This is the second half of a two-part series looking at how registered investment advisers and other firms are responding to vague SEC criticism of social media. Read the first half of the series by clicking here.
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The SEC clearly does not like social media, particularly Facebook. So what is an RIA to do? The only thing it can do – panic.
I know of many instances where a firm says, “Let’s just ban social media altogether.” Some are demanding passwords from prospects and employees. Then there are some firms that think the clever approach is to let the employees have Facebook but require them to “friend” the chief compliance officer so he/she can monitor activity. That’s not going to go over well with the rank and file.
There is no way to comprehensively police social media. In many ways it is like policing insider trading. If someone is hell bent on doing something unethical, they will find a way around an irrational policy firewall. In reality, the policy is merely an attempt by a firm to limit its own liability. They must produce a piece of paper – though more than likely it is a five-inch thick binder – to show the SEC that they take the situation seriously. The goal is to essentially limit or eliminate any claims that the firm was complacent or negligent in its oversight.
I can understand that approach to a degree. But firms are overreacting by infringing on people’s privacy. It makes me think of a drowsy driver who suddenly finds his car veering off the highway. We are taught in driver’s education that the smart thing to do is to tap the brakes and slowly maneuver the car back onto the road. But human nature often leads the driver to yank the wheel and forcefully over steer the car, often with fatal consequences. This is how RIAs are responding to the SEC's criticism.
An unethical employee could care less about such policies, which only infringe on employees with integrity. From what I can tell, RIAs are over correcting, creating unenforceable policies that are arbitrary, invasive and ineffective. Brace yourselves for the PR nightmare to come.
RIAs should expect strong pushback from at least two groups. Employees will undoubtedly object to a clear invasion of their privacy, particularly since the mantra up until now has been to silo personal and profession dealings on social media. What would the consequences be if someone received a friend request from a compliance officer, and they ignored it? Can you imagine the headlines in the daily paper?
“Employee Fired For Refusing to ‘Friend’ Exec”
I’m not advocating that employees reject “friending” outright. Rather, I would suggest that employees comply by accepting such requests and turning the compliance officer into a Facebook Friend in Name Only (FFINO) by making full use of Facebook’s privacy settings. In fact, Facebook should consider a one-button option that relegates individuals to “employer” status with restricted access presets. That’s innovation reacting to a changing environment, eh?
Speaking of Facebook, the social media site is irate over this trend since it singles out the site out while ignoring other established and upstart social media platforms. Think about this: the SEC, without naming Facebook, still found a way to single out the company’s proprietary “like” button. An article from the Associated Press recently noted that would-be employers are also focusing on Facebook, by asking job applicants for their Facebook passwords.
In fact, Facebook is reminding employers that asking for passwords violates user privacy – and the website’s terms of use. In fact, it is unlawful for a company to ask a prospect about age, race, national origin, gender, religion, marital status and sexual orientation, all of which could be researched by tapping into someone’s Facebook account (either with a password or friending).
Employers are choosing to focus exclusively on Facebook. This is discriminatory and not in a way that would flatter the (for now) largest social media destination. There is the potential that employees, peeved by an employer’s invasive friend request, simply migrate over the Google+ or another site for personal interactions. There are quite a few employers out there – enough to drive a lot of people away from Facebook. At what point does Facebook say “enough is enough,” determining that such acts represent a threat to its long-term growth.
There are several social media sites that are more menacing to the SEC’s prohibition on testimonials. On Facebook, the audience is limited to a user’s friends and access can be restricted more with privacy settings.
In contrast:
- · Twitter allows a user to tweet and retweet to the masses.
- · Google+ is new, but growing, and the SEC ignores its potential reach.
- · Even Foursquare could be problematic because of the ability to “check in” to locations. If an adviser checks into a Starbucks for a latte … is that a testimonial? What about a night club? A diner? A Meineke Car Care Center?
I’m no legal scholar, but Facebook has a legal team that could mount an aggressive challenge to such arbitrary policies. Would-be employees could turn to the Equal Opportunity Employment Commission (EEOC) or the American Civil Liberties Union (ACLU) for help. The EEOC is already tackling the issue, determining that employers are violating certain laws when they get info from social media, even in instances where the employee relinquished a password. (It is interesting to note that the EEOC has been paying attention to social media for years, while the SEC seems resigned to playing catch up.) While a Constitutional right to privacy has historically applied to the federal government, discrimination via social media represents a juicy case to try and bring before the Supreme Court, particularly if accessing someone’s account reveals information on racial background, sexual orientation, etc.
I’m looking forward to the litigation. At least that how I see it playing out. Just remember that if I post a link to this blog on my Facebook page, please don’t “like” it. I wouldn’t want you to lose your job.
