Hiding Behind the Boardroom Doors

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I’m watching with interest how companies are adapting to the public conversation happening in print and on social media. Proxy season is in full swing and votes are being made for and against management and their boards. New criteria is being set in 2012 for directors including those against votes on length of terms (10+ years.) Sequoia Fund released a letter asking investors to vote against Goldman Sachs’ director James A. Johnson, characterizing his tenure as “at the center of several egregious corporate governance debacles.”

Add to this the recent investigation at Walmart on a Mexican bribery scandal that dates back to 2005.  The NY Times WalMart expose has my attention. BusinessWeek reporter Diane Brady wrote a recent piece titled: Walmart, Avon Execs Should Stop Hiding Behind Boards. “When a company resorts to issuing statements through a spokesperson, it’s essentially telling shareholders the chief executive isn’t up to facing the public. Maybe that’s a wise course of action as far as the board or corporate counsel is concerned, but it reneges on a basic pledge to the company’s shareholders.”

Let me share my perspective: “Boardrooms today have windows and the public is looking in.” The world is watching and listening. We now expect leaders to keep us informed on their activities related to our shareowner’s interests. The days of hiding are over, as one billion people are talking among themselves about you.

So I urge you to speak with your CEO and board about building trust by facing the public. It starts by broadening your vision of who matters to your business success. It is critical that you start listening to the conversation happening outside the boardroom.

The Boardroom in the Digital Age

“The time is ripe for executive-suite discussions on how to lead and to learn from people within      your company, marketers outside it and, most of all, your customers.” ~McKinsey



Creating a Data-Driven Culture

But what does a CEO or informed director need to do to oversee the social media conversation? First, they need to decide that the time is now to learn about social media and how the pieces fit together. If you’ve been too busy, the time to learn is now. This is a customer, an investor, an employee issue and more.

It begins with monitoring and listening to what is being said about your company. There is data that is waiting to be analyzed, but you need to be ready to bring digital intelligence to your business thinking. Let’s keep this in perspective–I’m not suggesting a CEO or director should communicate using social media (Facebook, Twitter, LinkedIn, to name a few), however, they should ensure that they get briefed on the conversation happening around their business.

How else can you ask good questions about what is being said that could impact your revenue, reputation and more? Here is a recent Stanford Graduate School of Business article that does a great job of looking at the risks associated with social media and the boardroom.

I’m pleased to be quoted and want to help you think about how this affects you, your CEO, boardroom and business: “Directors are responsible for oversight of the corporation,” says the Stanford GSB paper.

“This includes monitoring and advising the senior executive team as it develops and implements the corporate strategy. Information gleaned through social media might provide unique and relevant insights into the success of these efforts and supplement the traditional key performance indicators (KPIs) that directors use to evaluate management and award bonuses.”

The authors – Stanford Professor David F. Larker, Sarah M. Larcker and Brian Tayan – argue that social media might alert the board to risks facing an organization in a way that is not currently available. These risks might include:

Operational risk (how exposed the company is to disruptions in its operations);

Reputational risk (how protected are the company’s brands and corporate reputation);

Compliance risk (how effectively the company complies with laws and regulations)

“Why haven’t more boards of directors made certain that management has a process in place for collecting, analyzing, and responding to this information?” the authors ask. “Do boards actually know what questions to ask? Can boards distinguish between a good system for monitoring social media and a bad one?”

To begin getting your arms around this important area, here are 3 questions to ask:

1. What is the plan for monitoring social media to identify negative comments?

2. Who is responsible for responding on the social media platforms when crisis hits?

3. When is the CEO and/or board notified of a pre-determined spike in negative sentiment?

You may ask, what data can you get from real time conversations that are happening by your customers, employees and stakeholders? This is a great question, and one I’ve been doing a deep dive on. The feed of information is like a firehouse, so to make it relevant, you need to set up a point of view.

The one I’ve selected to share with CEOs, the c-suite and directors is related to the conversation-influencing investors. I’m seeing many strategic insights coming out of this investor perspective. Think Money Ball for the boardroom, and I’m feeling like the Jonah Hill character.

If you’re interested in learning more, email me at fay@riskforgood.com or call me at 310-902-3727.

Click on the image to read: Monitoring Risks Before They Go Viral: Is It Time for the Board to Embrace Social Media?

Professor David F. Larcker, Sarah M. Larcker, and Brian Tayan prepared this material as the basis for discussion.  Professor Larcker and Tayan are co-authors of the book Corporate Governance Matters. Sarah M. Larcker is Director of Account Planning at Digitas Health.

The authors would like to thank Michelle E. Gutman for research assistance in the preparation of these materials. The Corporate Governance Research Program is a research center within the Stanford Graduate School of Business.

For more information, visit: http://www.gsb.stanford.edu/cgrp/ or contact Associate Director Michelle E. Gutman at mgutman@stanford.edu.
Copyright © 2012 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved.


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