Ulster Business School

Jordanstown

MSc Management & Corporate Governance

Martin Karanda B00457474

Corporate Governance in a Social Media Era

- A systematic literature review

BMG903 (53884) Management Project 2013

MSc Management & Corporate Governance

Declaration

I declare that this is my own work and that any material I have referred to has been

accurately and consistently referenced. I have read the University’s policy on plagiarism

and understand the definition of plagiarism as given in the MSc Management and

Corporate Governance handbook. If it is shown that material has been plagiarised, or I

have otherwise attempted to obtain an unfair advantage for myself or others, I

understand that I may face sanctions in accordance with the policies and procedures of

the University. A mark of zero may be awarded and the reason for that mark will be

recorded on my file.

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Table of Contents

Acknowledgements..................................................................................................... 4

Abstract....................................................................................................................... 5

Introduction................................................................................................................ 6

Research Objective................................................................................................... 7

Research Questions................................................................................................... 8

Literature Review ……………………………………………………………………...…... 8

Corporate Governance and Social media.......................................... ........................8

Defining corporate governance....................................................... ......................8-10

Development of Corporate governance................................................................10-12

Defining Social Media...........................................................................................12-17

Methodology ....................................................................................................... 18-21

Scope and Limitations..........................................................................................21-22

Findings and Analysis………………………………………………………………..…... 22

Implications for Board Directors/governance practitioners…..............................24-26

Implications for Theory…………………………………………………………………... 27

Implications for practice……………………………………….………………………..... 27

Research Implications...........................................................................................….27

Future Research..............................................................................................….27-28

Conclusion........................................................................................................... 30-31

Appendices………………………………………………………………...………..… 32-34

Bibliography........................................................................................................ 35-39

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Acknowledgment

I am very thankful to my Supervisor, Dr Martin McCracken, whose, supervision,

comments and support has been invaluable. I would also like to thank John

Thompson (Course Director MSc Management and Corporate Governance) and

Ciara Nolan (Project Co-ordinator) for putting up with my constant emails. Thank you

also to Professor Mark Durkin, for stirring my interest social media and providing me

with pointers for such an interesting project. Finally, I would like to thank my children,

Tanaka, Rutendo and Anesu for putting up with me and my wife Hlale for her love

and constant support, for all the late nights and early mornings, and for keeping me

sane over the past few months.

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Corporate Governance in a Social Media Era

- A systematic literature review

“It takes 20 years to build a reputation and five minutes of to ruin it.”

Warren Buffett

Abstract

The extensive use of social media in today’s globalised business world presents

opportunities and challenges for organisations, including boards of directors,

stakeholders and regulators. While social media outlets provide extraordinary means

for corporations to engage actively with stakeholders, as well as with, market

analysts, consumers, suppliers and other members of the corporate community,

there are pitfalls and rewards corporations need to heed. There is lack of qualitative

research on social media governance and this paper aims to provide a systematic

literature review on the governance structures currently in use by major corporations.

More specifically, it is aimed at providing insight and options available to governance

practitioners in dealing with social media.

The major themes that emerged from this review are: - Companies can be

vulnerable to damaging publicity that can spread widely over social media networks

even if they are not active participants in the social media; Directors need to evaluate

reputational risks associated with social media and incorporate mitigation measures

to counter the risks. From a total of 2,212 articles and abstracts that refer to

corporate governance, social media and risk, only 43 publications qualified as

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presenting evidence on social media governance and just over half (51%) of the

studies were peer- reviewed journals and used in this review.

Key words: corporate governance, web 2.0 technology, social media and risk

1) Introduction

The pervasive influence of technology in all aspects of life and business has resulted

in transforming the nature and scope of business processes, and blurring the

traditional boundaries of the organisation. Contracts can be signed electronically,

instead of having to wait for them to arrive in the post, deals and transactions across

the globe can take place online. There’s almost no need to travel to remote offices,

or sit on hold on the telephone for ages as every business process can be done via

web2.0 technologies (email, video conferencing, inter-actively over the web and

through social media). The internet and globalisation made the world more

accessible such that President Obama’s comment on social media outlet Twitter,

“four more years” was sent a record half a million times the world over. The major

driver to change has been social media, and it has permeated every part of the

society and has altered the way information is consumed, shared and managed

across the communication channels. With all this frenetic change of technology,

social media use (or misuse), has become one of the biggest challenges facing

today’s managers and has not spared the boardroom. Company directors are not

exempted from this influence and must be au fait with technological developments if

their companies are to remain competitive. There is a vast amount of information

and communications methods now available and the challenge for managers is to

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adapt select the correct social media tools, adopt or be swept away. The governance

challenges that emerge from this new phenomenon need researching as there is a

paucity of literature addressing the study area of the digital boardroom hence the

need for a study.

