Will Social Media Force Significant Changes in Our Board Rooms?

by Howard Bergman

At a recent Conference Board webcast, Governance Watch: Social Technology in the Boardroom.  Bob Zukis, Chairman and CEO of Saaskwatch Systems (and a Senior Fellow in the Governance Center) and Barry Libert, Chairman and CEO of OpenMatters, argued that it will.

I hardly have to mention that social media is having a profound impact on how business is done.  Or that it is making a significant change in how companies, their customers and their communities relate to each other. But Bob and Barry stressed that those changes have a fundamental impact on the nature of companies, and, therefore, on the obligations of their Directors.

Social media allows large networks of individuals to coalesce quickly around common concerns in a way that was previously unimaginable.  On the one hand, these networks can allow companies to quickly identify issues with its products and services that might have gone unnoticed until too late.  On the other hand, these networks provide anyone with a cause new leverage for forcing the company to react.  Moreover, the speed with which these networks changes the dynamics of the relationship among a company, its customers, its investors, and its communities.

Both speakers persuasively argued that Boards must understand the social media landscape well enough to ensure that a company's management has a plan for monitoring social media, looking for the useful information and being prepared to react quickly to well-organized campaigns demanding changes in the company.

No doubt, social media is forcing companies to be more engaged with their outside communities.  In fact, Bob and Barry argue that companies will be forced to engage with and react to outside communities in a way that is totally new, moving from an 'inside-out' perspective to 'outside-in'.  As part of this engagement, companies will have to be more transparent and responsive than they might have been in the past.

As an example of the global nature of the issue, Starbucks ran out of branded coffee cups in Argentina.  To be transparent with its customers, it apologized on Facebook and Twitter that it had run out and was using nationally manufactured cups.

Unfortunately, the wording of the apology was taken as insult by some of Starbucks customers, who read the apology as an attack on Argentine products.  Their unhappiness went viral on Twitter, becoming the top trending topic in Argentina in July.  Starbucks responded to its unhappy customers by the end of the day, resolving an issue that could have become ugly.

To give a sense of what 'real-time' means in the social media world, one critic complained that Starbucks was too slow in responding.  Their initial apology was posted at 7:58 am; their subsequent apology was posted at 4:07 pm. However, it appears that the viral nature of the complaints died down shortly after the second apology was posted.  It would be interesting to know if the Twitter campaign had more than a transitory effect on Starbuck's sales in Argentina, following the second apology.

Bob and Barry argue that the need to engage outside communities, not just manage them, and turning the attention of a company from 'inside-out' to 'outside-in' will fundamentally change the way companies are organized and run.  Among other things, these changes will force a change in the nature of management, from 'top-down' to 'leading from behind'.  Management will give more decision-making authority to the networked communities.  In addition, companies will rely increasingly on open-source innovation to solve problems.

All of this lead Bob and Barry to conclude that Boards should include a director who is expert in IT, that Boards should have a standing committee on IT, and that IT issues should be part of the regular agenda of the Board.

Bob and Barry were very persuasive in reaching their conclusions.  However, I have to admit that I remain agnostic.  I have no doubt that companies that understand how to take advantage of social media are more likely to succeed than those that don't.  Social media will allow some new business models to drive out others.  And companies will have to engage with and react to outside communities using social media.

However, I do not expect this to fundamentally change business organizations, any more than the introduction of previous technologies forced fundamental changes in the nature of business organizations.  At a basic level, I believe that humans are predisposed to form generally hierarchical organizations that look 'inside-out', whether in business, government, religion, or criminal enterprises.  And I do not believe that social media will change that.

Nor do I believe that leadership will fundamentally change, for similar reasons.  Social media will give corporate leaders more opportunity to 'consult' with the outside communities. But at the end of the day, those leaders remain accountable for the decisions made.  Some of the leaders will be more interested in the listening to the networks, some less; some will be data driven and some will innovate from the gut; but few will want to give up the power and prestige that the accountability, and its concomitant authority, gives them.

The remaining question, though, is whether Boards should have a director with IT expertise.  And my simple answer is, I don't know.  I am sure that Boards need to hear from experts in social media, though that expertise might possibly come more from young social media aficionados than from senior IT experts.  Of course, it helps if Directors are generally knowledgeable about social media and how they affect the relationship among a company and its outside communities.  I'm just not sure that someone on the Board needs to be the expert.

So I open this question to you:  Should Boards have a director with IT expertise?  Your analysis will be appreciated.

Read the rest of this article on the Governance Center Blog

Howard Bergman is a senior fellow with The Conference Board Governance Center. Bergman was a member of 3M's Office of General Counsel for 26 years (1985 - 2011) where he served as general counsel, 3M Europe, Middle East and Africa (2004 - 2009), Assistant General Counsel to 3M's Health Care Business (2000 - 2004) and Consumer & Office Business (2010 - 2011).  His responsibilities included providing legal and business counsel to executives and their business teams in the US and Europe/Middle East/Africa regarding strategic plans, business operations, transactions, risk management, business conduct, and crisis management. 

Following his retirement from 3M in 2011, Howard has worked as Counselor-in-Residence at the University of Minnesota Law School, developing business-oriented programs for the Law School's Corporate Institute; Director of Conferences at The Sedona Conference, a non-partisan research and educational institute dedicated to the advancement of law and policy in the areas of complex litigation, antitrust law, and patent litigation; and currently serves as Director of Development at the Center for World Religions, Diplomacy and Conflict Resolution at George Mason University.

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