Complying with the HR Component

At the risk of being called a shameless plugger, I am referring you to my recent book, "Human Resources Guide to Social Media Risks" as a tool for complying with the human resources related threats found on yesterday's Social Media Risk Assessment.

I think that the book is a necessary read for not only HR professionals, but any manager and employee in and around social media (e.g., everyone).  There are some very important lessons in the book that can really help organizations manage their social media risks from an HR perspective.  As I like to say, social media risks are human risks.  They are not technology risks.  A review of the risk assessment document in yesterday's post makes that very apparent.  As such, be sure to pick up a copy of the guide.  I think you'll be very happy you did and I really do believe that you will be doing your organization a great service.

Duality of Social Media in Banking

With banks working double time to squeeze value out from every last penny, many bankers are taking a closer look at social media and the value it can bring to an organization.

For about a year and a half references have been made increasingly regarding MySpace and Facebook and how businesses can appeal to the masses that visit these sites. Then a couple weeks ago it all broke loose when Ashton Kutcher battled CNN for the first to hold one million followers on Twitter. And then it happened, the tipping point, the day everything changed. The day Twitter became a household word.

Since that day I have been approached by banker acquaintances asking me how they can use Twitter to make them heroes. And in these discussions I found the duality of social media.

The banking industry is one of a handful of industries that is overly regulated and becoming more so every day (thanks TARP!). While bankers see the benefits of using Twitter and social media, they often find it very difficult to get past the associated risks. On the other hand, bankers make their living dealing in risk. As such, it would appear to me that banking is one of only a few industries that is well suited to incorporate the use of social media, warts and all.

So to my banker friends I say, get over it and do what you do best - assess your risks. The first step in any new bank product/service launch is the risk assessment. Risks can originate from the statutory liability and regulatory penalties that are specified by law, or from reputational damage that could result from publicity of noncompliance (see Social Media and Bank Compliance Requirements). Once you get your arms around the risks and feel warm and fuzzy about dipping your ties, get to it.

Of course, as with any implementation, you must have a plan that is well thought our and clearly defined. This involves doing your homework. Speak to experienced social media practitioners by researching them on the Web or meeting them at social media conferences, see what the competition is doing, see what other industries are doing, read The Community Banker's Guide to Social Network Marketing (disclosure: I wrote this free ebook), get the green light from the right people and put your team together.

Unfortunately, today, everyone is still largely feeling their way around. The use of social media in a commercial setting has only just begun. However, there is a large global community that actively supports this effort. So, while the model has not been entirely proven, the successes to date, the support network and the masses of consumers taking to social media should make dipping your toes at least something to consider.

Anyone up for a swim?!

Banking is Our Business, and We Think Our Business Needs to Be Wherever People are Talking About Banking

"Banking is our business, and we think our business needs to be wherever people are talking about banking."

The quote above was provided by Peter Aceto, CEO of ING Direct Canada in an interview with Bank Technology News Magazine. Mr. Aceto, an active tweeter, expresses an opinion held by many "enlightened" bankers. But banker beware: if you build it, they may not come.

Rebecca Sausner says "just because there are millions of people at a concert doesn't mean they want to see a banker take the stage." This is a great point. However, I would counter her by saying that banks should have some form of presence for the ocassion in which a client or potential clients needs to reach out. It is during those opportunities that banks will earn the points that put them over the top in the hearts and minds of consumers.

I am a tremendous fan of social media and the many benefits it brings to the banking environment. However, I recognize the many nuances that need to be considered in developing and implementing a social media plan. I agree that a bank's place within social media is not in-your-face. In fact, that is probably the last thing you want to do. Having said that, there are many ways in which banks may leverage social media while playing a role in the background and staying prepared to pounce on opportunities as they come up.

