Managing social media risks


Financier Worldwide Magazine

August 2016 Issue

August 2016 Issue

Social media has become one of the most important tools for companies to reach their customers, communicate with the public and promote their products and services. The massive social reach of social media is undeniable – Facebook alone has over 1.6 billion users and generates billions of likes daily. Twitter has over 300 million users, who generate hundreds of millions of Tweets each day. The variety and scope of social media outlets is staggering and keeps growing with LinkedIn, Vine, YouTube, Snapchat, Tumblr, Instagram and Pinterest all being used by companies in connection with their business.

The ability to communicate brand messaging instantly to millions of users and to receive instantaneous feedback is extremely attractive and powerful for companies. However, those very same traits are creating both significant business and legal risks for companies. The key for long-term successful use of social media is having a well-conceived business strategy combined with strong internal governance policies and structures.

As an initial step in formulating the business strategy and internal governance, companies must first determine how social media is being used both internally and externally. Internal uses typically include recruiting and hiring, background checks and investigation, employee engagement and communications and emergency management. External uses typically include marketing and public relations, corporate communications, customer service and relationships and business networking. The legal and business risks vary with each of these uses and so it is important to tailor your strategies and governance accordingly.

The strategy and governance will also be affected by the industry in which you operate. For example, companies selling drugs and food regulated by the Food and Drug Administration (FDA) should be mindful of various draft guidance issued by the FDA. The Securities and Exchange Commission has issued rules for how publicly traded companies can use social media to disseminate information. The Federal Trade Commission has issued regulations and brought enforcement action relating to the use of testimonials and endorsements in social media.

The business risks of using social media include not being able to control messaging about your company, damage to the reputation of the company (e.g., negative reviews), improper disclosure of financial or other information affecting the stock or other value of the business, and the costs and distractions involved in managing and controlling social media use. While most companies view the competitive advantages of social media and the need to remain relevant with today’s consumers as outweighing these risks, creating and implementing internal structures and strategy can reduce the risk of social media having a negative business impact.

Elements of a governance strategy

A good governance strategy should set out a definition of what constitutes social media. This should not be limited to the well-known sites such as Facebook and Twitter, but also the broad universe of social media vehicles, including blogs, micro-blogs, forums, Wikis, bookmarking sites and virtual worlds.

A social media policy should have specific rules for social media use, including the type of social media covered, the type of content permitted, who is responsible for approving social media content and managing social media accounts, proper disclosures and who is responsible for handling disputes and issues. The content restrictions need to be carefully drafted to not only mitigate the business and legal risks of inappropriate or illegal content, but also to make sure they are not so restrictive that they violate the National Labor Relations Act by interfering with a worker’s right to engage in concerted activity.

A social media policy is only as effective as the people and organisation that implement it. Employees and their managers should be regularly trained on the proper use of social media.

Companies need to monitor social media to make sure their policies are being followed and to identify and stop improper uses of social media. In fact, the FTC has indicated that companies have an affirmative duty to monitor testimonials they paid to have made online to ensure proper disclosures are made.

Companies need to have a strategy for responding to various crises, including nasty comments, disgruntled customers, product issues, governmental and criminal investigations, and more serious situations, such as workplace violence and natural disasters. You need to have a way to detect the issue, identify who is involved and what happened, consider the appropriate response and implement the response on appropriate social media channels.

A social media policy and governance structure cannot be static. It must constantly evolve and change in response to changes in the business, social media and business trends and new laws and court decisions. Companies should schedule regular reviews and updates to their social media policy.

Legal risks associated with the use of social media

Social media allows for the use of a wide variety of intellectual property, including photos, videos, text, music and other content. Companies need to make sure that procedures are in place to obtain licences and clearances for all content that the company posts on social media. It should also regularly monitor social media for unauthorised use of the company’s trademarks, logos and copyrightable content and take prompt action against any infringers through takedown notices and cease and desist letters (and, where necessary, litigation). If you are soliciting user generated content, such as reviews, videos and other postings, then you should set up a takedown policy that complies with the Digital Millennium Copyright Act, so that you can take advantage of the immunities provided under that act for third-party content. You also need to make sure to structure such solicitations of user content properly to avoid bearing direct responsibility for such content.

Social media is largely an exercise in brand marketing and advertising. As a result, anything that is written or posted about a product must conform to advertising laws and regulations, including that claims cannot be false and misleading and that they have a reasonable basis (i.e., substantiation). In addition, companies need to be careful that they do not allow posting of claims.

Social media is a great place to obtain consumer reviews and endorsements of a company’s products and services. However, any endorsements must comply with federal regulations, including the FTC’s Testimonial Guidelines, which require the advertiser to ensure that the claims made by the endorser are typical of the consumer experience, truthful and not misleading and disclose any payment or other material connection between the endorser and the advertiser.

Many companies use social media sites to conduct sweepstakes and contests. Companies need to structure these promotions so that they do not constitute illegal lotteries or gaming, and they comply with state, federal and where applicable, international prize promotion laws. This includes making sure adequate rules and disclosures are provided to all entrants and complying with specific requirements imposed by social media sites for such promotions.

There is a treasure trove of information that can be collected through social media sites. However, such data collection is subject to data privacy and security laws that require notice, transparency, choice, access and control. Companies need to consider: providing reasonable security for social media data; collecting only the data needed for a specific business purpose; retaining data only as long as necessary to fulfil that purpose; safely disposing of data no longer being used; and implementing reasonable procedures to promote data accuracy.

Allowing employees to use social media, particularly in connection with internal employment decisions raises significant issues. Social media communications can be a source of workplace harassment and discrimination claims. Employers must be mindful of laws prohibiting them. Managers need to be trained on the proper use of social media to communicate with and supervise employees, and employees need to receive regular training on sexual harassment issues that can be created through social media. Employers need to also be aware that certain laws restrict their ability to demand access to employees’ private social media accounts.

Social media needs to be carefully managed to ensure that it does not cause more harm than good. With the right governance structure and management of legal and business risks, it can bring enormous value and brand recognition to your company.


Scott W. Pink is Special Counsel at DLA Piper LLP (US). He can be contacted on +1 (916) 930 3271 or by email:

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