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October 15, 2006

Blog 5 - Corporate America Turns to Blogs


Does the equation above hold?

Perhaps – but you are going to have to argue with a lot of people. Blogging was primarily started by the so-called “geeks” (otherwise known as online journalists) who wanted to voice their opinion through a channel called internet. It was an effective method of communication because it gave them access to millions of people (i.e. the world) without having to go through the financial burden attached to traditional media. What started out as small scale online journals eventually drew thousands of internet users, and become political powerhouses– literally. Early popular blogging sites included ones by Andrew Sullivan, Ron Guzburder, and Taegan Goddard, among others, who aimed at influencing others with their political ideologies. These popular websites were not only able to influence others, but also figured out ways to collect sizable revenues through online advertising.

Here’s a trivia question. Who gets involved if something is economically and socially profitable? Bingo! – Corporate America. We have now entered a stage where business giants started to pay attention to blogging. In fact, thirty of the Fortune 500 companies have already started blogging. CNN recently had a special news coverage entitled, “CEO Bloggers Communicate to the Masses,” which features the story of Jonathan Schwartz, CEO of Sun Microsystems. Click here to read the article. According to Mr. Schwartz, corporate blogs is,”the single most effective vehicle to communicate to all of our constituencies -- developers, media, analysts and shareholders.” It is an effective means for CEOs to bypassing public relations departments, thereby having a more “personal” relationship with consumers.

Jonathan Schwartz, CEO of Suns Microsystems
Figure – Jonathan Schwartz, CEO of Suns Microsystems, writes a corporate blog that generates around 50,000 viewers a month. Click here to view his blog

So what? We have generated a list of Goodies that blogs can do:

  • Cure for the Agency Problem – One fundamental problem that exists in any publicly traded company is something known as the agency problem. Such problem arises when the interest of management and interest of owners (i.e. shareholders) do not align. CEOs may try to maximize the welfare of themselves (e.g. using corporate jets for personal travel), which may not necessarily serve the interest of shareholders. Current HP scandals and the prevalence of CEO resignations is largely a symptom of the underlying disease called the agency problem. What can corporate blogs do to alleviate this problem? Blogs provide a mechanism for shareholders to communicate with CEOs. This means that CEOs are under closer scrutiny of shareholders and the public. Essentially, CEOs will take the heat if they underperformed. That should provide an incentive to not screw up.
  • Cure for the CEO disease – the interactive nature of blogs frees CEOs from isolation from subordinates and shareholders. The feedback, theoretically, should allow CEOs to be aware of pressing issues.
  • Increase Corporate Transparency – CEO’s can have a more personal relationship with its constituency. Many potential consumers, who do not necessarily find it entertaining to analyze 10-k’s and other financial statements, now have access to a source that talk about corporations. This can help build goodwill and enhance corporate image to the world.

There are, of course, downsides:

  • Agency Problem – while blogs provide another means for CEO scrutiny, it also squanders the time of management. In fact, according to CNN, “Sun's annual revenue has declined in four of the past five years, and shares have plummeted from a high of about $64 in September of 2000 to around $5 this year.”
  • Miscommunication – most CEOs do not have an advanced degree in English. In fact, many of them are horrible writers. They inherently bear the risk of ruining the goodwill of the company, which can spillover to negative publicity.
  • Insider Information Leak – It is in the nature of Journals that people talk about things they don’t necessarily talk about in public. Crucial information leak for corporations can cost corporations millions of dollars. For example, wouldn’t Yahoo want to know about what the CEO of Google has to say about its future growth strategies?

We believe that it is not in the interest of most corporations to allow their CEOs to spend hours in writing corporate journals. It bears too much risk of ruining company image relative to the potential benefits it can generate. This is, of course, not a per se recommendation. Some CEOs, with the help of eloquent writing and clever strategies, can utilize blogs to accomplish many different objectives. However, we recommend an alternate blogging strategy for most corporations – corporations simply using blog sites to promote their goods and services, just in a more informal way. Such approach to blogging will save CEOs time, personalize the corporate image, and still allow corporations to capitalize on the benefits associated with new method of communications.

Posted by willmoon at October 15, 2006 11:47 PM


Pretty unbelievable post. Nice job. Good stuff!!

Posted by: samoore at October 16, 2006 06:06 PM

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