A good example is Bank of America's social network for small business operators. Bank of America has created a space on its dime that draws customers and non-customers together to share ideas and leverage from each other. As conversations take place, BofA is prepared to jump in to provide answers. Also, BofA is along the way collecting information that will assist in the development or improvement of new products and services. So, going back to Rebecca's analogy, while BofA may have built the stage, they are not on the stage but are instead backstage prepared to deal with any questions that may pop up as well as out in the stands listening to the crowds reactions.

Rebecca also made a point about the current financial viability of social media platforms such as Twitter, Facebook, et al, and whether their inability to create income is worthy of steering clear. My immediate response is "so what!" Applications like Facebook and Twitter are drawing in batches of people by the millions. Banks should do what they can to leverage their brand. However, banks should also be sure that their commitments take into consideration the fact that a specific platform or the social network/media industry as a whole may dramatically change over time. But the fact the Twitter may be here today and gone next year should not keep me away from taking advantage of the asset (e.g., people). I just need to make sure that my return in consistent with the investment made.

I think Rebeccas was spot on when she said, "the larger point is that understanding your customers is key. If your customers are addicted to Facebook, texting, tweeting, or LinkedIn groups, you should at least have first-hand knowledge of how and why. " That's pretty much it in a nutshell. Know your customers, know what makes them tick and you'll be able to appeal to them and develop products and services that they will be unable to live without.

For more information on the nuances of social media, download a free copy of The Community Banker's Guide to Social Network Marketing.

Should The Internet Be The New Resume?

Over the weekend I came across a very thought provoking article at Law.com titled Bank Nixes Use of Social Networking Sites in Hiring Process. This article, written by Jenny B. Davis, addressed a recent policy implemented by Amegy Bank of Texas, an $11 billion Houston-based bank.

The article speaks to the bank's decision to block all access to social media sites in an effort to prevent the bank's human resources personnel from accessing the personal profiles of job applicants. The article states that the bank's outside counsel recommended the policy in an effort to prevent unnecessary employment-based litigation. The article used the Pregnancy Discrimination Act as a key motivator, since it is plausible that an applicant's social media profile(s) may contain mention of a pending pregnancy or of other information that employers are not permitted to request. The danger is that upon discovery of such information, the bank's human resources personnel may be "perceived" as having acted on such information if an applicant is not hired. As such, if the bank's policy does not permit access to such sites, the bank has a strong defense against any such complaints.

While at first blush that bank's position may seem a bit severe and short sited, given that that almost 40% of employers have used Facebook and other social networking sites to gather information on job candidates and more than 80% of employers consider that negative information discovered when making hiring decisions, this was not an entirely bad decision. Further, during tough economic times people may be more apt to file frivolous compliants.

A related blog article at gNeil, titled Dangers of Using Social Networking Sites to Screen Applicants, stated that when a company uses the Internet to research job candidates and even current employees, there are some very important legal issues to keep in mind such as:

• Invasion of privacy. Some social networking sites state specifically in their terms of service that is is illegal to use users’ profile information for commercial purposes.
  
• State protected privacy. California and New York have laws preventing employers from interfering in employees’ private lives outside of the workplace.

• Discrimination. Even if you stumbled across an applicant’s personal information unintentionally, it is unlawful to deny employment based on protected categories such as age, race or gender.

• False information. It’s probably not surprising, but users on social networking sites don’t always post information that is entirely true. It’s best to rely on information that the applicant directly gives you.

• Fair Credit Reporting Act (FCRA). If you’re using an outside agency to conduct background checks on job candidates, you must comply with the FCRA and receive the applicant’s consent before starting the background screening process.

So, while it has been said that the Internet is the new resume, banks should carefully craft thier background check procedures - especially those that utilize social networks. For example, use of LinkedIn would likely be acceptable since it is primarily used for professional purposes. However, other platforms such as Facebook and MySpace may be undesirable. While the use of these sites may provide helpful information relative to the character of the candidate, certain information may expose the bank to litigation.