2. Research Aim and Objectives

We live in a networked world in which more than five billion people use mobile

devices to communicate and do business (Kleiner Perkins Internet Trends Report,

2012). There is no better time than now for directors to think afresh about the

meaning of corporate governance in the digital age. With the ever changing and

challenging digital environment this project aims to review the challenges presented

to boards and corporate governance practitioners in this fast paced new world. This

project aims to advance the questions; are boards prepared to deal with a rapidly

changing pace in the digital economy and boardroom? These emerging realities are

creating unprecedented risks and rewards for corporate directors and shareholders

and are guidelines in place to manage and or counter risks and rewards? As with

any major change of this kind, boards must play a central role in ensuring that

companies are accurately evaluating risks and opportunities and more importantly

are they adopting the best policies regarding use of social media. The project aims to

further evaluate the response or preparedness of companies and or governance

practitioners to legal and statutory implications that may arise from social media use.

There is little research on corporate governance and control surrounding social

media and its impact on organisations’ including liability for libel, privacy violations

and reputational damage A further objective of this dissertation is to review the

relevance of web2.0 technology, and particularly the role of the internet and social

media, and to examine how companies can incorporate social media into their

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governance mechanisms .The need for this study is vital considering the increasing

interest shown by supervisory authorities for the oversight of not only content but

also the manner in which corporate information is disclosed over the internet.

3. Research questions

The project aims to ask the following research questions:

Is it was important for a board of directors to understand Social Media?

Do organisations know who its social media stakeholders are?

What governance structures should companies invest in to leverage threats from

social media and are their guidelines in place to manage and or counter the risks

and rewards presented?

4. LITERATURE REVIEW

According to (Ghauri & Grönhaug 2005) the primary purposes of a literature review

is to: (a) to set out the research problem;

(b) To identify relevant frameworks and facts;

(c)To position the study – find the gap in the existing knowledge and

deliberate on it.

4.1 Corporate Governance and Social Media

In order to understand the link between governance and social media and answer

the research questions it is vital to define these concepts and trace their

developments and the framework that underpin the theories.

4.2 Definition of Corporate Governance

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Corporate governance takes on a number of definitions depending on the approach

and perspective selected Mintz (2005). Many definitions of Corporate Governance

have been put advanced and in his famous Cadbury report1 , Sir Arthur Cadbury

espoused an all-encompassing definition that ‘Corporate governance is the system

by which companies are directed and controlled’. According to the Financial

Reporting Council (FRC) corporate governance is to facilitate effective,

entrepreneurial and prudent management that can deliver the long-term success of

the company. On the other hand , Tricker (2012,p.4) takes an encompassing view

that explains corporate governance as "the issues facing boards of directors, such as

interaction with top management, relationships with the owners and others interested

in the affairs of the company, including creditors, debt financiers, analysts, auditors

and corporate regulators.” Other writers define corporate governance from a legal

perspective. Blair (1995,p3), defined corporate governance as about ''the whole set

of legal, cultural, and institutional arrangements that determine what public

corporations can do, who controls them, how that control is exercised, and how the

risks and return from the activities they undertake are allocated''. These definitions

are pertinent in evaluating the effects social media has on the governance issue.

Tricker and Blair’s definitions above are very apt in that they set out the issues that

face board directors. It is pertinent to note when these definitions were made social

media was not in use in business.

Corporate governance has become a progressively topical issue in recent years

fuelled no doubt by such corporate collapses as Enron (fraud), WorldCom, Lehman

Brothers and JJB Sports (poor management controls).2 Most scholars attribute the

failures to a breakdown of governance. Corporate governance is places emphasis on

1 Cadbury Report 1992, page15

2 Dave Whelan JJB founder said JJB's problems were the result of “poor management” http://www.telegraph.co.uk

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holding the balance between economic and social goals and between individual and

common goals and aim to bring into line as nearly as possible the interests of the

individual, corporation and society (Cadbury 1999).However, aligning these goals is

difficult in the face of many demands from stakeholders. These demands vary from

employees wanting better conditions, shareholders -better returns; and regulators-

standards and compliance.

4 .3 Development of Corporate Governance

Corporate governance is not a novel issue; but has evolved with the growth of the

capitalist system and the development of world economies (Vinten 2003, p1).

Following these and other corporate maleficence’s various measures were started to

restore public confidence. Early development of corporate governance by authorities

can be traced to the 1991 UK Code which has since been reviewed to encompass

the Combined Code (1998) with major contributors being Cadbury (1992),

Greenbury (1995) and Hampel (1998). As the corporate environment changed more

revisions were incorporated by Turnbull (1999, 2005) based on risk management

and internal control. The Myners reports (2001, 2008) focused on relations between

companies and institutional investors while Higgs (2003) concentrated on the role of

non-executive directors. These developments have a bearing on the project in that

the codes place emphasis on risk management and relationships with stakeholders

more so with social media which needs careful management. If social media is not

carefully managed, at senior and board level, the above governance controls can

unravel as will be shown later in the analysis.

Smith (2003) and Financial Reporting Council (2008, 2010) dealt with the role of key-

board monitors including auditors. The above revisions mainly incorporated the

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Combined Code (2003, 2006, 2008) and culminated with Walkers (2010) hastened

by the financial crisis of 2008-2009. Further changes came into effect in

2010(Turnbull Guidance) with the guidelines making the board responsible for

determining the environment and extent of the significant risks it is willing to take in

realising its strategic objectives. The changes proposed by the FRC review of the

Turnbull guidance deals mainly with risks.

