Everybody gets nervous. The way people deal with this anxiety, however, is hardly universal. Michael Jordan wore a pair of his alma mater’s basketball shorts beneath his Chicago Bulls’ uniform whenever he played. Performers will tell one another to “break a leg” before taking the stage. However, unlike these superstitious methods of dealing with nerves, financial firms can instead address the anxiety of entering the social media world rationally. Mitigating the risks of social media shouldn’t rely on irrational fears or rituals, and it doesn’t have to. In fact, the most effective way for financial firms to calm their nerves and to prepare for the plunge into social media is to adopt a comprehensive social media policy. Given the inevitable adoption of social media, there is a critical need for social media policies in the financial services industry. And by addressing the use and management of social media at a corporate level, its legal, reputation, and compliance risks can be significantly reduced.
What should a social media policy look like?
So, what needs to be included in a comprehensive social media policy? Of course, each firm will deviated slightly, but the two most important issues to address are employee use and corporate governance of social media. Implementing a social media policy covering these two areas will, in turn, reduce the legal, reputation, and compliance anxieties.
Employee use of social media
To begin, the critical need for firms to implement a social media policy stems, in part, from the decentralized nature of social media. Employees with their own accounts can indirectly represent the firm. This means that they can create compliance risks (see Francesca’s CFO), as well as reputation risks (see GoDaddy.com’s CEO). As a result, a firm’s policy needs to address employee use of social media. It needs to indicate what behavior is acceptable and unacceptable, what information (such as proprietary, confidential, or a customer’s) can and cannot be shared, and what compliance-specific policies must be observed. Of special importance to financial firms regulated by the SEC or FINRA is ensuring that those with social media accounts are acting compliantly online. This means, for example, requiring that those regulated by the SEC or FINRA hide all LinkedIn recommendations, as these may be considered testimonials. In short, a social media policy should reflect the firm’s current corporate policies and be treated as an extension of them. It should ensure that employees act appropriately, that they don’t share confidential information, and that they observe SEC and FINRA regulations. This is nothing new, and it doesn’t need to be.
Corporate governance of social media
Second, it is critical that a firm establish a social media governance structure. Drafting a policy without enforcement does little to reduce the risks associated with social media. As a result, the social media policy should address the following issues related to its corporate governance. First, it should designate a manager who will ensure the social media policy is being observed by employees. This includes periodically sampling social media interactions to ensure appropriate use, as well as handling violations and possible punishments. Additionally, the social media policy must ensure that the firm is itself using social media compliantly. A major component of this is a firm’s recordkeeping policy. A firm that uses social media should be prepared to keep records of these interactions per SEC and FINRA regulation. The firm’s policy must ensure that these records are being accurately collected and archived for firm compliance by designating a records manager to oversee this implementation.
So, although financial firms are nervous about plunging into social media, their coping strategy doesn’t have to be irrational. Instead, by adopting a social media policy that comprehensively addresses employee use and corporate governance, the anxiety many firms have can be dealt with rationally. This way, firms can safely embrace social media without having employees superstitiously wearing their own alma mater’s basketball shorts with their business attire a la Michael Jordan.