According the the gNeil blog, "to avoid potential discrimination lawsuits, develop a uniform procedure for using social networking sites in the hiring process. Train everyone involved in the hiring process to treat every applicant consistently to avoid trouble and document each step you take. With the rate at which new technology emerges, it’s almost impossible for the law to keep up the pace. When you use social networking sites to research applicants, you may be taking uncertain legal risks with every search you make."

Amegy's CEO was quoted as saying, "good hiring decisions are among the top two or three decisions here, because it is where a lot of risks are managed." This is definitely true. And social media applications may help to reduce risk by identifying potential hazards. Unfortunately, human resource law is not Web 2.0 compliant and as such, taking advantage of these tools as part of the human resource process will require careful consideration, strong policies and procedures and an increased appetite for potential litigation.

Banking Regulators Should Make Use of Social Media Mandatory

Back on May 6, 2005, then Acting Comptroller of the Currency Julie L. Williams, delivered a press release titled, "Acting Comptroller Williams Discusses Management and Supervision of Reputation Risk In Large Banking Organizations; Stresses Important Role of Ethics and Corporate Values."

Ms. Williams, through her press release, stated that there is no more elusive, difficult to manage, and feared risk than reputation risk. Ms. Williams stressed the importance of establishing within a bank's overall risk management program, a defense against reputation risk that ensures that banks are grounded in a sound corporate culture and value system. This statement was released in 2005, years before the social media boom that we find ourselves in today.

Since Mr. Williams' release, the banking industry has undergone significant stress. These stresses have resulted in a significant outlash against banks by consumers, regulators and lawmakers. Events triggered by IndyMac, AIG, Bear Stearns, et al, have resulted in significant criticism at the macro and micro levels. And social media platforms such as Facebook, Twitter and LinkedIn have acted as the conduits for many of these disgruntled messages.

Therefore, if we believe Ms. Williams and agree that reputation risk has been historically difficult to manage, then the banking community should agree that one method of effective management is through the deployment of a social media strategy that includes as an objective, the use of social media to track and timely respond to events that affect the reputation of financial institutions.

EXAMPLE 1

In 2008, Johnson & Johnson released a marketing campaign targeted at mothers with newborns that use slings for carry their children. The campaign that utilized a web commercial that suggested that mothers used such slings for trendy reasons. The campaign asked mothers to use Motrin for relief from back, shoulder and neck pain associated with the use of the slings.

For some reason mothers were disgusted at the suggestion that these slings were merely trendy baby accessories. The result was a Twitter-based protest that snowballed and attracted significant attention. The protest attacked Johnson & Johnson and its Motrin brand on the basis of "not getting it" relative to why mothers use the slings. Eventually the protest reached Johnson & Johnson's ad agency and an apology and retraction of the ad campaign took place.

This social experiment created a reputational issue for Johnson & Johnson and resulted in a significant waste of money and a muddy face for some ad agency and Johnson and Johnson folks associated with the campaign.

EXAMPLE 2

In 2007, HSBC Bank was the target of a Facebook campaign against the Bank's decision to charge a 9.9% interest rate on certain student overdrafts. The virtual "Stop the Great HSBC Graduate Rip-Off" protest was organised by the National Union of Students, which had called for a boycott of Britain’s largest bank. The campaign attracted nearly 5,000 members on the Facebook site.

As with Johnson and Johnson, the event became widely publicized and became a black eye to the global banking giant.

Social Media as a Reputation Risk Tool

According to the Office of the Comptroller of the Currency, reputation risk is the risk to earnings or capital arising from negative public opinion. This affects a bank's ability to establish new relationships or services, or continue servicing existing relationships. This risk can expose the bank to litigation, financial loss, or damage to its reputation.

Reputation risk exposure is present throughout the organization and is why banks have the responsibility to exercise an abundance of caution in dealing with their customers and community. The assessment of reputation risk recognizes the potential impact of the public's opinion on a bank's franchise value. This risk is inherent in all bank activities. Banks which actively associate their name with products and services are more likely to have higher reputation risk exposure. As the bank's vulnerability to public reaction increases, its ability to offer competitive products and services may be affected.

