Everything CFOs need to know about social media risk

Pornography, obscenity, piracy and your business - there are some things you wish you didn't know about social media...

The incessant daily nattering, cat photos and public outpourings of devotion for teen pop idols that are synonymous with social media may seem a world away from the office of the CFO. Which should not be interpreted as a criticism of any closeted C-suite Beliebers who might be reading this. In all fairness, the overwhelming majority of digital communications transmitted and received every day is harmless, banal and of little interest to the global financial community. Nevertheless, the web is also rife with interactions that are illegal, unethical, undesirable and/or offensive somewhere, and to somebody, in the world, and it is when these interactions infect marketing communications that businesses find themselves at the receiving end of public vitriol.

This Expert Insight is written by Andrew Allison, Chief Operating Officer at marketing agency Quirk and Head of Regulatory Affairs at the Interactive Advertising Bureau (IAB) South Africa.

How does one measure social media risk?

It is worth pointing out at the outset that the vast majority of those who participate daily in "the Internet" are employees. And this will logically hold true for the vast majority of employees in your own business. Recent estimates suggest that the average Facebook user spends 21 minutes on the platform every day.

To fans of numbers and statistics, the Internet is a very interesting - and scary - place: 1 billion YouTube users upload 300 hours of video content every minute ; 3.2 billion Google searches are performed every day ; 1.4 billion active monthly Facebook users and 288 million Twitter users view 3 billion videos , upload 2 billion photos and tweet 500 million times every day . Metrics of this scale are quite simply beyond the comprehension of most modern businesses. At these volumes, probabilities - whilst admittedly small in relative terms - take on new meaning in absolute terms, ultimately becoming eventualities; audiences transcend geographical and cultural boundaries; and the number of people potentially affected by communications is limited only by language and access to the web.

It does not take a mathematical prodigy to appreciate that financial quantification of the severity of social media risk, a function of likelihood and expected consequence, does not yield immaterial results. From a governance perspective, it would be irresponsible on this basis to simply ignore social media in the workplace. The impact of a social media crisis will be experienced directly in the balance sheet and income statement (legal damages, contingent liabilities, costs of risk management and mitigation), in the business' performance (crisis management typically proves highly distractive and stressful for executive and senior management) and, ultimately, in reputation and share price.

Is your business adequately prepared?

The majority of South African businesses are inadequately geared to manage the growing prevalence of social media risk, with glaring schisms increasingly apparent between finance and legal departments, and the marketing departments to whom the social media function is typically delegated. In days of yore, when advertising campaigns comprised a handful of annual print and broadcast ("above-the-line", or "ATL") initiatives, and the press office operated as the formal mouthpiece of the organisation, tighter control was considerably more feasible. For big ATL campaigns, it remains protocol in many big brands to obtain approval from legal before roll-out. Social media involves, by its very nature, a continuous process of high-volume engagement with consumers and the public, making it often impractical for conservative, traditionally-oriented legal departments to exercise the same level of oversight that they apply to ATL communications.

Combined with a generally poor understanding of new technologies and online convergence, and of how existing common law and new pieces of legislation apply in an ever-changing digital landscape, officers charged with compliance and governance are simply unable to keep pace and implement reliable systems and controls to manage associated risks. Operational management of social media is often left in the hands of young, cock-sure millennials whom themselves are blissfully ignorant to the enormous power entrusted to them. This is a generation for whom the separation between private and professional life is an ethereal, permeable membrane, and who are largely desensitised to the pitfalls of free and open publication. It is these people who interact - on a daily basis - with the greater public on behalf of a significant proportion of all digitally-active organisations.

The nature of social media risks

The imminent Protection of Personal Information Act (POPI) has understandably caused wide consternation in South Africa, and businesses have responded by spending billions in preparation for our anticipated new data privacy paradigm. A similar state of panicked activity preceded the promulgation of the Consumer Protection Act in 2011. There remains, however, a distinct lack of awareness about material areas of exposure under the majority of our existing laws, some of which have been in existence for over a hundred years. And in many instances, the exposure arises from criminal activity.