It is twenty-two years since the Cadbury reports, yet the same issues raised then are

still topical today. These are about accountability; the role of directors in

organisations; the role of shareholders and other stakeholders. Some of the

questions posed then are still relevant today: - How do organisations promote

corporate accountability? What are the board structures that work the best and what

are the skills set of directors? Are board directors evaluating reputational and other

risks? This research will assist in answering these questions by focusing on the role

directors can take and the challenges they face in a digital age. When most of the

corporate codes were crafted social media tools were still in infancy and were not

part business set up. However, social media is now making a marked impact on

business, and has also seen a rise in academic articles addressing the topic (Faase

et al, 2011). Contemporary developments have also led to the debate and

importance of corporate governance coming to the fore, Vinten (2003) identified

factors including public demand for transparency in the method in which companies

both in public and charitable sector are run. Changes in corporate law that –

companies should be accountable to those who take the profit or bear the loss after

all other claims have been met, (shareholders) and the level of remuneration should

not be obscene and excessive. Contemporary developments have contributed

immensely to the current debate and have shaped the raft of changes that have

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been adopted by many organisations and were geared to address the questions

posed above. Stakeholder theory is an offshoot that has emerged from the

contemporary corporate governance frameworks. Stakeholder theory proposes a

paradigm shift from the well-known governance theories like agency and

stewardship theory and places emphasis on the advancement and maintenance of

all stakeholder relationships, not just focusing on shareholders and returns. This in

turn means reassessing performance evaluation on social responsibility, ethical

considerations and valuing human capital. Social media has forced organisations to

focus on these aspects, BP oil spill and Bangladeshi factory workers conditions are

some of the examples that stakeholder theories seek to address. Such crises feature

are the typical corporate governance issues that board director’s encounter face.

Social media exposes such social issues and directors have to be proactive in

handling them. Corporate blunders that might once have been simply and quietly

managed can be exposed to millions through social media get magnified into crises

(Qualman, 2012). Shareholders with miniscule stakes can now stir shareholder wide

rebellion at negligible cost to themselves (Postman, 2009) thanks to social media

tools.

4.4 Defining Social Media

Social media is a fairly new term, (Pew, 2010, p. 1) called it a ‘‘global phenomenon’’

.While there are many definitions of social media or consumer-generated media as

it is often referred, (Blackshaw, 2006) described it as “media impressions created

by consumers, typically informed by relevant experience, and archived or shared

online for easy access by other impressionable consumers”. (Kaplan and Haenlein’s

2010), characterise social media as “a group of Internet-based applications that build

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on the ideological and technological foundations of Web 2.0, and that allow the

creation and exchange of user generated content.” While ISACA3 defines Social

media technology as involving the creation and dissemination of content through

social networks via the internet, and is defined by the level of interaction and

interactivity available to the consumer.

From the above definitions it is evident that the consumer or end customer plays a

major part and companies must be proactive when dealing any user generated

comments or content. Early versions of the internet were static and based on mostly

read only content, whereas the new social media or web2.0 has evolved to a “read-

write-web” (Hall, R. 2009) which has also spawned running commentaries. The new

phenomena has seen a variety of users contributing user-generated content and,

has led to what (Argenti & Barnes, 2010), termed collective intelligence and other

authors view this change as “digital revolution” (McNamara 2010a) or a paradigm

shift (Döbler, 2008). These changes in technology have had a fundamental impact

on governance and companies can no longer ignore the effects of user generated

views as these can have a devastating bearing on companies’ bottom line. In May

2007 Apple Inc lost $4.6 billion market capitalisation in 11 minutes due to a spurious

post in a well-known internet blog Engadget.4 The new media had also brought or

spawned new challenges and words such that companies need to keep abreast as

the new social platforms are very transient. These include wikis, weblogs, tags,

clouds, newsfeeds, twitter and more recently Instagram. These developments have

changed the view and use of the internet into a virtual universe where users no

longer submissively consume, but actively create, share and exchange information

3Formally known as Information Systems Audit and Control Association, but now only uses its acronym ISACA,

ISACA is an international professional association focused on IT Governance 4 Lin, W. J. (2007). The study of blog readers’ trust and trust related behaviours.

Blog- a digital personal journal that provides commentary, analysis, and links to information

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regarding products, companies, and almost every imaginable subject about

businesses. The challenge for board of directors is not to understand all aspects of

social media, but to get a grasp of the changing face of business and how it may

impact on organisational governance and strategic direction. The literature available

revealed details, the trends and research on social media and its impact both

positive and negative on corporate governance. To understand the pervasiveness of

social media, studies by ISACA in their report Social Media: Business Benefits and

Security, Governance and Assurance Perspectives (2010) revealed that 65% of the

Fortune 100 world global companies have Twitter accounts, 54 % have Facebook

pages, 50 % have YouTube video channels and 33 % have corporate blogs5. The

study further found a direct correlation between high financial performances among

enterprises that aggressively embrace social media as part of their strategy6 .

