The rapid pace of technological advancements is causing tectonic shifts in the business risk landscape. Social media and artificial intelligence (AI) in particular are causing directors to reconsider how they think and talk about risk. Consequently, these topics were the focus of the first part of a roundtable discussion on the next generation of risk hosted by EisnerAmper LLP and the National Association of Corporate Directors (NACD) in New York last week.
There is an abundance of examples of companies that sustained severe reputational damage after being caught in the center of a social media storm. Most recently, credit reporting company Equifax made headlines after the company disclosed that it was the subject of a major data breach that compromised the information of roughly half of the U.S. population. The company’s offering of free credit monitoring to affected customers only made matters worse: several print and digital news outlets, including The New York Times, analyzed the terms of the offer, which suggested that by signing up for the service, a person relinquished his or her right to take legal action against Equifax. While the company later changed the legal language in another effort to assuage public concern, reestablishing its trustworthiness may be more of an uphill battle.
“Some of these things would have always been in the news, but the amount of time and the quickness with which news reaches an audience is unbelievable,” EisnerAmper Audit Partner Steven Kreit observed. “Boards need to make sure there’s a social media strategy throughout the company. Boards need to ask management what it has planned for and make sure they can react to those issues as they come up. It’s also important to have policies around social media. What is the CEO allowed to say? Are they allowed to have personal accounts and use that to disseminate company information?”
When attendees were asked if they knew their company’s social media policy backwards and forwards, few indicated that they did—but there was some debate as to how necessary this is. “I don’t think it’s appropriate for a board member to know the details of what the policy is,” one director opined. “What the board needs to know is that there’s a policy and that employees know what they can and cannot say about the company.”
Kreit agreed. “You don’t want to get too far into the weeds,” he said, “but a CEO may react to something in the middle of the night and that response may harm the company. And board members need to make sure the company doesn’t get hurt.”
While most of the discussion focused on preparing for the worst, one attendee observed that a company response plan that is effectively used to respond to negative feedback on social media can not only curb a damaging situation, but help to restore trust in the company.
Discussion then turned to AI. Here, some companies are ahead of the curve in applying technology that has the power to parse through massive amounts of data to make a determination about something. Take for example, IBM’s Watson, the supercomputer that famously competed on the game show Jeopardy!, facial recognition software and self-driving cars. Here, the risk is that AI is advancing so rapidly as a disruptor across nearly every industry. If a company isn’t paying attention now, the competition will leave it in the dust later. But AI is a broad subject area and identifying the elements that are most relevant to a board agenda—namely the risks—can initially seem daunting.
“These are conversations I rarely hear discussed around the boardroom table,” Kreit remarked. “And these are risks that keep changing.”
“An interesting exercise is to look at risk factors in public disclosures,” one attendee said. “We look at competitors and it’s easy to see what risks they are identifying in the same industry.”
“In the conversations I’ve had, it isn’t so much about whether the machine will do its own thing and crush humans as much as asking what fundamental technology are we not using to help us be more competitive and customer-focused,” one attendee offered. “The other thing is, technologists sometimes rely too much on technology. At some point, a human being has to put subjectivity in the mix to make sure the automated methodology you employed doesn’t come back and bite you. This conversation comes through the CISO [chief information security officer] on my board as well as the CTO [chief technology officer] together.” Another director remarked that these discussions take place on the audit committee level.
“It’s important to not think about technology and risk without it being an integral part of the strategy discussion,” another director piped in. “If it isn’t, I think it becomes an academic conversation and you’re walking ahead with one eye open and one eye closed.”
To this end, and in closing this portion of the roundtable, another attendee remarked on how board composition it critical in positioning the board to oversee this issue in the years ahead. “If you don’t have enough forward-looking people with experience from other industries, you’re doomed. Look at who you’re working with and have some sense of what you are [as an organization], what you want to be, and how you’re going to get there.”
Next week, the NACD Board Leaders’ Blog will feature roundtable discussion highlights that explore geopolitical and regulatory risks.
What would you recommend if you were on the board of Ford Motor Co., Boeing Co., or Lockheed Martin Corp., all of which have had tête-à-têtes with the incoming leader of the free world? Welcome to the age of the suddenly very bully pulpit. The most powerful thumbs in the world belong to Donald J. Trump, who will soon become the 45th President of the United States.
In mid-December, when Trump despaired that Lockheed Martin’s cost overruns on the F-35 joint strike fighter “were tremendous,” the company’s stock lost $4 billion in market capitalization in a matter of hours. Even though the company quickly recovered those losses when its stock price stabilized, Trump’s tweet triggered some discomfiting moments.
