Wednesday, December 29, 2010

On Being Honest and Straightforward in Business

Social media is said to be successful primarily due to its communal characteristics that include sharing in an honest and transparent manner. The beauty of social media is that it is a self-regulating and self-correcting medium where the participants, or “community members,” call out other community members whose social media activities have been found to be questionable – particularly those that are trying to use the system to their advantage. According to Paul Gillin in his book, The New Influencers, “millions of writers of all ages, interests, languages and motivations are together forming a set of shared principles, operating standards and behaviors without any kind of central coordination.”


This phenomenon has created a system that places significant value on honest and straightforward communication over salesman-like puffery. As such, organizations with poorly trained or misguided employees that attempt to abuse or mislead the social media community for the benefit of the organization, stand to suffer reputational damage. It is for that reason that organizations must maintain a formal, written social media policy that establishes employee expectations and keeps employee activities consistent with the expectations of the social media community.

Any time an organization’s employees undertake social media activities intended to mislead the community, the organization risks that the social media community will respond in an adverse manner. The social media community may not distinguish between activities made as part of an official company response and those made by an employee on personal time. If the questionable activity appears to be sanctioned by the organization, there may be some form of inflammatory response from the social media community. The danger lies in the potential for the backlash to take on viral characteristics that spread the negative publicity to an extent that causes serious damage to the organization. As such, the policy should be very clear about the need for honest and transparent communication by employees.

Blogger Lisa Brauner describes the concept of honesty and transparency on the Workplace Privacy Counsel blog. Her article entitled “Caveat Employer: Let the Employer Beware of Employee Endorsements on Social Media Websites,” very clearly defines why honesty and transparency are not only a necessity from a public relations perspective, but also from a legal liability perspective.

According to Ms. Brauner, organizations must be aware of the risks posed by employees as a result of product and service endorsements made by employees on social media platforms. Ms. Brauner notes that organizations are subject to the October 2009 Federal Trade Commission guidance (Guides Concerning Use of Endorsements and Testimonials in Advertising), which protects consumers from misleading endorsements and advertising. The Federal Trade Commission guidance makes clear that employers whose employees use social media to make misleading comments regarding their employer’s products or services, face potential liability, even in cases where the employer has no knowledge of the employee’s social media activities.

The Federal Trade Commission guidance states that employees endorsing their employer’s products or services have a duty to disclose to their audience their relationship to an employer at the time they give the endorsement or testimonial. If employees make misleading statements about the employer’s products and services that result in injury to consumers, the Federal Trade Commission may bring an enforcement action against the employer. Ms. Brauner also states that postings on social media platforms can reach wide audiences and as such, employers may be vulnerable to large-scale liability such as class-action lawsuits by consumers and/or legal action by state attorney generals.


For publicly traded companies, honesty and transparency also has implications relative to Rule 10b-5. According to Investopedia.com, Rule 10b-5 is “a regulation formally known as the Employment of Manipulative and Deceptive Practices that was created under the Securities Exchange Act of 1934. This rule deems it to be illegal for anybody to directly or indirectly use any measure to defraud, make false statements, omit relevant information or otherwise conduct operations of business that would deceive another person; in relation to conducting transactions involving stock and other securities.”

The need for transparency and honesty, however, does not mean that employees should disclose confidential company and customer information or proprietary information (e.g., trade secrets, etc.) that can have an adverse effect on the organization. Being honest and transparent does not mean that all information should be shared.

Based upon the public relations and legal risks posed by misleading comments on social media platforms, it is very clear that organizations should develop a formal, written social media policy that ensures that employee interactions are conducted in an honest manner and consistent with the norms of the social media community.

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