Advancements in digital technologies and social media like Facebook, Twitter, YouTube and the iPhone not only are changing the way customers interact with brands, they also are driving new business models and strategies. At the same time, the initial buzz around LinkedIn’s IPO and the Groupon IPO has directors thinking about the impact of digital strategy on their company’s valuation. What is the board’s role in making sure digital and social media are built into corporate strategy? What steps can they take to “get smart” about digital technologies, including adding directors with expertise?
Dan Rosensweig is president and CEO of Chegg, former president of Guitar Hero and former chief operating officer of Yahoo!, and he also is a member of the Adobe Systems board of directors. He talked with Spencer Stuart about the ways social and digital media are changing business, the questions directors need to be asking about their companies’ digital and social media strategies and the considerations for recruiting digital experts for the board.
How are digital technologies and social media changing the equation for companies in terms of strategy, valuation and risk?
Dan Rosensweig: Well, frankly, it has expanded and accelerated the disruption that technology has been creating on all companies for the last 50 years. It’s changed the cost of doing business. It’s reduced barriers to compete with existing companies. It’s lowered the cost of customer acquisition. It’s changed the business models and put the power in the hands of the consumer. It’s dramatically affected distribution channels.
My daughters are 18 and 16. They’ve never known a day without the Internet. They’ve never known a day without broadband. They’ve never known a day without an iPod, a cell phone or TiVo. We grew up in a generation where people thought water was free and you paid for music. Today, people think music’s free and you pay for water. This generation of consumers has a different set of expectations. They don’t understand subscription models that you can’t cancel without a penalty. They don’t understand when you can’t buy stuff when you want to buy it. They don’t understand that you can’t quickly location-base anything. We need to realize that, for this generation, there’s been no change; this is all they know. If you are not utilizing YouTube or Facebook, or communicating directly with your consumers in whatever form they want, then you’re not where your customers are.
What do you think most boards misunderstand or underestimate about social media?
It’s not that boards need to understand social media or mobile; they need to realize the fact that the whole dynamic of their customer relationship is changed, and the power is in the consumer’s hand.
Remember when people said, “We don’t want to put up product reviews because they might be bad?” Well, there are going to be bad reviews. You don’t control that anymore, but what you do control is how you respond to them and that you do so in a genuine fashion. You need somebody on the board who deeply understands and appreciates the intrinsic shift in consumer expectations and behavior, because somebody needs to challenge the CEO about whether he or she really understands the trends and whether he or she is investing in the necessary capabilities to respond. The board can’t do anything except make sure that the CEO is doing something. On the flip side, the board needs to be able to help a CEO understand what it means, how the company might address it, the kind of people it might recruit, where those people might be found, and then help the CEO build relationships in those communities.
What questions should boards be asking about their company’s digital and social media activities and policies?
The number-one question is: “What problem is the company facing now that can be solved using technology and social media?” Two, is “What is the definition of success?” The next is, “Are we thinking big enough? Is that solution big enough to affect the businesses we’re in?” Then, boards need to ask what assets are available, including technology, knowledge, people, money, investment and tools. Finally, boards should ask about the odds of success and over what period of time.
If the board asks those questions, directors will know very quickly whether or not the company has a strategy. Saying, “We are on Twitter,” is not an answer. The response has to be, “Here’s what is going on with our company; here’s why; here’s how Twitter plays a role; here’s what we’re doing on Twitter; here’s what we’re tracking; here’s what we’re trying to affect and here is how we’re going to measure it; and, if it works, our sales are going to go up, our complaints are going to go down,” or whatever it might be. You really need to think about it at that level of detail.
Somebody with knowledge and experience can help frame that discussion for the CEO. It’s not a “gotcha” game, but should empower the CEO to be effective as he or she tries to bring these things into the company to truly affect the thoughts and behaviors of the employees.
What advice do you have for boards that want to recruit a director with social or digital media expertise?
More and more often, I am recommending that boards look to younger people, people who don’t necessarily have the big title, but who are living it every day. There aren’t enough people who not only are active in the digital and social media space, but also have come from the traditional world. If a board wants to get the people who are on top of all the nuances of digital and the new trends, they’re actually going to recruit people in for whom it may be their first board experience. Their perspective and ability to provide unique insight will help keep the company as an influencer in the industry.
So, how would one of those younger players mesh with the rest of the board members? How would that work, because it could be a radical change in the dynamic of the board?
What I would say is, that’s what the board needs. When each board was created, it was created with a specific objective in mind. Since the company’s objectives have changed dramatically, shouldn’t the board change dramatically? You want somebody who is mature and responsible, but you really want the benefit of what the person does. This is not a cosmetic change.
Is it essential to have a director on the board with this expertise or are there other effective ways for a board to make sure it has valuable perspectives on these topics?
I think you either embrace it or you don’t; either go all in and make this person part of your future or pay an external person who is not accountable for any results. If you’re running a business and you believe that social media is core to your business, then you better have it as core to your business. It’s not something you can outsource. Again, the board doesn’t solve the problem. What the board can do is help the CEO frame the issue for the company so they can get smart about it and be somebody the CEO can rely on for relationships and contacts without being embarrassed.
What advice would you give to a director or to a CEO who wants to get smart about digital technologies and social media?
I would advise a CEO to build relationships with people who are in the industry, go out and visit digital and social media companies, set up a series of discussions, make yourself available to it — actually use the products. I’d look for as many 20-year-olds in my company as I could find and would ask them for their genuine input, and ask them, “If you were running the company, what would you do?” Be the most curious person on the planet, learn about it and use it. I would really empower young people and give them the freedom to create. You can always block it or pull it down, but those are the people who matter to you in this space. They are the people who don’t care about the legal stuff. They don’t care about corporate governance. They just love building the ship. I spend a lot of time with these individuals because I just want to make sure that I don’t miss a thing.