Social media can be a formidable tool for cutting through layers of bureaucracy and intermediation, says Ruth Sunderland, editor of Observer Business & Media

The recent election turned a spotlight on the deficiencies of our voting system, but in the corporate world, there is an equally glaring democratic deficit. The ultimate owners of large companies – you and I, since it is largely our pension funds which own the shares – are to all intents and purposes disenfranchised. We have little or no influence over the behaviour and decisions of executives, who are supposed to be our employees.  

The credit crunch exposed the problem of the “ownerless corporation” as it became apparent that large shareholders had exercised very little control over the recklessness of Sir Fred Goodwin and his ilk.  

This democratic deficit has been an intractable problem for the two decades I have worked in business journalism. But it is possible that social media could genuinely empower owners and bring about radical change in the relationship between them and top managers.  

“Social media could empower shareholders and reduce the democracy deficit”

Recently, The Observer launched an experiment in shareholder democracy along with campaign group FairPensions. The immediate issue at hand was that a number of institutional investors wanted BP and Royal Dutch Shell to disclose more information about their controversial tar sands activities. The experiment allowed ordinary fund members to use a webtool which registered their view on the tar sands issue with their pension fund, or with Legal & General, the largest shareholder in the oil giants. The point is not so much how one feels about oil sands, but its potential to cover a range of issues including remuneration policy, takeovers, the number of women or minorities on the board, and to make the ultimate owners’ voice heard.

Several thousand people participated, and they got results: Shell provided the information requested a year early, and a 15% protest vote was registered at BP’s annual meeting.

Institutional investors who were not used to communicating with the public at all suddenly found they had a whole new constituency. If these social media campaigns take off, investors used to a low profile will have to find a way of engaging with large numbers of well-informed and highly motivated individuals.

It was a modest experiment, but it’s a taste of how people might use social media to hold companies more fully to account.

 Social media can be a formidable tool for cutting through layers of bureaucracy and intermediation, but that brings its own communications challenges.  

On the positive side, the relationship between companies and their customers might be transformed into a much more mutual and collaborative one. In the US, for example, some cities have been experimenting with open data systems so third parties such as community groups can tap into local government information and develop applications to solve problems. Similarly, companies can involve customers much more actively in product development.

 In the world of news media, we are no longer in ‘transmit mode’, where the readers are passive recipients of our news and comment. However expert and talented our journalists, we recognise that by sheer weight of numbers there is an awful lot more expertise off our payroll than on it and we are looking for the best ways to harness this newly accessible resource.  

Responding to this is challenging. Traditional corporations tended to be hierarchical and zealous over safeguarding information. Becoming more open is threatening since it involves loss of control, authority and mystique.

The potential benefits are huge. But so too is the potential for an epic culture clash between the inclusive, egalitarian and voluntarist ethic of social media and the profit motive of big business. Watch this space.