According to a 2012 PricewaterhouseCoopers report, “Firms that embrace Web 2.0

(social technologies) are more likely to be market leaders, have their market share

increase, and use management practices that lead to higher margins.”7 While a 2012

research by consultants Ernst and Young8 revealed that the top 100 most valuable

global brands who had some social media activity, reported an 18% increase in

revenue during the previous year, in comparison to those least active had a

corresponding 6% revenue decline. While these figures do not present a complete

picture they point to the importance of social media in companies and the benefit to

those who have adopted this medium. Further most literature shows how much the

5 www.isaca.org/socialmedia.2010

6 Engagementdb, The World’s Most Valuable Brands, Who’s Most Engaged? Ranking the Top 100 Global

Brands, www.engagementdb.com/downloads/ENGAGEMENTdb_Report_2009.pdf 7 PricewaterhouseCoopers, “Social Media—The New Business Reality for Board Directors,” Directors’ Briefing

Series (2012): ii. https://www. pwc.com/en_CA/ca/directorconnect/publications/pwc-social-media-new-reality-for-directors-2012-02-en.pdf. 8 Social media strategy, policy and governance Ernst and Young 2012

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exponential growth of social media has impacted on decision making910. Companies

have to make choices as even inaction; in the face of comments on social media can

have an adverse reputational effect on companies. Studies by (Hermida et al 2012)

concluded that the exchange and sharing of information among networked publics

through social media raises questions for the business organisations that continue to

rely on the traditionally based structure and model of communications. (Schudson

2003) noted the flow of information on social media has reshaped the industry’s

relationship with those in authority in that it erodes their power as the public can now

determine what it needs to know and when it needs to know it. This view is also

shared by (Marwick and Boyd 2011) who opine that social media allows for new

relations that disrupt authoritative structures and established flows of information.

The power of a connected and networked crowd can be evidenced by numerous

campaigns by initiated by the public through social media. A classic example

pertains to a US company Maytag who had one of their customers, Heather

Armstrong complaining on twitter about the bad service she received when she

bought a washing machine. The result was that her complaint went viral and in

excess of a million of her twitter followers started a boycott of the company’s

products. In a belated response the company sent her a free machine; however, a

rival company taking advantage of the incident joined in and offered her free dryer. In

the United Kingdom, Starbucks which had been rated as the nation’s most socially

connected company11 (according to the internet based social media indexing site

9 Power, D. J., & Phillips-Wren, G. (2011). Impact of social media and Web 2.0 on decision-making. Journal of

Decision Systems, 20(3), 249-261. 10

Barry Devlin, Founder and Principal, 9sight Consulting feels "social networking tools have an increasing impact on decision making the higher up the management chain you go. Strategic BI, in particular, gains enormous benefits from social media ..." 11

Technorati is an Internet search engine for searching blogs. It indexes nearly 112.8 million blogs and tracks over 250 million

pieces of tagged social media items. The name Technorati is an amalgam of the words technology and literati, which invokes the notion of technological intelligence or intellectualism. http://technorati.com/social-media/article/starbucks-is-the-nations-most-socially/

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Technorati), suffered serious reputational damage when a social media campaign

was started by a campaign group Uncut UK urged the public to boycott the coffee

chains’ shops for not paying tax. In response Starbucks unilaterally offered to pay

£10m a year over the coming years. While this was mainly a taxation avoidance

issue, it escalated and affected its reputation. The relentless campaign on social

media (Facebook, Twitter and Blogs) threatened to undo years of carefully cultivated

reputation. Further, the power of these digital citizens can be seen with the

Wikileaks’ publication of secret USA diplomatic cables and social media played a big

role in the uprising that sparked the first “Arab spring” in Tunisia (Howard, P. N., &

Hussain, M. M. 2011). Even the London riots were reportedly coordinated

12(Guardian 2011) via social network communications which were beyond the realm

of the authorities. What has quickly become apparent is that communications

through the new media has had a demonstrated new dimension to upset political

agendas everywhere and has the same potential to transform corporate plans. The

modus operandi and tools used in the “Arab spring” are also available in the

corporate world for use by consumers, both satisfied and upset, by competitors, and

by shareholders in conflicts with the board. Information that might once have been

considered exclusive, trademarked and secret can now escape the boundaries of

corporations and gain viral public disclosure. A small Yahoo shareholder with a 5.8%

stake started a digital campaign to replace some directors, through a combination of

blog posts, info-graphics and advice on proxy voting (Corkery, J., & Medarevic, S,

p.2 2013). The social media campaign paid off as Yahoo eventually settled. As a

result of these changes most organisations have now started adopting strategies

geared towards web2.0 technologies. A study by European Communication Monitor

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What we did when it happened: a timeline analysis of the social disorder in London. Safer communities, 11(1), 6-16.

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201213 identifies that 46% of European business professionals believe that dealing

with the digital revolution and the social web will be the most important strategic

issue for the next three years. What this means is that organisations now need to

embrace these technologies or face damage to their brand (Breakenridge, 2008, p.

18 ).Brand and image, are just but some of the duties directors are tasked with in the

duty of care14 (Corporate Governance code and Companies act 2006; duties of a

care)

The embracing of social media and its attendant benefits is not without its critics as

(Pavlik, 2007) appeals for reflection of its impact on communication measures and

styles, but also of its effects on organisational structure, culture and management. In

essence he says while traditional organisation-centred thinking is becoming out-

dated, rushing to adopt web 2.0 is fraught with drawbacks. This view is supported by

(Ihator 2001) who avers that while these technologies offer something new,

companies in the long run tend to lose control over the dissemination of information.