As noted, with Johnson and Johnson and HSBC, an enterprise need not do anything "wrong" to end up with a battered reputation. Further, banks have an affirmative responsibility to manage reputational risk from wherever it may arise.

Enter social media. As the two examples above demonstrate, consumers in the Web 2.0 era no longer write letters - at least most do not. Instead, the disgruntled seek to unite with others who are similarly disgruntled. They band together and utilize the effective word of mouth capabilities built into social media applications such as Twitter and Facebook. The result can be quick and devasting to a bank's image. As such, for a bank to effectively manage its reputation risk in the current environment it must fight fire with fire by itself utilizing the same tools that can be used against the bank.

Today, bank risk managers must work closely with those managing the bank's existing social media applications. To the extent that a bank does not currently have such capability, the risk manager should make the case for the establishment of some form for social media tool such as Twitter, in order to receive complaints and comments. Once received, such feedback must be promptly addressed by the appropriate parties.

Banks that do not make themselves available through social media platforms or that ignore negative feedback are the banks that will find themselves the victims of runaway social media smear campaigns that ultimately result in negative publicity, unnecessary expenses and other potential adverse affect on the bank's bottom line.

To the extent that a bank finds itself being attacked, the bank should rely on a set of incident reponse procedures that include social media attacks. The procedures should address minimizing the negative effect by addressing the issues in an open and direct manner and ensure transparency. The bank should also consult with a social media specialist to determine the most effective manner of quieting the campaign being targeted at the bank.

Social Media Primer for Bankers

Unfortunately, many bankers are not well versed in the uses of social media. As such, bankers should consult with professionals with experience in utilizing social media for risk management and crisis management purposes.

As a first step I would encourage all bankers to download The Community Bankers Guide to Social Network Marketing. It is a free ebook that I wrote to provide a primer to bankers on social media and social networks.

Next I would recommend that risk managers evaluate the processes they have in place to measure reputation risk. In most cases banks focus on the primary risks such as credit risk, liquidity risk, interest rate risk, etc., and do not actively address reputation risk which can have consequences just as severe as the other risks monitored. Risk managers should ensure that social media is incorporated as a measuring tool to ensure that the bank has the opportunity to respond to issues before they become disasters.

In most cases, managing a bank's reputation can be compared to watching the grass grow - it just isn't very exciting. Unfortunately, all it takes is one major event to ruin everyone's day. With a little planning and some knowledge of dealing with the Web 2.0 community, bankers should have a good shot at minimizing or preventing a public relations disaster.

Day One - Welcome to the Blog

Welcome to the first post of the Social Media and Banking blog. My name is Jesse Torres and I will be your tour guide as we discuss matters related to social media and banking.

As this is the first post, I figure a brief background is in order. I am a career banker with a major technology addiction. All through my career in banking (roughly 17 years), I have always favored technology as a way of improving the banking industry.

In my early days I was a bank examiner with the Treasury Department's Office of the Comptroller of the Currency and a senior consultant with KPMG Peat Marwick. In those roles I was always the tech guy who was called in when things went wrong in the field. It explains why I also hold CISA and CISSP certifications.

As I moved out of the field and into management, I continued to favor technology. Eventually, I came to oversee the IT departments of a couple banks I worked in and played a major role in technology acquisition and deployment.

Most recently I have played significant roles in marketing and developing brand identity for banks. This is where I became convinced that there are many benefits to be had in banking through social media.

In December 2008, I released an ebook called The Community Banker's Guide to Social Network Marketing. The Guide was released as a primer on social media and social networks targeted at community bankers. The goal was to raise bankers' awareness of the uses of social media. This project became quite a success, resulting in significant exposure for the Guide.

I established this blog after receiving considerable requests for an ongoing source of information related to banking and social media. I hope to address developments and stories to make the banking community better informed and more successful.

Thanks for joining me on this trip.

Jesse