A governance issue arising from the recent, highly-publicized privacy issues surrounding Facebook involves the extent to which the board should become engaged in major controversies related to a corporation’s customer base.
The cavalcade of privacy and regulatory concerns arose from the disclosure that user information was subjected to third-party data harvesting. According to the New York Times, privacy concerns were the substantial source of internal debate between the legal and security staff: “[T]he people whose job is to protect the user always are fighting an uphill battle against the people whose job is to make money for the company.” Wall Street Journal columnist Peggy Noonan described the situation as “selling space to Russian propagandists…, playing games with political content, starving journalism of ad revenues, increasing polarization and turning eager users into the unknowing product”. Ouch.
But in fairness, Facebook is not the only company which has been the subject of recent allegations of indifference to consumer interests. The automotive, airline, food services and healthcare sectors have experienced their own share of similar headlines. But boards should be asking themselves, “Are these things simply a matter of corporate bad luck?” “Are they signs that the company has outgrown management’s ability to control it?” Or may the problem be grounded in something more systemic or even cultural? Is the company’s reputation being sabotaged by a rogue element of the workforce, i.e., one that is either indifferent, indulgent, disgruntled, excessively empowered or pursuing inappropriate incentives or goals? Whatever the cause, the board should interpret it as a call to inquiry at least, and to action at best.
“Matters of a company’s interaction with its customer base are generally considered operational in nature and therefore the province of management.”
From a fiduciary perspective, the line distinguishing the responsibilities of management from those of the board is fairly bright. Customer relations controversies almost always fall within management’s purview—and justifiably so. Matters of a company’s interaction with its customer base are generally considered operational in nature and therefore the province of management. But the Facebook controversy, and others like it, is unique in that it threatens the core relationship between the company and the customer. In such a situation, it may not be enough for the board to rely on a management-driven resolution. Rather, when consumer loyalty is threatened, the board may fairly choose to leave the sidelines and fully engage with management in the development of a response.
One response may well be, of course, replacing management. But a more nuanced and perhaps more effective response may involve a re-examination of corporate culture as it relates to a company’s relationship with customers. Both corporate law and fiduciary principles have long recognized culture oversight as a key board duty. As the NACD has noted, matters of culture are “inextricably linked” to multiple elements of governance responsibility, including corporate strategy, leadership selection, evaluation and succession and risk oversight.
In addition, the federal sentencing guidelines hold the board responsible for promoting an organizational culture that encourages ethical conduct and a commitment to compliance with the law. More recently, a general consensus has emerged that the board is also responsible for exercising oversight over the workforce culture of a company. Such responsibility is grounded in the presumptions that a healthy and unified corporate workforce is a major strategic asset for the company. Conversely, a corrosive culture can create significant corporate risk, as major financial services and ride sharing companies have suffered of late.
In this context, it makes sense to include customer service commitment within the board’s culture oversight checklist. Is the long-term value of the company at risk from an internal culture that has a dysfunctional interaction with its consumer base? A more active board role in consumer service culture oversight may help reduce the risk of a so-called “Facebook Point,” when the company appears prone to destabilizing customer service issues.
Over the last year, significant board energy has been channeled into oversight of workforce culture, and the establishment of multiple protocols intended to both promote appropriate employee/executive behavior and to report and address incidents of misbehavior wherever it arises within the organization. The headlines, and the evidence of employee harm, demonstrate the value of board efforts in this regard.
But the Facebook headlines seem to point to a different type of cultural concern: where elements of the workforce become fundamentally disengaged from customer service. And, as those headlines indicate, that form of cultural disengagement can have just as negative impact on the company’s value and reputation as other, more recognized forms of cultural dysfunction. Boards may find value in proactively piggybacking on existing and effective means of cultural oversight to begin to monitor the company’s customer service culture as well. Encouraging the appointment of a “chief experience officer,” or other senior executive with a similar portfolio, might be a step in the right direction.