Earlier this week, I touched on investing and asset allocation. To take that further, let me modify an excellent piece from Fidelity on the importance of asset allocation:

Budget allocation is the process of spreading your spend among different engagement channels. Different media react to changing market conditions in different ways. Neither diversification nor budget allocation ensures a profit or guarantees against loss.

According to Fidelity, there are three key considerations in asset allocation:

1. Unique financial situation
2. Comfort with investment risk and flexibility
3. Retirement goals and time frame

Which can be roughly converted into:

1. Your company, unit, and personal skills and budget
2. Corporate risk tolerance and appetite for innovation
3. Business goals and measurement intervals

Those factors are unique to each marketer in a particular role. For example, you could quit today to go work for your nearest competitor and all three factors would be at least slightly different. Another way to look at the combination on aggregate would be as the basis for strategic positioning.

So with your personal situation in mind, next comes the asset allocation. We can use high-level asset classes similar to the the Fidelity example:

• Bonds = traditional media
• Domestic stock = digital media
• Foreign stock = social media
• Short-term investments = cash reserve providing flexibility to quickly boost positions in any of the three

A certain amount of risk is necessary for any portfolio to grow; conversely, too much risk puts brands and careers in jeopardy. There is a marketing equivalent of the collateralized debt obligation – promotions giving away free stuff with no value capture plan.

If you’re not in the marketing department and understand what I’ve outlined here – be suspicious of what’s going on if you see your brand’s portfolio wildly out of balance. Black swans make for good movies, not corporate events.

A research project I conducted last month indicates that many investor relations professionals are not leveraging social media because they lack the following:

1. Clear corporate guidelines that address the disclosure of financial information and IR participation
2. People, processes and technology to support IR participation
3. Understanding of how social media adds value to investor communication given the required investment of time and resources

The need for clear corporate guidelines

Interest in leveraging social channels by IR is constrained by the perceived risks of violating the disclosure process regulated by the SEC.  Although the SEC has issued guidelines to recognize ‘interactive websites’ (i.e., corporate blogs or forums) as sufficient channels for public disclosure, the language citing the conditions these websites have to meet to fulfill the requirement remains vague and outdated to know how it will be enforced. The SEC first introduced Regulation Fair Disclosure in 2000 to prevent selective disclosure of material information that would lead to the benefit of only the few who were informed.  The new regulation required companies to publicly announce material information in a way that would be broadly disseminated.  In 2008, the SEC provided additional guidelines to include interactive websites as an acceptable channel for this information.  We have included an excerpt from the 2008 Regulation Fair Disclosure update below:

“Thus, in evaluating whether information is public for purposes of our guidance, companies must consider whether and when: (1) a company web site is a recognized channel of distribution, (2) posting of information on a company web site disseminates the information in a manner making it available to the securities marketplace in general, and (3) there has been a reasonable waiting period for investors and the market to react to the posted information.”

Additionally, the 2008 guidelines state that a company (or employee acting on behalf of the company) is responsible for all statements he or she makes on these ‘interactive websites,’ but a company is not responsible for the comments made by third parties on its website.

To be fair, the SEC guidelines are not preventing investor relations professionals from leveraging social media.  It’s more the fear of how to leverage such an unregulated and uncontrollable medium in a regulated and controlled environment. The perceived risks put Legal departments on edge, and many investor relations see the task of incorporating social media into reporting practice an uphill battle until the SEC or company executives provide greater guidance.  In my experience working with clients in regulated industries, I have found the combination of social media policy and training to be the most effective way to encourage participation.

The need of supporting infrastructure

Most investor relations departments do not have the people, processes and technology in place to support the use of social media specifically for influencer and investor communications. Furthermore, no investor relations professionals I interviewed last month report having dedicated budget for social media.  Investor relations budgets are primarily dedicated today for funding website upgrades, annual reports, road shows and conferences. Therefore, investor-related messages promoted via social channels are driven by Corporate Communications/PR most of the time – as this is the department who is responsible for maintaining and managing the corporate social media account.