In order to overcome and counter negatives that arise from embracing social media,

organisations have started to invest in appropriate governance structures, together

with social media, strategies, policies and guidelines (Barnes & Mattson, 2009; Fink

et al., 2011).These structures will assist in managing and controlling risk and

rewards that come with social media.

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European Communication Monitor 2012. Challenges and Competencies for Strategic Communication. Results of an

Empirical Survey in 42 Countries. Brussels: 14

Not an expert- duty of care a company director is not, per se, treated as an expert, either in the task of general management or with regard to particular aspects of his stewardship, such as finance, personnel or legal services, for which a professional might reasonably be

recruited( CA 2006).

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5. Methodology

In order to satisfactory address the project questions, selection of an appropriate

research methodology was a prerequisite and the systematic literature review

approach was considered (Tranfield, Denyer and Smart, 2003; Duff, 1996). The

approach affords a rigorous context for undertaking a literature review, and

summarises processes employed and findings. This section will also include a brief

discussion on the specific steps on how the data was gathered and its evaluation,

including identifying and methods used in synthesising of data and finally reporting of

the findings.

Based on the flow diagram in Annexure (1-1.2), a search procedure was developed

(Ingram et al. 2012). The procedure sets out the search terms and approach,

inclusion and exclusion criteria and, meta-search process taken to illustrate the

mechanics of research and literature review. In the first instance the researcher

settled on the key words for use in the project in order to cover a comprehensive list

of studies that may be related to the research questions. The search was primarily

based on combinations between selected keywords .The key words were narrowed

to the following:

“Corporate governance”, “social media” “web 2.0 technology” and “reputational risk”

The researcher utilised the University library databases to access the following

academic electronic resources (ABI/INFORM, Academic Search Premier(EBSCO),

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Nexis(UK), Emerald Journals (Emerald), JSTOR Business and ISACA( Working

Papers) ,Google Scholar and books. When all the sources were gathered and

filtered to the most recent and relevant the results were grouped into a research

folder within university databases. Using the search terms above, a total of 2,212,

articles were generated and stored in, Endnote database for review and synthesis.

The initial results were saved into “my research folder” within the database. From

this database, the results returned proved to be too many to work on, they were

filtered by using full text, peer reviewed and relevance criteria. The list was further

trimmed to 420 by selecting and indexing articles that dealt with primarily

combination of words “corporate governance, social media and risk” and deliberately

excluded corporate social responsibility and information technology security .The

main reason for excluding the latter was their application to the problem question

was not going to offer any new insight. Half of the four hundred contained

duplications were removed and the remaining 200 papers the researcher

proceeded to examine the references of the articles that were retrieved, in order

determine the most relevant, and re- read references, and repeated the process

until I was satisfied that no new relevant information can emerge. An additional

criterion restricted all articles to 5 years and under thus excluding material deemed

outdated as social media is a new phenomenon that started to feature as a business

tool recently. The researcher read most of the abstracts focusing on the criterion: -

(a) does article cover board directors and risk management; social media and

governance and web2.0 and benefits and risks? (b) Is the article in question based

on empirical data? The research material that met the criteria and scope above was

selected for inclusion in this project and was narrowed to forty-three papers. In order

to place confidence on the depth of literature gathered, a request for pointers on

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reading material related to the subject was solicited from Mark Durkin and Gary

Martin from Ulster Business School for (digital marketing and corporate governance

perspectives). Some of the journals and articles they recommended were among the

forty-three on the final short list and thus providing added assurance of the direction

this phase of the literature review was taking. The cross checking of the sources was

done in order to enhance credibility of the material. Denzin (1994, p. 513) noted that

credibility can be enhanced by using one or more of the following strategies:

triangulation, peer debriefing, and/or member checking. The research did not use

primary data as it was deemed not suitable for the project hence it was excluded.

Due to time constraints, interviews, questionnaires and other primary data

techniques were not considered. The second reason primary data was excluded was

the research articles analysed were based on prior research which had extensively

filtered and used primary data.

The researcher read through every article of the final selected papers to see if they

met the inclusion criterion and could provide insight to the research questions above

that is: Is it was important for a board of directors to understand Social Media? Do

organisations know who its social media stakeholders are? What governance

structures should companies invest in to leverage threats from social media and are

guidelines in place to manage and or counter the risks and rewards presented?

Further exclusions from the study were terms like information systems governance

as it tends to focus specifically on information technology systems, their performance

and broad risk management, which is a very different area of study from social

media and governance. Furthermore, information systems governance deals with

integrity and availability of organisations electronic assets that is data, information

and software as defined by Control Objectives for Information and Related

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Technology (COBIT). While this criterion may have shown bias the researcher was

minded to focus on a narrow area of study in order to answer the research

questions.

