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Social media – a risky business?

Whether companies choose to embrace or resist social media, it is clear from recent statistics that it is here to stay. Canadians are among the most avid users of social networks with an estimated 82 percent of people across the country active on platforms such as Facebook, Google+ and Twitter.

Globally these networks represent an unstoppable force, with an estimated 1.73 billion people (around 25 percent of the world’s population) committed social network users. It is clear from these figures that social media is big business and offers huge potential in terms of reaching new customers and building relationships with them. While the benefits are indisputable they are accompanied by a lesser explored downside – risk. The majority of responsible businesses spend significant amounts of time and money identifying and insuring against risks to their organizations, yet many do not either recognize or respond to the potential risks associated with social media. Here we explore the potential pitfalls of social media and mechanisms to address this increasingly significant area.

Social media risks – the specifics

With social media now an integral part of our lives this naturally extends into the business world. The speed with which social media has revolutionized how people and businesses communicate is breathtaking and so it is perhaps unsurprising that corporate leaders and managers have struggled to keep pace with the systems needed to protect this new form of engagement. During 2013, financial consulting firm Richter surveyed over 30 large organizations based in Quebec and asked them about audit committee activity in respect of social media risks. Only one of these firms reported that the issue had been addressed by the internal audit department and four more revealed plans were in place to do so. This left the vast majority who appeared to place little or no importance on this issue.

Yet with the spread and reach of social media it is clear that when things do go wrong this happens in a very public way. The biggest and most obvious risk is to a company’s reputation. Misinformation associated with the company can be transmitted across the world virally in minutes. A high profile example of this came in the wake of the BP Gulf of Mexico oil spill, when a parody Twitter account called ‘BP Public Relations’ garnered over 12 times more followers than the official one. Offensive comments attributed to senior BP officials were distributed through the parody account and further inflamed an already volatile situation and caused additional damage to the BP brand.

While BP’s problems arose because of public activity, damaging misinformation can also originate within the organization. In 2009, Domino’s Pizza suffered serious reputational harm when two employees posted a YouTube video showing them contaminating pizzas and other products with bodily substances. The video spread across social media and as it did, undermined the credibility of the Dominos brand.

Recognizing and responding to the risks

Accepting social media as a serious part of business operations is the first step to acknowledging that it should be included in risk management strategies. Canadian firms have been slow to whole heartedly embrace social media, particularly in the resource and manufacturing sectors. This may reduce the risks but it also means they are missing out on the sizeable benefits. Developing a clear and consistent approach to the organization’s management of social media activity is an essential foundation for an effective approach to dealing with the potential risks and so should be the first step on the path to an appropriate framework. Putting together a system which works requires a disciplined approach and should address the following areas:

Governance– Firms need to nail their colors to the mast and let employees, contractors and vendors know what is acceptable in terms of using social media. Use existing standards such as those for media interaction and handling confidential information to develop appropriate policies which should be easy to understand and widely distributed. Training may also be required to bring employees up to speed with the practical application of the policies.

Processes– Clarity is also required in terms of roles and accountabilities for social media activities. This can be as limited or as widespread as is felt appropriate but should be supported by effective monitoring. This is essential for swift detection of problems (should they occur) and could include use of technology such as web crawlers to identify references to the organization.

Periodic review– Audit and compliance functions should be established in advance of implementation of the social media strategy. It is vital that such information is routinely gathered and periodically reviewed. Regular reports should be made to senior management and changes made as required. Monitoring of third party relationships should also take place and be reported on in order to protect the company from any potential damage by association.

Tapping into the social media market may come with risks attached but the huge potential of this worldwide phenomenon should never be forgotten. Arthur Ceria, founder of CreativeFeed one of the world’s fastest growing digital marketing companies, summed up the challenge when he said,
“Risk- calculated risk- is key to success online.”

Evelyn Harkness is a freelance writer and mother of two from Lansing, Michigan, but who now finds herself on the sunny island of Euboea in Greece. After working in finance, she now specializes in writing on financial and investment topics.

Occasional Contributors

In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at editor@firstreference.com. If you liked this post and would like to subscribe to Inside Internal Controls blog click here.
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