The potential issue with this arrangement long-term is that investor relations remains one step removed from the conversation by relying on Corporate Communications/PR to disseminate and respond to messages in social channels.  This seems like a recipe for investor-related messages that sound more like broadcasts rather than authentic conversations. This arrangement also poses challenges to synchronizing investor-related messages across all websites.  There are clear signs of departmental divide.  A recent IR Web Report audit of 200 investor relations websites showed that 90% of them still ignore corporate presence on social media, even when other sections of the corporate website promote these channels.

The need to know the added value

According to the BNY Mellon survey, IROs are split as to whether social media even offers value.  Social media fosters conversation but most investor-related social messages are written as broadcast announcements that point back to the IR website for more information.  Therefore, most investor relations professionals are trying to figure out what additional value these messages offer to investors who have been trained for years to visit the corporate website for the most accurate and up-to-date information.  The issue is that value has to be defined by each IR department, but most IR departments are not involved in corporate social media participation to know what type of returns to expect.  If the goal of each investor-related social media message is to drive traffic back to the IR website, for example, then this activity has to be tracked, measured and reported back to IR for them to understand the value. The coordination of these activities is challenged when IR is not involved in the message creation and dissemination process.

I recommend that investor relations professionals seeking to incorporate social media into future reporting practices follow the five steps outlined in the graphic below to figure how to get started in social.

In my experience, I find that taking the time to thoroughly research the external and internal social media landscape as well as define participation guidelines and goals provides a solid foundation from which to build a successful social participation program.

FINRA, FDA, HIPAA, SARBOX and ITAR, are regarded as curse words in social media and workforce collaboration circles. People don’t want to say them. They don’t want to hear them and they really really don’t want the regulators to swing by for a “chat.” The outcomes created by this mentality are predictable: hesitancy when approaching new technology, over-engineered solutions that inhibit adoption and the pursuit of risky grassroots experimentation.

These approaches are born out of hard-learned lessons, because let’s face it: collaborating in a regulated industry is hard. Regulations change, are enforced with different points of emphasis and are frequently incomprehensible to everyone except their authors. Our colleague Dion Hinchcliffe (@dhinchcliffe) has a great phrase for this: regulatory quicksand. Nonetheless, we can’t ignore the value that social technologies can bring to regulated industries. So, what’s the answer to regulated collaboration and social media implementation? Plan better and execute smarter.

The rest of this blog post will focus on a high-level methodology for the strategic implementation of social technologies in regulated environments.  The aim is to provide a framework within which regulated businesses can maximize social media and workforce collaboration tools in a compliant way*.

Framework Overview

The goal here is to create a simple, repeatable strategic process.  In a nutshell: start by building your business case, then identify your lowest compliant denominator, don’t miss the last responsible moment, and finally roll out to your workforce.

Build a Business Case

The first step is to establish a collaboration pilot in a controlled environment. Before you get antsy – this is not the same old advice to start with a ‘small pilot.’ The key difference here is the realization that even the most highly regulated business has processes that are just not that risky, but do offer high value returns on collaboration. The implication is that by identifying an internal area where risk of external data leakage is minimal and the fruits of collaboration would be valuable, an enterprise can initiate a much larger and more meaningful ‘pilot’ than otherwise possible.

For example, a financial services firm might identify expertise location as a key challenge in their trading operations. Knowing that the regulatory expectations are the same across the whole of the ‘trader’ job role and that information would be bounded by that department’s lines it becomes feasible to pilot ad-hoc information seeking tools like enterprise micro-blogging to aid in expertise and knowledge location.

Find the Lowest Compliant Denominator

The second step is to synthesize all the data captured from the pilot (you were capturing data right?) into a collection of requirements and outcomes for broader implementation. One of the odd nuances of social software is that the best use cases are frequently only discovered once the users actually have their hands on the tools. The key insights you are scanning for are lowest common denominators for compliance or, “lowest compliant denominators.” Say to yourself: “What is the lowest barrier we can set while facilitating collaborative outcome X?”