A case study of BP, one of the largest energy groups in world, was used as part of

the systematic literature review. The case study provided useful anecdotal insights

and a practical example of how a global corporate giant such can have its reputation

damaged and profits affected by comments triggered by mishandling social media

reared crisis. The potential impact of such damage, in terms of financial loss and

even continued corporate survival, as suggested from the literature will be discussed

further in the findings. The case study had all elements relating to social media,

corporate governance and reputational risk, thus providing practical insight and

implications for the study.

6) Scope and limitations of the study

The researcher worked from the assumption that insights can be gained when

pieces of academic evidence are collectively reviewed and analyses can draw out

knowledge that was not apparent from analysing the papers in isolation or from

stand-alone studies. Information from a general review of literature on corporate

governance was used to provide context, complement and balance the social media

information available. When all the information was gathered and synthesised a

running theme emerged showing the challenges faced by directors in an ever-

changing world. The theme was pointing towards the general guidelines for good

governance and stewardship. Due consideration was also given to the general

principles, issues and challenges confronting corporate governance practitioners

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attempting to adopt, successful implementation of social media policies given that it’s

a new and evolving phenomena for many organisations.

Due to time and resource constraints this research could not evaluate the practical

effectiveness of themes that emerged from the research. Further limitations include

the fact that most of the legislation and guidelines covering use of social media is still

fragmented and under consideration and review within most corporate governance

bodies hence the research could not address the legislative impact.

7. Findings and analysis

7.1 Analysis

The findings are based on 43 articles that covered social media and corporate

governance, risk and web 2 .0 technologies. Appendix, (1.1) classifies articles

according to the scope, the method used that is: case study, the journal, white

papers and other reports. The article breakdown was as follows: - 20 out of 43

papers were on corporate governance, 17 on social media/web 2.0 and 6 on

reputational risk.

Studies revealed a running theme that pointed to social media biggest advantage

being its pervasiveness but it was also its biggest disadvantage. The potential

positive impacts of social media ( Breakenridge, D. 2008 ; Kaplan, A M. and

Haenlein, M .2010; Faase, R., et al, 2011), ranged from the ability of companies to

engage closely with corporate stakeholders (customers, suppliers, employees,

shareholders,) to social media being a source of fast dissemination of information, a

low-cost source of data and an inexpensive method of collecting market sentiments.

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While these factors at face value do not appear to impact on governance, however,

as indicated in the early definitions of corporate governance this does. Tricker(2000),

defined corporate governance as "the issues facing boards of directors, such as

interaction with top management, relationships with the owners and others interested

in the affairs of the company, including creditors, debt financiers, analysts, auditors

and corporate regulators.” The issues that came out of the review go to the heart of

duties of directors that is, interactions with managers, and relationships with

stakeholders. Subsequently, the study established that coping with digital evolution

and the social web will be one of the most important issues for governance

practitioners within the next three years (Zerfass et al., 2010, pp. 90-93). The

increase in social networking adoption by organisations is evidenced by the global

estimated spending which is expected to reach US$ 4.6 this year (Forrester

Research, 2012). In contrast to the positive impacts, a plethora of new risks that

threaten organisations have also emerged, a (ISACA, 2010, p.6) report warned of

“dangers and methods of social engineering, common exploits, and the threats to

privacy that social media present”. These were the salient findings from the

systematic review and their importance in addressing the research question will be

explained in detail.

This study attempted to make both theoretical and practical contributions to the field

of social media and governance by (a) systematically analysing literature in order to

build an enhanced conceptual and pragmatic understanding of the drivers of social

media, and (b) by presenting a solid background for understanding the added value

of embracing social media tools (increased profits for organisations leveraging social

media). Literature used in the early section of the review framework aided in

answering the first research question by identifying major factors that underpin

24

corporate governance inside an organisation together with social media literature.

From the systematic review the findings provided an exhaustive summary of social,

legal and regulatory issues that can potentially impact an organisation seeking to

adopt social media tools. Further the review also, recommended guidelines and best

practices for development of a social media policy that reduces reputational risks,

director’s liability and the rewards that come with this technology.

To address the research objectives, the following research questions were framed:

Is it was important for a board of directors to understand Social Media? Do

organisations know who its social media stakeholders are? What governance

structures should companies invest in to leverage threats from social media and are

guidelines in place to manage and or counter the risks and rewards presented?

From the systematic literature review the following themes emerged:

7.2 Implications for board directors/governance practitioners

The research offered support for the recently-formed argument that companies that

have adopted social media tools reported an 18% increase in revenue while those

that did not had a 6% decline (Ernst and Young 2010, IFC 2012) .Further According

to the results as the exponential use of social media tools grows and people share all

aspects of their live (work, personal and professional), the pressure on organisations

to be transparent also grows. This pressure has brought reputational risks for

companies. The BP case provides evidence that shareholders were relying on an

unofficial BP twitter site as the main source of information. The official site had ten

times less followers.

Social media has emerged as a fast and novel channel of communication that can

be leveraged to announce board nominations and changes. Proactive organisations

have started to use company blogs, Twitter and Facebook to make announcements

25

thus increasing interaction with stakeholders and enriching investor communications.

