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Matt Dunning

Mid-market firms expand social media use, but often underestimate risks

January 19, 2014 - 6:00am



Mid-market companies continue to expand their use of social media, blogs and other web marketing tools, but few have adequately addressed the potential liability exposures with publishing content online.

In a June 2013 survey of senior leaders at mostly small and midsize companies conducted by Chicago-based Grant Thornton L.L.P., 68% of those polled said social media websites such as Facebook, Twitter and LinkedIn and content distribution platforms such as WordPress, Blogger, Pinterest and YouTube are important or critical to their company's corporate strategy. Sixty-six percent said their company's use of those platforms likely would increase during the next 12 months.

“It's changed pretty dramatically over the last five years, as more midsize companies embrace technology and information assets,” said Kevin Kalinich, global practice leader for cyber and network risk at Chicago-based Aon Risk Solutions, a unit of Aon P.L.C. “The smarter midsize companies out there want to increase sales and decrease costs and, in order to do that, in many cases it means they're taking on an online presence.”

The underlying problem, experts said, is that by posting content online, companies of all types can expose themselves to specialized civil and regulatory liabilities that are typically the province of newspaper publishers, television broadcasters and other traditional media firms.

Experts said that base awareness of the risks associated with online social marketing strategies appears to be growing among mid-market executives and senior managers. Only 13% of senior leaders polled in Grant Thornton's 2013 survey said they did not think their company's social media content posed an appreciable risk to the organization, compared with 22% in 2011.

However, despite recent increases in risk awareness at the senior level, most small and midsize firms engaging in online marketing still have not taken the necessary steps to reduce their potential exposure to media liability claims. Only about one-third of executives participating in the Grant Thornton study said their company has a formal social media policy or provides training to employees tasked with managing corporate activities online; even fewer said their company regularly assesses its social media risks.

“Risk management training always winds up being a little bit more challenging for smaller and midsized firms because their resources and revenue are limited,” said Eric Seyfried, a New York-based senior vice president in Marsh Inc.'s media and miscellaneous professional liability practice. “But I would argue that with any consumer-facing or client-facing social media activity, there needs to be a clear demarcation as to how and where that training is going to come in.”

Beyond the limitations of their financial and personnel resources, experts said one reason mid-market firms have been slow to develop comprehensive risk controls for their online marketing activities is their broad assumption that most claims arising from those activities would be covered under their commercial general liability policies.

However, experts said these general liability policy forms, including the industry standard form issued by Insurance Services Office Inc., are becoming more restrictive in their coverage of media and publishing liabilities.

ISO has been putting out “more and more exclusions and clarifications in their language when it comes to advertising and personal injury coverage under the standard general liability form,'' said Joanne Richardson, New York-based managing director of Hiscox Ltd.'s U.S. media and entertainment practice.

“They've clearly come to a point where they don't want the GL policy to be the go-to policy when it comes to media liability exposures, and they're trying to push them towards buying separate, stand-alone media liability policies,” she said.

Even where mid-market companies have devoted some effort to mitigating liability exposures stemming from social media, experts said those efforts tend to ignore authorized activity carried out for marketing purposes and, instead, focus too narrowly on setting parameters for employees' individual use of social networking platforms.

“Companies are unfortunately spending more time addressing the "rogue employee' scenario than they are on training their staff to properly represent the brand online,” Adam Bialek, a New York-based partner and chair of Wilson Elser Moskowitz Edelman & Dicker L.L.P.'s intellectual property group. “As much as the company needs to establish guidelines for its employees in terms of their own personal use of social media, companies also need to establish guidelines for the staff members they designate to manage their corporate activity online.”

 



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