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 firstname.lastname@example.org.
For additional information, visit Cendrowski's website.
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Think your company has no confidential information that needs to be protected? Think again.
“All companies have confidential information which, if compromised, could cause immeasurable damage,” says Kate B. Wexler, an attorney in the Business, Corporate & Securities practice group at Brouse McDowell. “Confidential information can be tangible or intangible and of a technical, business or other nature.”
Wexler says there are occasions where such information needs to be shared with employees, contractors, suppliers, customers, vendors, potential partners and others, and a confidentiality agreement should be put in place to protect the company’s interests.
Smart Business spoke with Wexler about confidential information and situations when you might want a confidentiality agreement.
What needs to be kept confidential?
Any information not generally known to the public should be treated as confidential, provided that you take steps to keep your information confidential as well. When you are sharing your company’s confidential information with any third party, you’ll want to press for a definition of confidential information that is as broad as possible to avoid any argument later on that any particular piece of information was not covered by the confidentiality agreement. It can be as general as all information, whether written or oral, delivered by your company in connection with a contemplated transaction. Of course, as the recipient of such information, you’ll want to limit this definition by requiring that all information disclosed be marked ‘confidential.’
Under what circumstances would you enter into a confidentiality agreement?
Contexts in which confidentiality agreements are used include agreements with individual employees to ensure they understand their obligations to the employer; agreements with potential partners in a joint venture; supplier agreements; and agreements between companies wishing to explore a potential acquisition or merger.
Although parties often rush through the step of entering into a confidentiality agreement when their new relationship begins, and sometimes omit it entirely, it’s critical in defining the relationship’s rules.
These rules not only include defining what’s mine and what’s yours, but they also address the level of care a receiving party must take with your confidential information; prohibitions against reverse engineering; disclosure to governmental entities; compliance with laws to which your company and your information is subject — e.g., HIPAA, GLBA, U.S. export laws; injunctive relief should a party breach the confidentiality agreement; and what happens to the information when discussions end.
Other issues often addressed in confidentiality agreements are confidentiality of the fact that the parties are even in discussion, and nonsolicitation, which prevents a potential partner from attempting to poach your employees that they may meet in the course of exploring this potential relationship.
Are there restrictions?
Yes, there are many situations where the disclosure of confidential information is required by law. For example, judicial or governmental order or by deposition, interrogatory, request for documents, subpoena and civil investigative demand. These situations can be addressed in the confidentiality agreement as permitted exceptions. It is also interesting to note that there are certain non-U.S. jurisdictions that will not recognize an agreement that prohibits reverse engineering.
Are there occasions when you might want to terminate a confidentiality agreement?
One such situation would be when the parties enter into a definitive agreement whereby confidentiality obligations between the parties would be addressed. Another might be when one or both parties no longer wish to pursue the objective of the relationship. In that case, a well-drafted confidentiality agreement would anticipate that situation and while the parties may no longer share information, their obligations to maintain confidentiality with respect to the previously disclosed information continues for a certain period of time.
Kate B. Wexler is an attorney with the Business, Corporate & Securities practice group at Brouse McDowell. Reach her at (330) 535-5711, ext 399 or email@example.com.
Insights Legal Affairs is brought to you by Brouse McDowell