This aspect has been a theme that was running in all company reports reviewed

A new dynamic that has emerged from the literature is the advent of social media as

a source of independent intelligence tool for directors. Instead of simply relying on

the market and strategic information supplied by management, and therefore subject

to biases, boards can leverage the social media to build an independent source of

intelligence, even for whistle-blowing to enhance governance. Social media offers

uncensored access to feedback from stakeholders about an organisation and

therefore provides an additional source of insights. Board directors at BP were able

to react to pictures of oil-drenched wild life and fauna posted by the public. The

comments that started to appear on social media brought a tidal wave of online

reporting that spread the story worldwide. The public sentiments jolted the board to

take corrective action however the manner in which the board handled the whole

case has become a subject of how not to handle social media.

Social media also brings new challenges for board directors. Ignoring the new

technologies can have devastating results on the profits and future of companies.

Social media has spawned new business models that were unheard of even two

years ago. Board directors need to understand the potential risks posed by new

players and competitors who can harness the power social media tools with

disastrous effects. Anecdotal examples include Kodak, which went from being an

industry titan that was a market leader in photography to an ordinary player

scrapping for market share. At its height, Kodak had more than 140,000 employees

and a market value £19 billion however it ended struggling against social media start

up Instagram which started with only 13 employees. Despite inventing the digital

camera it underestimated the threat of the digital revolution and social media.

26

Other implications for corporate practitioner with inside knowledge of the company

might inadvertently reveal confidential information, damaging the company's

competitive advantage and reputation and fall foul of authorities. Insider Trading

Claims may arise when employees post in a blog or tweet (intentionally or

accidentally) information that could lead to a stock exchange activity resulting in a

Stock Exchange investigation. Using social media for corporate releases can bring

legal risks in that companies may inadvertently violate Regulated Information Service

(RIS) rules, which prohibits the selective disclosure of material information to

investors. In UK public companies can only release and disclose material information

via (RIS) methods, while in the USA and Australia, the authorities have been more

pragmatic and have allowed quoted companies to side step Securities and

Exchange Commission, Regulation FD and release material information on social

media .The challenge is for UK governance directors who have global companies is

that while it may be legal to use social media on USA and other jurisdictions they

may fall foul of the law and give rise to directors liability15

In analysing the themes above, what has emerged provides ample evidence to

answer the research questions. Board directors DO need to understand social

media. Organizations should know who its social media stakeholders are and finally

because of the risks – reputational risks and challenges abound

7.3 Implications for theory

It is the researchers hope that the findings in this study can contribute significantly to

the sparse academic work on Social media governance. From the systematic review,

15

Prothroe, J. (1978). Misuse of Confidential Information. Alta. L. Rev., 16, 256.

27

only seven (30%) of the 23 academic articles that were mentioned in the abstract

section, contained recognised social media corporate governance definition. This

omission or oversight could be lack of grounded theory that is backed by empirical

data or it could be that as this is still new technology whose impact has yet to filter to

the academia. Nevertheless this makes a need for future study imperative.

7.4 Implications for practice

This research study will hopefully contribute to current business practice in a number

of ways. Firstly, this study provides corporations that intend to adopt social media

governance policy with guidelines they may use to provide direction for their social

media stratagem and initiatives. Equally, the study provides senior managers with

known pitfall that come with adoption of social media to guide their social strategy

and help form their social media actions. The implications for practice include threats

that may come through the use of personal accounts to communicate work-related

information which in turn can lead to privacy violations and reputational damage.

Other practice implications include loss of productivity associated with excessive use

of social media (ISACA, 2012). Another practice implication theme that emerged

from the study were risks associated with adopting social media tools include data

leakage from enterprise supplied devices, and exposure to viruses and malware..

These can have implications that directors need to put governance control

measures.

7.5 Research limitations

This study has several limitations, the most evident being the lack a comparative

analysis of organisations that had success and those that failed in social media

28

adoption. The research could not differentiate between inbound and outbound use of

social media. The results of this study are further restricted by the fact that it was

based solely on review of literature purposely selected by researcher’s selective

criteria which may have an inherent bias. In the circumstances, the findings should

be regarded with this in mind, and should be compared with insights from studies

which have adopted other methodologies, like content evaluation of social media

tools.

7.6 Future research

While conducting this research project the researcher came across a lot of areas

which in his view appeared unexplored and may represent interesting areas for

future studies and these are detailed hereunder. From the study various social media

strategies were employed by organisations, however, it is questionable how effective

such strategies are and there is need for future research to test this. In addition,

more research could be conducted regarding benefits of using in-house social media

governance teams or contracting outside companies. The study should reveal

aspects like threats of loss of control which were not explored in this study.

More research is needed to investigate contingency plans when a crisis affects

organisations. There appears to be a distinct gap in quantitative studies in

relationships between governance and social media as evidenced by the results of

the initial search terms which returned results mostly of a descriptive nature. In future

statistically or quantitative focused researches are needed in order to evaluate

numerically such aspects as: the strength of some social media tools over the others

that is Twitter over Facebook or LinkedIn. Consistent with the results of the review,

studies indicate that directors and executives appreciate the prospects that social

media offers to reach new customers and the potential risk that social media poses

29

in terms of product branding and, corporate reputation. There was little evidence;

however that showed executives acting on this knowledge and incorporating them

into corporate strategy, operational plans and risk management decisions. Separate

evaluations by consulting companies (PricewaterhouseCoopers, KPMG, Deloitte,

Ernst and Young and Harvard Business Review, 2012) revealed a high degree of

appreciation of social media by board directors. However this did not translate to

adopting and leveraging social media for governance purposes.

