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Social Media And Corporate Governance

Social media started with young people connecting with others. Now it is sweeping through corporations like wildfire, locusts… add your own metaphor.

Well, what does this mean for Corporate Governance? Similar to the Chinese symbol Zhuan ji, it means opportunity and danger.

The opportunities include the ability to:

• connect with stakeholders like never before
• build trust and reputation
• get input from stakeholders
• communicate with existing and potential employees.

But the risks include:

• loss of intellectual property
• disparaging the company or co-workers
• posting embarrassing (to the company) content
• possible legal liabilities
• violations of the Code of Ethics

Such social media risks are a matter for Corporate Governance. Social media has progressed faster than companies’ ability to craft risk management schemes.

Forbes magazine published an interesting article addressing these risks , “A Corporate Guide For Social Media“, in which they state–

…here is a set of guidelines for corporations considering how to integrate social media in the workplace. If you are an executive, keep in mind two points as you gear up your social media strategy:

First, social technologies including blogs, social networks and Twitter are communication tools. That means a company’s social media approach must integrate with its existing communications channels and goals.

Second, if you think these guidelines don’t apply to you, you are probably already on the endangered species list.

Some companies already heed this advice.

For example, Intel Social Media guidelines for posting content by employees and contractors are available to the public, using an effective minimalist design that displays its social media guidelines and includes links to relevant resources.

Interestingly, Estee Lauder have included social media as a risk factor in their annual report (spotted by Footnoted.com).

And finally, here are some useful related resources that can help to design your Social Media guidelines:

• Socialmediagovernance.com offer a list of many examples of social media guidelines
• Social Media In The Workplace: Managing The Risks from law firm Jackson Lewis
• Social Media Policy Template from Bottomline Legal
• Social Media What Directors Need To Know PriceWaterhouseCoopers Podcast.

Image from Living Chinese Symbols

What Makes for Effective Investor Relations Sites? Part 27: Can Your Investors Get in Touch with You?

Hunting for your contact information…   In the early days of the internet, anonymity ruled; it was not uncommon for people creating email addresses to create fanciful monikers such as masteroftheuniverse@email.com and to conduct themselves in the expectation that nobody would know who they were.

As the medium has matured, much of this has gone away, and most email addresses you see these days resemble a person’s name. However, companies often seem to create their websites in the belief that they don’t have a physical presence, and that investors don’t need to contact a real live person. In any number of instances I have researched company websites and asked the question, “Where are they located?” and proceeded to spend the next five minutes in a fruitless search for a physical address. The same goes for trying to find the main investor relations contact.

Some companies have made this easier and good investor relations practice dictates that it should be fairly simple.

Take, for example, the web site of Tullow Oil. Oil companies are by nature spread out across the globe in the never ending search for petroleum products, and Tullow recognizes that investors will need to know more than just the address of the corporate headquarters. So in their section entitled “Our business” the company not only give the headquarters address, but also provides an overview of the company’s assets.

Tabs then provide a deeper look at exploration and appraisal sites, production and drilling locations, and reserves and resources. In all, they provide a good overview of the physical footprint of the company.

On the investor and shareholder contact side of the equation, Reckitt Benckiser has done a good job of addressing the numerous constituencies a consumer products company faces. Reached via a pop down list in the Investors tab on the main home page, Reckitt’s Contacts page provides contact names, telephone numbers and an email portal for investors, shareholders, consumer enquiries and the media.

It’s a well done example of how to easily supply information about the right person to get in touch with in the event a person needs more information from a real live person.

In this series:
Previous post: Additional Information
Next post: Analysts

YellowPages.com Rebrands as YP with New Ad Campaign

In a press release published by AT&T this week, a rebranding ad campaign was announced that will kick off with a series of ads intended to reposition YellowPages.com as the new YP with a message to users — “live locally.”  The press release explains:

The multimillion dollar campaign shines the spotlight on how the YP brand can help users to experience more, do more, and ultimately live more through a better local search experience. Inspirational advertisements across national TV, print, digital and local-market outdoor ads capture the evolved brand personality and position YP as a brand that understands the intent behind a local search. Each ad builds on that theme by sharing a person’s story and real motivation behind their search.

“This major brand campaign reflects how much the YP brand has evolved and how it continues to play a significant role in consumers’ lives,” said Erick Soderstrom, vice-president of AT&T Brand Management and Advertising. “The TV spots kicking off this week emphasize that the YP brand isn’t just an everyday utility, but something that encourages users to spend more time discovering and doing the things they love.”

As BrandWeek reports, “the campaign’s goal, according to Erick Soderstrom, vp of brand management and advertising at AT&T, is to move beyond the basic, or ‘functional’ side of local searching and into the ‘emotional’ side.  The message is targeted toward consumers ages 18 to 35, who are heavily immersed in the idea of ‘experiences.’ The company calls these local search users ‘digital do-mores,’ or people who are ‘very multifaceted, very mobile and digitally savvy,’” Soderstrom said.

YP.com is one of the top 40 Web domains in the United States, according to BrandWeek, and the new campaign and local focus will undoubtedly help to keep it there.  Can AT&T successfully build YP.com into an emotional brand linked with experiences?  Given AT&T’s reported focus on the mobile consumer audience for the new YP.com, it appears they’re on the right track.  However, it seems that a mobile-social element is the puzzle piece that could take this effort to the next level of success.  For example, there is a reason why people like foursquare.

What do you think?

CSR Improves Your Stock Value — Official!

