Monitoring Risks Before They Go Viral: Is it Time for the Board to Embrace Social Media?

Abstract

According to Nielsen, social networks and blogs account for the largest percentage of time that individuals spend online, more than email and reading the news. Given the pervasiveness of social media and the potential impact it can have on corporate activities, some experts recommend that boards of directors pay closer attention to the information exchanged on these sites.

Information gleaned through social media might provide unique and relevant insights that improve decision making. For example, this information might be used to supplement the traditional key performance indicators that boards use to monitor corporate performance. Similarly, it might also be used as an “early warning” system to improve risk management.

In this closer look, we examine these issues in detail. We ask: Why haven’t more boards utilized information from social media to improve corporate oversight? Should the board formally review social media metrics, or does this represent an encroachment on management? Can this information be used to safeguard corporate reputation?

Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the book Corporate Governance Matters, and A Real Look at Real World Corporate Governance.

Keywords: social media, board of director oversight, reputation, reputational risks, corporate governance

JEL Classification: G10, G11, G12, G14, L14, Z10