30

8. Conclusion

The risks, rewards and missed opportunities of disregarding social media are

significant across all sectors, and for organisations of all sizes. The question that

should be asked is not whether it is important for board directors to understand about

social media, but how they can afford NOT to know about it. From the evidence

garnered during the review the answer to the research questions is they should

UNDERSTAND social media. The major theme that emerged was that social media

is of benefit to organisations, but it is fraught with risks. Tricker ,2012 ,p.22-24)

opined that corporate governance involves creating value while managing risk- but

the responsibility for risk ultimately belongs to the board. This need for robust risk

management answers the first and last research questions. The BP case study

showed how stakeholders who use social media can turn against the board with

consequences that go to the heart of directors duties. BP and Apple market share

price was affected by market censure triggered by reputational risk crises. The

potential impact of such damage, in terms of financial loss and even continued

corporate survival, suggests the need for board directors to appreciate the real-world

costs of reputational risk and, by extension, the cost of ignoring social media and its

attendant risks and rewards This case also helped to answer the second research

question - Do organisations know who its social media stakeholders are? The review

showed that directors need to keep a pulse on what is being said on social media

which has millions of users, which means malicious falsehoods and misinformation

can go viral before the company takes a grip. As this dissertation was being

completed supermarket giant Asda, was fighting a social media backlash over an

insensitive £5 Halloween costume being advertised on its website. This incident

31

shows how reputational damage that can visit any organisation and can have a

negative impact on the bottom-line. What this and other social media governance

mistakes show is that need to stridently protect organisations on social media

platforms at the same time vigorously promoting the organisation.

Finally, it is the researchers conclusion based on the evidence reviewed that

corporate governance practitioners do not need to understand how to use Twitter or

the insignificant details of Facebook, however what they require to appreciate is: (a)

the importance of listening to what is being said about their organisation and its

management in social media platforms and (b) how it can affect the governance of

the organisation. To this end there is need for policies of methodically collecting and

analysing social media information to assess reputational risks and to both develop

and implement appropriate responses.

32

Word count 7504

Appendix (1.0)

Summary of search and review methods and results in numbers of publications

Keyword and search string analysis

Source Range of Search Fields Searched Search Preferences

ABI/Inform Global (Pro-

quest)

Key words & search strings All fields Scholarly Journals (Peer Reviewed)

Business Source Complete (EBSCO)

Key words & search strings All fields Scholarly Journals (Peer Reviewed)

Other Databases emerald etc.

Restricted search with “ “ Full text and Abstract Position papers, white papers and reports

Google scholar Restricted search with “ “ Citation and Abstract

Journals and Books

Results Review

43 Articles selected reviewed triangulation analysis and report

Abstract analysis and review

relevant references review Full text inclusion/exclusion

Elimination of Duplicated articles

420 selected Inclusion/exclusion phase

Database search

2212 articles returned Used search key words

33

Appendix (1.1)

Case Studies Journal Articles

White papers

Other reports Total

Corporate Governance

2 13 2 3 20

Social Media 1 6 3 3 13

Web 2.0 2 1 1 4

Reputational Risk

1 2 3 6

4 23 6 10 43

Inclusion and Exclusion Criteria

Criteria

• Does it relate to governance & social media & provide insight

• Does the literature show role of a board of directors & social media

• Is it based on empirical data

• Is there any risk and corporate governance and social media in the article covered

Inclusion

• Corporate governnace & Social media with conceptual implications

• Considers governance at director level

• Considers the impact of reputational risk

• Considers other elements that may affect governace

• under 5 years

Exclusion

• Information system governance- Rationale too wide and a different area of study

• Focus is on technical consequences of adopting web 2.0

• Focuses on governance in other contexts ie marketing and advertising

• greater than 5 years

34

Appendix 2

Social media Terms

Term Function Main Use

Blogs A digital personal journal that provides commentary, analysis, and links to information

Posting information about company, products or analysis

Facebook A social networking website originally for college students but now open to anyone over 13 years old.

Promote events, share company photos and physical location. May also be subject of rating

Go viral

To spread wildly. Something goes viral when it is spread from one person’s network to another’s across various social media platforms..

To usually generate wide media coverage

Hashtag #

A word or phrase prefixed with the symbol #;

Searchable and to connect with other users talking about the same or similar topics

LinkedIn Resume/CV listing and networking site

Advertising employment and networking

Post A item written on social medium For others in network to see or comment

Tag a word, phrase, or topic that is tagged at a greater rate than others

For following

Trending topic/issue A topic trends on Twitter if enough users use a specific hash tag in their posts.

On the Twitter platform is a sidebar identifying trending topics, both worldwide and by country.

Twitter Micro blogging platform that allows users to write posts in no more than 140 characters.

Sending out messages and announcements events and commentary

35

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