Arguably the lion's share of all social media misconduct amounts to copyright and trademark infringement, most frequently in the form of visual content (images and videos) posted to platforms like Facebook, Instagram and Pinterest without the permission of rights holders. Misuse of proprietary content will in the majority of instances amount to a criminal offence under the Copyright Act and/or Trade Marks Act, rendering the offender liable to fines and even - for severe offenders - prison sentences. It will also render the publisher susceptible to civil claims for loss of earnings (e.g. royalties) or damages. It does not take much snooping around to find examples of such conduct on the Facebook profiles of otherwise respected - and respectable - South African brands.

Often linked to copyright infringement, particularly where celebrities are depicted, is content which infringes personality rights. A photograph of Rory McIlroy in action at the British Open (for example), nonchalantly lifted from Google and posted without permission to the Facebook profile of a sporting goods distributor, would open the distributor to a variety of claims: infringement of copyright by the copyright holder; infringement of personality rights and a claim for loss of earnings (based on potential sponsorship revenues foregone) by McIlroy; a claim of loss of earnings (including potential royalties foregone) brought by the British Open itself, who have undoubtedly negotiated exclusive coverage and content licences with carefully selected broadcasters and sponsors. The complexity and severity of infringements are only magnified by the number of interested parties, and the perceived depth of the infringer's pockets.

Defamatory content in posts or tweets also renders the organisation liable to a variety of legal suits, and for organisations operating in more stringently regulated industries (financial services, pharmaceuticals, etc.), there is a clear exposure to regulatory transgressions where social media practitioners are not appropriately trained, experienced or supervised to reliably discharge their duties. Organisations need to bear in mind that the majority of content published on brand pages will be promotional in nature, and so will need to be compliant with, at the very least, the Consumer Protection Act and the Advertising Standards Authority Code of Practice.

Social media offers even further outlets for confidential information to be leaked, which poses potential harm not only to the organisation itself, but to any party who has entrusted the organisation with its sensitive data.

Legal liability aside, of perhaps even greater concern is reputational damage, which can itself be inflicted as a catastrophic side-effect of any of the legal infringements above. This can be aggravated by way of brand attacks by employees or former employees (as HMV experienced in the UK in 2013, when employees with access to the company's Twitter account took to the platform to air grievances), or undesirable and damaging comments made - erroneously or not - using an organisation's social media assets (conduct which prompted Chrysler in the US to sack an employee in 2011 for colourfully venting his disdain for Detroit motorists via the car manufacturer's Twitter profile, or US Airways to take evasive action in 2014 when it somehow tweeted a pornographic image). In South Africa, the courts have recognised that such comments, even when communicated via an employee's personal social media profile, can constitute grounds for dismissal (FHM South Africa fired two writers in 2013 for expressing their antisocial views on rape via Facebook).

So what's the solution?

There is, predictably, no silver bullet to eliminate these risks entirely, unless ceasing all social media activity can be considered a viable option. This will not be the case for any progressive business, nor will it solve the issue of employees going rogue on their own profiles.

An effective risk management strategy would arguably be driven by the Board, with a central focus on training, development and awareness. Recruitment of carefully vetted and suitably qualified staff is key. Social media, privacy and other employment policies should be revised to address the risks (and associated controls) directly, and then communicated and trained throughout the organisation.

Upskilling the legal department, and promoting a more pragmatic dialogue between lawyers and marketers is essential to prevent the two departments becoming increasingly alienated from each other.
Partnering with a respectable, specialist marketing or social media agency which possesses the requisite governance and best practice credentials is also strongly advised.

Ultimately, organisations - and particularly those with high levels of consumer-engagement and strong brands and profiles - need to accept that crises will occur, and understand that dealing with the consequences swiftly, decisively, honestly and with humility is the only acceptable option.

In closing…

Don't be too freaked out - on the whole, social media can be incredibly valuable and offers enormous opportunities for organisations to build stronger relationships with consumers. But like any force of nature, it can be powerful and dangerous if it not treated with the respect and care it deserves.