FINRA Affirms Regulation of User-Generated and Social Content

In a Regulatory Notice released earlier today, the Financial Industry Regulatory Authority (FINRA) opined that brokerage firms and their registered representatives must retain records of all communications related to the broker-dealer’s business that are made through public blogs and social media sites, such as Facebook, LinkedIn, and Twitter.

“Every firm that intends to communicate, or permit its associated persons to communicate, through social media sites must first ensure that it can retain records of those communications as required by Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934 and NASD Rule 3110. SEC and FINRA rules require that for record retention purposes, the content of the communication is determinative and a broker-dealer must retain those electronic communications that relate to its “business as such.”

Brokerage firms will now be required to archive and make discoverable business-specific content produced by their employees. They will also have to establish and maintain procedures that ensure a supervisor has either approved an interactive electronic communication before it is posted, or that a “risk-based” method of post-communication review exists and is exercised.

“While prior principal approval is not required under Rule 2210 for interactive electronic forums, firms must supervise these interactive electronic communications under NASD Rule 3010 in a manner reasonably designed to ensure that they do not violate the content requirements of FINRA’s communications rules.

Firms may adopt supervisory procedures similar to those outlined for electronic correspondence in Regulatory Notice 07-59 (FINRA Guidance Regarding Review and Supervision of Electronic Communications). As set forth in that Notice, firms may employ risk-based principles to determine the extent to which the review of incoming, outgoing and internal electronic communications is necessary for the proper supervision of their business. “

In addition, FINRA’s guidance states that all organizations under its purview must establish and communicate social media usage guidelines for their employees, and that those individuals must also receive employer-provided training on those guidelines.

“Firms must adopt policies and procedures reasonably designed to ensure that their associated persons who participate in social media sites for business purposes are appropriately supervised, have the necessary training and background to engage in such activities, and do not present undue risks to investors. Firms must have a general policy prohibiting any associated person from engaging in business communications in a social media site that is not subject to the firm’s supervision. Firms also must require that only those associated persons who have received appropriate training on the firm’s policies and procedures regarding interactive electronic communications may engage in such communications.”

FINRA’s guidance marks the beginning of a new era for financial services companies and their use of external social media. However, the Financial Services sector is not the only one that will be subject to regulation of communications made via blogs and other types of social software. An IBM Senior Product Manager related last week at Lotusphere that IBM customers in the Healthcare and Utilities industries were also beginning to ask about the management of user-generated and social content.

If your organization is currently required to comply with regulations pertaining to the use of email and instant messaging for business communication, expect to see similar requirements placed on your management of external blog and social media site posts in the near future. At some point, it is likely that these regulations will also be applied to internal communications conducted via enterprise social software.

Thought of the Day: September 15, 2009

It is amusing that we are already talking about merging Enterprise 2.0 and Social Media when both are not even half baked as individual disciplines. I agree that they should be related, but I am not so sure that the divider should be completely torn down. Perhaps a connector tunneled through the wall is a better approach.  What do you think?

What Exactly is a Social Business?

In March, Jive Software created a new market category — Social Business Software (see my post on the announcement.) Jive published a manifesto that contains their definition of Social Business.

“The Social Business allows and rewards open conversation between colleagues, partners and customers. It relies on the power of social connections to shape new products and services, and to propel new revenue and earnings growth. It embraces Web 2.0 technology in the form of Social Business Software to enable this critical change.”

Jive’s definition is a good start, but ultimately does not go far enough. It implies organizational, cultural, and technology elements, but does not explicitly invoke all of those terms. Also, there is no mention of business process in the definition.

In June, partners at the Dachis Group began publicly touting Social Business Design as a new category of professional services. The volume was turned up on the concept last week, when Dachis acquired Headshift. Even I noticed the forward momentum, in this post, saying that “It would be difficult to overstate the importance of this action, as it instantly legitimizes social business as a management discipline on a global scale.”

While the Social Business Software and Social Business Design labels have gained increased usage, there is a problem with the common, core component of those phrases — Social Business. A Google query of the term produces a well-established definition that does not even apply to social computing:

Social business is a cause-driven business. In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point. Purpose of the investment is purely to achieve one or more social objectives through the operation of the company, no personal gain is desired by the investors. The company must cover all costs and make profit, at the same time achieve the social objective, such as, healthcare for the poor, housing for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water, introducing renewable energy, etc. in a business way. The impact of the business on people or environment, rather the amount of profit made in a given period measures the success of social business. Sustainability of the company indicates that it is running as a business. The objective of the company is to achieve social goal/s.

If Enterprise 2.0 and Social Media advocates are going to try to hijack the phrase Social Business, there must be a clear, consensus definition in place. Since an adequate definition is currently lacking, despite Jive’s good attempt, I thought I would write one and start a communal process of building something we can all use moving forward.

My working definition of Social Business appears below. Please comment extensively on this, even at the level of specific word changes. Also feel free to invite others to read the definition and comment (directly on the blog please). I will gather and consider all comments, then revise the definition and re-post. Thanks in advance for your feedback!

Social Business: A business philosophy that emphasizes employee trust and autonomy as an alternative to hierarchical command-and-control management. Additionally, the philosophy views customers and business partners as trusted components of the organization, not as external constituents. The philosophy should be supported by appropriate organizational design, culture, business process, and technology strategies and investments. Like any other business philosophy, Social Business produces results consistent with accepted definitions of a viable, on-going business.