Welcome to the November 2010 edition of The Director's Dilemma newsletter. I hope you find it interesting, informative and inspiring.

The newsletter provides case studies that have been written to help you to develop your judgement as a company director. The case studies are based upon real life and focus on complex and challenging boardroom issues which can be resolved in a variety of ways. Each way has different pros and cons for the individuals and companies concerned. Every month this newsletter presents an issue and several responses. Which response would you choose?

Ulf is a director of a small listed company. The CEO, who founded the company, is an extrovert with a firm belief in work life balance.

Recently the CEO posted some pictures of his beach holiday on his Facebook page; he was wearing a sarong and the pictures attracted a lot of hits from the staff and investors. Some of the comments posted suggested that this was inappropriate behaviour for the CEO of a listed company.

The Chairman, who is well respected in the business community, also sits on the Board of a not-for-profit company that has strong ties to a religious community. He has asked the CEO to remove the pictures as they are 'harmful to the corporate reputation'. The CEO has refused, contending that his Facebook page is his personal affair and that he has a right to wear what he likes when on holiday. The Chairman has asked Ulf to advise on what potential courses of action the Board can take to have the offending pictures removed. Ulf is not even sure if this is a company issue but agrees that some of the comments, regarding the pictures that have been posted on Facebook and a few blog sites, are a cause for concern.

What should Ulf do?

Toby's Answer

The issue is simple: One of the core roles of the CEO is to be the public face. Social media is one of the many places where that face is displayed - it cannot be isolated and claimed as 'personal' if the profile is public. The analogy is that getting drunk and abusive at a function is never acceptable; so nor would online photos recording it - in many ways it is worse as it will be reaching a larger audience. It is the CEO's corporate responsibility not to be overly controversial or to present a negative face, though the borders of what is acceptable clearly vary by industry and by company.

Facebook and LinkedIn have multiple purposes, and are great for building an online presence for the organisation and all staff. Such social media outlets are very useful, for example, as part of a marketing strategy to feed prospective clients to your sales team. If they follow a clear strategy, these sites are essential and valuable for business networking.

They are also important in many people's social lives, including CEOs. But if your private life is anything but conservative (some might say dull!) then your profile must be set to 'private' so only your social friends see it. Even then, a CEO must be careful.

This is a very different issue to the increasing need for CEOs to present a 'human face' which helps build a strong and engaging public image. But it means talking about acceptable interests such as tennis or charitable work - not appearing half naked on the basis that it could offend many people including the organisation's key stakeholders.

As a Board director, Ulf needs the CEO to understand this and to make his profile Private.

Toby Marshall is a social media and marketing specialist for SMEs, and CEO of Lead Creation; he is based in Sydney, Australia.

Julie's Answer

Ulf needs information. Making a decision without it would be very risky.

He must visit Facebook, view the post, read all the comments and consider if these comments, from these people, may be harmful. He should then read the current internet and social media policies and consider if the CEO has breached these.

It is important to ask why staff and investors are viewing the CEO's 'private' Facebook page; has it been used in the past as a means of disseminating corporate information?

It is not uncommon for PR firms to create a social media campaign for CEOs, especially in high technology or consumer products businesses. When that happens the Board should ensure that there is a process for approving posts. Effectively the site becomes a corporate site and is not the CEO's private concern. It is risky to mix corporate and personal information and the CEO may need two pages; one for business and one for private life.

Ulf should suggest that the Board review their social media and internet policies at the next meeting. The aim of this review is not to sanction the CEO or to give orders about the photograph but to help the Board to understand what policies they have in place, what is intended by these policies, and what benefits and risks the company faces in its use of social media, the internet, discussion boards, chat rooms, etc. The discussion must be future focussed and not become heated. All staff members should agree to comply with company policy for social media use.

When the Board understand and have revised their policies to suit the needs of the business they will be able to review the CEO's posted photographs to determine if they comply with the policy and to discuss what to do about them.

It is likely that whatever harm the photos would cause has already occurred. The Board needs to decide if removing the photos would redress that harm or simply draw more attention to the affair. Then they can take appropriate action.

