How to recognize the risks social media pose to your company

Matthew P. Breuer, J.D., Associate, Cendrowski Corporate Advisors

Matthew P. Breuer, J.D., Associate, Cendrowski Corporate Advisors

Since infiltrating the business world, the use of social media has increased at an incredible rate. Last year, Netflix CEO Reed Hastings caused considerable commotion in the financial community when he announced via Facebook that Netflix had exceeded 1 billion viewing hours in a month for the first time. There was heavy debate as to whether it was appropriate for a high-level executive to divulge material information regarding a public entity’s success through social media.

Fast forward one year and the SEC just released a statement in April allowing companies to make announcements through social media outlets provided investors have the ability to gain access to material information at the same time. Clearly, social media has become a mainstream tool for companies and is an issue management must address.

Smart Business spoke with Matthew P. Breuer, J.D., an associate with Cendrowski Corporate Advisors, about how the use of social media can introduce risk to your company.

What are some of the major risks and issues with social media?

Social media pose risks to companies in a variety of ways. Perhaps the biggest risk stems from reputational impact on an organization, which can come from both social media interaction by the company and/or through public discussion about the organization through social media.

The potential damages of posting confidential information is another risk companies must take into account. This can be particularly difficult to prevent because the release of confidential information could be done inadvertently by an employee or by an unknown individual with insider knowledge, which makes it all the more important for a company to manage and document who will have access to key material information. An unauthorized employee speaking on the behalf of the company and libelous statements are other major risks that should not be overlooked. In addition, the risks of social media can trickle down to affect a company even at the level of an individual employee with a risk as simple as decreased employee productivity. Consequently, these risks should all be addressed by management when developing a strategic plan.

Why is social media such a difficult subject for companies to address?

Companies are increasingly using social media, but still have difficulty grasping its changing intricacies, especially as it continues to evolve at a rapid pace and revolutionize marketing and customer interaction. The difficulty of handling the identified risks of social media can also be attributed to the balancing that needs to be done to ensure an organization still reaps the benefits of social media.

Despite all of the risks, social media serves as an excellent channel for marketing contact, increasing company exposure, customer base development, increasing sales activity and as a tool for recruiting. Moreover, using social media can allow a company to gain a better understanding of customer or consumer perception of the company. Developing an approach to utilize the benefits while mitigating the risks of social media is never an easy task.

What can companies do to mitigate risk?

Mitigating the risks associated with social media begins from the top. Management must have a clear and defined social media policy already entrenched within a company. The policy should clearly outline expectations and address social media interaction deemed to be forbidden. This policy is especially imperative in smaller companies. While larger companies may be able to have positions created for this purpose or outsource the responsibilities to outside agencies, smaller companies will have less resources and time to monitor their company’s interaction with social media. In addition, management must be aware of any legal ramifications that could arise from the use of social media. Management’s strategic plan should also determine the individual(s) who will have access to a company’s social media.

Companies may never be able to eliminate all of the risks of using social media, but management having a clearly communicated plan already in place is an effective way to mitigate these risks.

Matthew P. Brewer, J.D., is an associate with Cendrowski Corporate Advisors LLC. Reach him at (866) 717-1607 or [email protected]

For additional information, visit Cendrowski’s website.

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC.

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