A new joint study by the London and Harvard Business Schools has shown that having visible CSR strategies in place boosts a company’s stock price.

The study looked at 16 years’ worth of market data from the US and examined how sell side analysts reacted to CSR announcements by the companies they are following.  True to form, up until recently most sell-siders have seen CSR strategies as value-destroying and may have consequently marked the company’s share as a sell as a result.

However starting in 1997 and with increasing vigour as the years have passed, the study shows that there has been a change: analysts’ perceptions have turned around.  A company’s CSR strategies are now seen as a value creating activity, leading analysts to recommend them more often, leading to subsequent rises in their stock value.

Interestingly though, the study does not show that the reverse is true: that a lack of CSR strategies or a poor CSR record can lead to a company being viewed as value-destructive by analysts and the stock consequently being downgraded.  This more than anything else may demonstrate how the impact of CSR on a company’s market performance is still very much in flux.

Crucially, however, the study also finds that a company’s communication of its CSR strategies also affects the analysts’ perceptions.  It’s now recognised that socially responsible individuals are spread over a number of stakeholders, such as regulators, investors, consumers and employees.  It is believed the analysts take this into account and so view a stock more favourably the more CSR information there is for each of these significant stakeholder communities.

So, in brief, CSR strategies can provide stock prices with a boost, and the more visible those strategies are the bigger that boost may be.

And what better place for a company to make its policies visible than on its website?  Here documents, policies and presentations can be made available to the relevant stakeholders at a fraction of the cost of traditional media channels.  Investment in a website, it seems, can really pay off.

^{Picture Credit: LuMaxArt Greyguy028 by lumaxart under Creative Commons Share Alike License.}

Corporate Governance, Ostriches and Black Swans

Simply put, a Black Swan event is one that has a low chance of happening but if it does the impact could be catastrophic. The most current example is the BP oil spill in the USA.

Underpinning Black Swans are some interesting philosophical and psychological factors of human frailties.

A black swan is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was. The astonishing success of Google was a black swan; so was 9/11. For Nassim Nicholas Taleb (author The Black Swan: The Impact of the Highly Improbable), black swans underlie almost everything about our world, from the rise of religions to events in our own personal lives.

Why do we not acknowledge the phenomenon of black swans until after they occur? Part of the answer, according to Taleb, is that humans are hardwired to learn specifics when they should be focused on generalities. We concentrate on things we already know and time and time again fail to take into consideration what we don’t know. We are, therefore, unable to truly estimate opportunities, too vulnerable to the impulse to simplify, narrate, and categorize, and not open enough to rewarding those who can imagine the “impossible.”

Black Swan: Strategy Execution for the “Outlier”

When Black Swan events occur, shareholders can suffer significant losses. Forbes magazine in their article, Of Brown Pelicans And Black Swans chronicled the financial impact of various corporate Black Swans–

	Company	Start Date	End date	Market cap (start date, in millions)	Market cap (end date, in millions)	Money Lost
XOM	Exxon Mobil	3/24/89	4/10/89	55,275	52,170	3,105
MS	Morgan Stanley	9/10/01	9/17/01	45,171	39,259	5,912
BAC	Bank of America	9/10/01	9/17/01	92,439	87,147	5,291
MAR	Marriott International, Inc	9/10/01	9/17/01	9,996	7,892	2,104
BID	Sotheby’s	9/10/01	9/17/01	636	550	85
AXP	American Express Company	9/10/01	9/17/01	40,563	35,048	5,515
BK	The Bank of New York Mellon Corporation	9/10/01	9/21/01	27,269	22,555	4,714
XOM	Exxon Mobil	8/29/05	10/21/05	368,346	349,115	19,231
COP	Conoco Phillips	8/29/05	10/21/05	87,791	80,943	6,848
SCGLY	Societe Generale SA (ADR)	1/18/08	1/28/08	58,192	49,014	9,178
TM	Toyota	1/21/10	2/4/10	155,884	123,749	32,135
DLAKY	Deutsche Lufthansa AG	4/15/10	4/28/10	8,207	7,395	812
BAIRY	British Airways	4/15/10	4/28/10	4,338	3,952	386
BP	BP	4/22/10	6/17/10	186,431	99,273	87,158

The costs of Black Swans can be daunting.

For Corporate Governance, dealing with Black Swans is risk management. The Board is responsible for oversight and the strategic direction of the company— not execution. This means Board members should take on a devil’s advocate role by asking C-Level managers questions such as–

• How will you make the strategic direction come alive?
• Have you considered all financial, strategic, ethical and risk issues?
• What is the worst that could go wrong and how will you manage the outcomes?

More insights for dealing with Black Swans are covered in the report Black Swans Do Exist published by International Federation of Accountants–

• Directors should increase their focus on risk, and engage more in detailed appreciation and understanding of the risks in their company’s products and service areas. For the financial services industry, a solution could be for boards to establish a specialized risk committee, and consider the employment of an external risk specialist.
• Black swans do, and will always, exist. Therefore, be much more alert to the fact that, even at the extreme end of risk possibility, things do actually happen.
• Executive remuneration should be better aligned with the longer-term real performance (in terms of profitability, not sales volume) of the organization—for example, via deferred remuneration in the form of shares.
• Governance issues are probably best tackled with a mixture of regulatory, investor, and board responsibility. To only look to investors being more active is unlikely to be effective.

What do you think? Would this help companies deal with the arrival of a Black Swan event – and avoid the ostrich ‘head in the sand’ syndrome?

Coming soon: How Shell Uses Scenarios To Manage Risks.

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