by Michael Connor

As members of Facebook’s board of directors prepare for the company’s multi-billion dollar initial stock offering next month, they might want to keep an eye on a pesky new public relations campaign directed at them via Facebook and other social media networks.  It highlights what could become a sticky governance issue: all seven directors at Facebook – the world’s largest social network – are men.

Board Room“Facebook’s default profile is a white male, but all of its board members don’t have to be,” is the message of  the FACE IT campaign, which cites analyses showing that 58% of Facebook’s users are women, while female Facebookers participate in 62% of sharing on the network and 71% of daily fan activity.  The goal of the campaign, say its organizers, is “to tell (CEO) Mark Zuckerberg and the rest of Facebook’s board that we think their board makeup is a joke! “

While it’s hard to say how Mr. Zuckerberg and his fellow directors will deal with their issue, it’s increasingly clear that the digital communications tools developed by Facebook and others – from blog posts and status updates to tweets and online petitions – are more frequently creating new challenges for senior management and boards at companies all around the globe.  With Facebook now claiming more than 840 million active users around the globe – and networks like LinkedIn and Twitter growing dramatically in size and influence – what happens online is often a critical element in the governance equation.

“The social media phenomenon has made the leap from the consumer world to the board room,” declares a new report from the consulting firm PwC.  “Directors are faced with sorting out how social media impacts the firms that they oversee and their own roles on the boards.”

Digital Dashboards

One source of online activity – posts by employees on platforms such as Facebook, LinkedIn and Twitter – has been an ongoing source of concern for many big companies. Compliance risks include posts that might damage a company’s reputation, defame other employees or management, or disclose confidential information.  While many firms have developed guidelines (like those at Coke and Ford, for example), there’s still considerable uncertainty about what constitutes appropriate policy.  The U.S. government’s National Labor Relations Board has cited a number of employers for taking disciplinary actions based on what the agency calls “overly broad” social media policies.

Beyond employee compliance, however, social networks may be reaching a point where their impact on corporate risk, reputation and operations can’t be ignored in the boardroom.  A new paper from the Stanford Business School – “Monitoring Risks before They Go Viral: Is It Time for the Board to Embrace Social Media?” – suggests that directors ought to pay closer attention to what’s happening on Facebook and elsewhere.

“Directors are responsible for oversight of the corporation,” says the 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) and 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?”

The paper notes that Procter & Gamble has developed a digital “dashboard” that “uses Bayesian analysis to scan blogs, tweets, and other social media to summarize consumer sentiment about its products and measure brand strength.” P&G Chairman and CEO Robert McDonald reportedly uses the dashboard in reviews of the corporate brand. Similar off-the-shelf programs are available from a number of software suppliers.

Digital Directors?

Understanding the intricacies of social media networks, as well as the broader demands that digital commerce places on many organizations, has also highlighted a need for greater subject expertise among board directors.  According to a survey of corporate secretaries by the executive search firm Spencer Stuart, demand for directors with digital or technology backgrounds increased by 21 percent in 2011 from the year earlier.

“While demand for directors with digital expertise is on the rise, the supply of qualified candidates is small, and those candidates are more likely to have nontraditional backgrounds,” says Spencer Stuart. “This can make recruiting directors with these profiles especially challenging and may require boards to reconsider their perceptions about what an ideal director looks like.”

The firm says “boards should understand that directors with digital expertise may not have achieved the same stature as candidates from more traditional fields; many of these candidates have not reached the C-level, for example. These young, ambitious and, oftentimes, time-starved executives can be more transient than more established executives, and they may be less familiar with the customs of a corporate boardroom.”

One company that has recently added digital expertise to its board is Starbucks, which last year recruited social media entrepreneur Clara Shih as a director.  Shih is CEO of Hearsay Social, a social media platform that enables businesses to engage with customers.  Only 29-years-old at the time of her board appointment last December, Shih has previously held positions at Google, Microsoft and

“Clara is a true technology leader and will bring fresh insight to our strong and forward-thinking Board,” said Starbucks CEO Howard Schultz. “We could not be more thrilled about the social-media expertise and ideas Clara will bring to our business as we continue to amplify the online experience and interactions Starbucks has with our customers, partners and communities.”

In announcing Shih’s recruitment, Starbucks also disclosed that another director with extensive digital expertise – Sheryl Sandberg, a board member since 2009 – would not stand for reelection.   Sandberg is chief operating officer of Facebook, but not a member of its board.

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