No one understands better how to wield the powers of Twitter, the 24/7 news cycle, and a cult of personality than Donald J. Trump quite like the man himself. To one extent or another, Lockheed Martin Corp., Toyota Motor Corp., Carrier, Mondelez International (parent of Nabisco), Ford Motor Co. , and Boeing Co., have all been caught in Trump’s Twitter maelstrom. Fiat Chrysler Automobiles, in a proactive move to get the target off its back before the opening salvo, wisely announced that it would invest $1 billion and create 2,000 U.S. jobs. A smart play, but as all newlyweds ask, “Will it last?”
We’re in unchartered waters here—and by “we,” I include C-suite executives, corporate directors, and communications counselors like me who advise corporations on how to enhance their brand equity, engage with decision makers, and weather inevitable storms that come with doing business. Social media, fake news, and a new president have changed the rules of engagement.
So what is the new rubric? For most publicly traded companies over the near term, the right response is the easy one: for your shareholders’ sake, meet Trump more than halfway if his demand isn’t too outrageous, and give him the early victory lap. But at some point, after Trump’s modus operandi on these matters inevitably hits some turbulence, that dynamic is likely to change. Watch this space closely, particularly the business-to-consumer tech companies who have millions of customers conditioned to social engagement.
In the meantime, how can a company prepare for presidential squalls or getting caught in the crosswinds of a Twitter-induced tsunami?
There are scores of precautions a publicly traded company should consider, but they can be boiled down to four imperatives.
Engage employees. Trump’s “Make America Great Again” mantra proved enormously popular in America’s industrial heartland. His administration’s public positioning will be devoted to job preservation, reinvigorating the manufacturing base, and sticking up for the little guy. In such a climate, relations with national and local union leaders and heads of employee groups will be doubly important. If a company is suddenly the subject of public scrutiny, its labor and management will want to present a united front. Politics, it is said, makes strange bedfellows. So does business in tough situations.
Enlist allies. Empowering third-party champions has always been an important part of any corporation’s public affairs and communications arsenal, but now it’s absolutely vital. The press and public in today’s environment are inherently suspicious of big corporations and paid spokespeople. In the clutch, customers, vendors, suppliers, community leaders, local environmental advocates, philanthropic heads, Chambers of Commerce, et al., will have far more credibility. The more social media-savvy—and more genuinely connected to grassroots movements—these champions are, the better allies they are for your company.
Prepare now. Companies should use “peacetime” wisely by distilling facts and messages into 140 characters; creating photos and videos for other social channels (e.g., Facebook, Snapchat, YouTube, etc.) that make emotionally appealing messages; track media socially in a sophisticated way that predicts trends; and build a social army now to articulate track records in U.S. job creation and economic growth.
Emphasize speed. Virtually every crisis communications plan in corporate America can be rendered obsolete by the proliferation of Donald J. Trump’s use of social media. If a company is being attacked via social media, it cannot rely on conventional communications to respond. Corporations need to put in place ultra-quick turnaround systems that tap leading-edge media. Build your arsenal of information, army of activists, and strengthen your reflexes now. Have the leader of the company’s digital media team report directly to the board. Integrate your silos so that legal, investor relations, government relations, public relations, digital, and brand practices all know and trust each other. Board members and senior teams need to be put through their paces via scenario drills and full-scale rehearsals.
The most effective way for a company to combat thumb power is through thumb power of its own.
Richard Levick, Esq., @richardlevick, is chair and CEO of Levick, a global communications and public affairs agency specializing in risk, crisis, and reputation management.
As information technology (IT) continues to evolve, so do the oversight responsibilities of corporate directors. From big data analytics to social media to cybersecurity, technology creates opportunities for companies to innovate, to create operational efficiencies, and to develop a competitive advantage.
These potential rewards can bring significant risks, however. Directors have the task of ensuring technology is integrated into both company strategy and enterprise risk management—and to do so they must first gain a deeper understanding of how technology is impacting their businesses.
The series includes insights from leading technology experts and top executives from AT&T, Citigroup, Dunkin’ Brands, Kaiser Permanente, and Oracle, among others, and focuses on critical IT areas for directors, such as:
how emerging technologies are altering the business landscape;
critical questions boards should be asking about technology;
the role of the CIO;
balancing IT risks and opportunities;
To complement the video series, NACD has additional resources, including white papers, articles, webinars, full transcripts of each video, and a discussion guide for directors who would like to take a deeper dive and bring these topics into their own boardrooms.
To watch The Intersection of Technology, Strategy, and Risk video series and access the supplemental resources, visit NACDonline.org/IT.