Ulf's board is lucky; they could have received their 'wake-up call' in the form of a 'please explain' from their stock exchange after a staff member posted price sensitive information online (it happens).

Julie Garland McLellan is a specialist board consultant and practising non executive director based in Sydney, Australia.

Mark's Answer

In a responsible contract of employment for a Chief Executive there will be a section on the incumbent's behaviour and conduct. Typically this will be along the theme of 'the CEO will not conduct themselves in a way that may be harmful to the company, its reputation, or the effectiveness of the CEO to fulfil their role'. These types of clauses are subjective and are exercised subjectively in accordance with contract law.

Further it is recognised that a CEO represents their company and the company's interests 24/7. This is typically compensated for with high remuneration. Therefore there is an expectation that CEO's will conduct themselves in a 'manner befitting a CEO' in their public life. Social networking is a public life.

Therefore Ulf should consult the contract of employment to determine the relevance of no-harm and conduct clauses. Further, Ulf should view the Facebook page and identify if the CEO has identified his role and place of employment.

Secondly, in the absence of a 'Social Networking Governance Policy', Ulf should recommend that the Board determine and operationalise a policy to govern social networking of their senior executive and the wider company.

Given that staff and investors have made public comments (on Facebook) that the CEO's pictures are inappropriate, Ulf would be in a position to recommend termination of the CEO's contract. This is because Ulf could demonstrate that the actions of the CEO have caused actual harm to his reputation and that of the Company as evidenced by the negative feedback.

It is likely that the most appropriate course of action would be to remove the CEO as a more effective course of action than to simply pursue having the pictures removed from Facebook.

Mark Mudge is National Practice Leader at Shepherdson Mudge Health Management Group in Adelaide, Australia.

The opinions expressed above are general in nature and are designed to help you to develop your judgement as a director. They are not a definitive legal ruling. Names and some circumstances in the case study have been changed to ensure anonymity. Contributors to this newsletter comment in the context of their own jurisdiction; readers should check their local laws and regulations as they may be very different.

What's new

Book reviews – Directors need to read. It is a great way to learn from other people's experience. This month I have reviewed Bullseye by Blake Beattie.

Social Media Training for Directors – Last month I presented for the National Association of Corporate Directors (NACD) in Washington, DC on 'Digital Directorship: Do you need social media expertise?' The presentation was well received and the overwhelming response from the audience was 'yes we do!' I have decided to deliver the same presentation in Sydney followed by a practical hands-on session for no more than six participants who will get a walk though all the popular sites, learning how to set up profiles, post comments and make connections. We will also discuss the suitability of each site for directors.

Email julie@mclellan.com.au for details.

NACD Conference review – A brief overview from the NACD National Conference 2010 held in
Washington DC.

Where's Julie? – A few readers manage to catch up with me on my travels and it is such a pleasure to meet them that I now share my travel plans each month.




9 November


Australian Institute of Company Directors Company Directors Course

10 November


Australian Institute of Company Directors Company Directors Course

11 November

Sydney CBD

AICD Evaluating the Board course

12 November

Sydney CBD

AICD Listed Company Director course

16 November

Dee Why (Sydney)

Northern Beaches SWAP, Would you, Could you, Should you Join a Board?

18 & 19 November


Private client board strategy workshop

25 November

North Sydney

Social Media for Company Directors course

26 November

Sydney CBD

Graduate Management Association of Australia (GMAA) Conference

Please call or email me if you would like to schedule a meeting or find out more about attending one of these events.

This newsletter – If you have any ideas for improving the newsletter please let me know. If you are reading a forwarded copy please visit my website and sign up for your own subscription. It is (still) free. As an existing subscriber you will continue to receive a free subscription when a charge is introduced this year.

Suggestions for dilemmas – Thank you to all the readers who have suggested dilemmas. I will answer them all eventually.

Farewell until next issue (due 1 December 2010). Enjoy governing your corporations; we are privileged to do what we do!

Best wishes

www.mclellan.com.au | PO Box 97 Killara NSW 2071
email julie@mclellan.com.au | phone +61 2 9499 8700 | mobile +61 411 262 470 | fax +61 2 9499 8711