive corporations. Statistics from Sprout Social demonstrate the value of social media marketing for organisations of all sizes:
With all the definitions and examples presented so far, it is clear that the consumer or end-user plays a crucial role. As a result, businesses must take proactive measures to deal with any user-generated comments or content.
6. Effects of Social Media and Social Media Strategy on Governance: Real-World Incidents
Technological advancements have had a profound influence on governance, and firms can no longer disregard the implications of user-generated opinions, which may have a disastrous impact on the bottom line as well as reputation:
One of the largest Companies in the world into mobile handset manufacturing Inc lost $4.6 billion in market value in 11 minutes in May 2007 because of a false article on the well-known online site Engadget.
A well known global brand to glorify the female asked its users to share hashtags on their experiences on being girl, and few users did share are their experiences stating when they were offered seats or when they were complimented on their dressing or accessories which they adorned, there was a backlash on social media stating that the campaign is discriminatory, archaic and is trivialising women experiences.
A large cab aggregator was trolled for getting on board famous cricketer wherein the users questioned the brand whether such personality uses the taxi app. Infact this is the question in most of celebrity endorsement wherein there is an undertone of criticism as to whether such celebrities use the brands they are endorsing. However, the problem has started getting traction in the social media age.
Another handyman aggregator company found itself in crisis when the senior management accidentally marked the concerned consumer in an internal email, asking his team to ignore him.
A famous Indian brand in traditional and wedding wear attempted to highlight the age-old tradition of girls leaving their parents’ house after wedding and the burden associated with that but the brand faced backlash on social media wherein some users had adverse comments that the brand is endorsing against popular sentiments and had religious undertones.
Few years ago, A famous global QSR (Quick Service Restaurant) Company tweeted a direct political post from its official account and briefly pinned it to the top of its page. It was swiftly removed, but not before amassing more than thousands likes and retweets, as well as replies from irate backers of the political leader who rallied around the transient #Boycott hashtags. The Company apologised and claimed that their account was hacked and disowned the tweet.
During the pandemic surge in the stock market, millions poured their savings into equities on advice from authorised financial advisors and social media gurus to help identify the next big tickets.
ISACA Research & Web 2.0 Financial Performance Impact
To understand the pervasiveness of social media, studies by ISACA in their report Social Media: Business Benefits and Security, Governance and Assurance Perspectives (2010) revealed that 65% of the Fortune 100 world global companies have Twitter accounts, 54% have Facebook pages, 50% have YouTube video channels and 33% have corporate blogs. Furthermore, the researchers discovered a strong link between excellent financial success and firms that actively adopt social media as part of their strategy.
According to an analysis in 2012, “Firms that adopt Web 2.0 (social technologies) are more likely to be market leaders, have their market share rise, and utilise management approaches that lead to greater margins.” While another study in 2012 by consultants found that the top 100 most valuable global businesses with any social media participation reported an 18% gain in sales over the previous year, those with the least active reported a similar 6% revenue drop. It is evident that the widespread usage of social media has the ability to change corporate goals.
7. Vulnerabilities Addressed by Corporate Governance Strategy in Social Media
Litigation & Organized Protests
Addresses the problems that arise when individuals utilise social media to organise protests and collect data that may be relevant to litigation; chances of lawsuits based on social media will less likely to emerge.
Whistleblower Allegations
Reduce the impact of a whistleblower allegation once it is made, as the whistleblower begins sharing information in channels like Twitter as a tweet that may result in threats of public hearings or legislative changes.
Insider Trading Risk
Prevent allegations of insider trading where an employee may intentionally or mistakenly post facts to a post that could trigger a sell-off or an abrupt increase in price and buying activity that triggers an investigation.
Legislative & Brand Blockades
Avoid situations which could lead to legislation that halts a company’s proposed project in its tracks and further preventing from any other reputational or brand risks.
8. The Social Media-Inclusive Corporate Governance & Operational Controls
It is critical for an organisation to manage its social media sites properly, which begins with excellent account management to prevent hacking and hijacking. Auditors frequently discover that sites are not updated on a regular basis, that users do not log out after each session, that users exchange credentials with other team members, and that users link with unknown parties freely.
Further, unforeseen events on social media can inevitably occur at any time. The stakeholders would be able to call for openness and discussion, acting as ad hoc raters of the corporation’s efforts to resolve the issue, with “like” against “dislike” being the only alternatives. Additionally, everyone with internet access will have access to the same social media tools as the business and will be able to sway public opinion through direct interactions.
There must be clarity on what may and cannot be posted, which necessitates a stringent corporate policy that covers the following governance matrix:
| Governance Dimension | Policy & Operational Directives |
|---|---|
| What |
• Define what is allowed and not. • Set the boundaries of content clearly. |
| Who | • Allow only trained and approved staff to post on social media channels. |
| Why | • Have a transpicuous idea behind the social media content. |
| How | • Build a mechanism to report any inappropriate use of social media by employees, third parties or the public. |
Five Strategic Inquiries for Corporate Boards & Internal Auditors
These policies must be supported by a governance framework that can and should be audited. Furthermore, it is equally important to consider how social media affects a company internally. The board should, for instance, inquire as follows:
9. Guidelines for Corporate Citizens to Effectively Utilise Social Media (Do’s and Don’ts)
The direct access to a larger audience makes it essential for companies to have a robust governance framework in place to ensure that their social media activities align with their values and goals. The following are some of the general do’s and don’ts of using social media for corporate citizen users:
✓ DO’S
- Have a proper social media account and content governance in place.
- Clearly define and communicate social media policies and the risks to employees.
- Have a plan in place to address negative comments or complaints on social media in a timely and professional manner.
- Be transparent in sharing company-related information on social media.
- Utilise social media not just for advertisement but also for customer engagement by being a social citizen.
- Match social media updates to the company’s official releases.
✗ DON’TS
- Ignore/delete critical comments without addressing them.
- Post misleading/wrong information.
- Ignore inquiries or service requests of customers when there is a channel in place, such as chatbots.
- Comment on the accounts of rival companies or other organisations unless absolutely necessary.
- Comment on sensitive issues without considering cultural differences.
- Have outdated information in the social media accounts.
10. Conclusion, Regulatory Shifts & Reputational Imperative
Many social media breaches are widely acknowledged, but many more occur behind the scenes. Every company owes to its stakeholders to educate them on how to use social media responsibly; doing otherwise could have fatal consequences. A company must have a well-thought-out strategy for social media; they must understand why they are utilising it and adjust controls accordingly. For many reasons, social media is a tough sector to audit, yet auditors may provide value, and prior history shows that firms will be highly interested in the outcomes.
Proposed IT Intermediary Rules & Accountability Mandates
There are some amendments proposed in which power to the government will be given to overturn the decision of social media giants to suspend, block, and remove accounts of the users on various violations. As per the new proposed IT rules, companies will be put responsible for tackling illegal content instead of refuging under an immunity shield.
No matter how one feels, social media has its own benefits and drawbacks, and social media governance equates to eliminating risk. In the end, everything hinges on a corporation’s ability to influence social media to work for it rather than against it. About half the world can own at least one account on social media and have the freedom of speech to express themselves about anything and everything.
Due to the scarce information and less research available in this space, it is important to stay more vigilant than ever. After all, having a sound social media governance strategy might make all the difference between handling the consequences of a corporate error and adequately apologising for it or making the problem worse.
“It takes 20 years to build a reputation and five minutes to ruin it.”
— Warren Buffett