For example, the financial services firm we discussed earlier might find that their pilot revealed a mass of associate level employees asking questions that only more senior colleagues could answer with any confidence. This manual process might be a blessing in terms of knowledge transfer, but a curse because senior employees have better things to do with their time. The answer would be to maintain the emergent Q&A culture while also instating a better system for capturing and sharing institutional knowledge – perhaps a wiki. This need and solution might never have surfaced and been synthesized if not for the advanced ‘pilot.’

The Last Responsible Moment

There’s not a bad time to begin to plan for compliance, but there is a point where it is too late not to have done so.  Now that you’ve run your pilot and with metrics, survey results and anecdotes created a business case, you are no doubt postulating how the benefits of collaboration multiply across your company.  With the momentum and demand you created in the pilot, if you haven’t done so yet, now is the time to partner with HR & Legal to create a compliance map.

Employees and artifacts in your business have characteristics.  Characteristics are things like: geographic location, security training, department, job title, or government clearance.  A compliance map simply details which combinations of characteristics are off-limits.  As an example, US-defense industry employees have to abide by International Traffic in Arms Regulations (ITAR).  Employees without ITAR training (characteristic) should not have access to ITAR protected artifacts.  So, when an employee without ITAR training uses their company’s search engine, no ITAR protected artifacts should be returned.

Scale and Train

Once you have developed a compliance map, you can identify your boundaries and then roll out your solution as far as those boundaries allow.  Of course, sufficient technology will be necessary to scale as well, but you’ve likely charted that course before.  Linking departments together is technologically nothing new, understanding whether or not you can link them from a compliance stand point is.   Your compliance map gives you the advantage of scaling accurately and aggressively.

But, just as spell check doesn’t turn you into Hemingway, having a compliance map won’t turn every employee into a compliance officer.  Training employees on compliance issues is the ultimate fail-safe.  Where technology fails, humans should know better.

Conclusion

Regulated companies can be collaborative, but they must plan better and execute smarter than others.  For many companies looking to become more collaborative FINRA, HIPAA, SARBOX and ITAR represent reality checks.  However, these reality checks are not blanket cease and desist orders.  You can remain in the good graces of your legal and HR departments AND still bring effective and beneficial collaboration to your company by following the framework outlined above.  Of course, this framework will need to be customized for your company.  Reach out to us if you’d like some help.

For additional reading on this topic, check out Ellen Reynolds‘ case study on Managing Risk in Regulated Industries.

*One caveat to keep in mind is that this methodology presupposes a strategic executive commitment to adopting social tools and while it could work for a grassroots implementation the entry points into the process would be quite different.

My talk started with a brief survey of new developments in externally-facing customer engagement across the financial services sector, such as blogs, social news sites, online communities and new products and services such as Zopa, Kiva, Mint, Wesabe and Covestor. It moved on to argue that the next stage is all about taking these developments, and the learning they have provided, inside the firm to re-write the business operating system and create more successful and less risky organisations.

There are a number of challenges facing companies in the finance sector, such as internal cultural issues and morale (perhaps linked to reorganisation), employee engagement, the socialisation and embedding of new ways of working or new regulations, reducing co-ordination costs, better data flows and early warning systems; and, at least in areas of the sector where there is competition, customer acquisition and retention.

As a quick overview, I looked at three of the main practice areas we work in, and discussed issues, challenges and typical social tools or projects that we are seeing clients begin to address:

• Workforce collaboration: networked productivity, the power of ‘we’, business social networking and building purposeful internal ties.
• Customer participation: challenges of the intention economy, social networks as influencers and information filters, and how to do the basics in externally facing customer engagement.
• Partnerships and service innovation: learning from Kiva, Zopa and other market innovators, leveraging market data and building partner and developer ecosystems.

Finally, I looked at how companies in this sector can build a social business design program, with measurable outcomes, rather than just dabble in social tools without a deep connection to business goals, and I looked at how the ‘lenses’ of our social business archetypes can provide insights into business-wide issues to be addressed. I closed by talking about adoption challenges and how to focus on the basics of supporting existing behaviours as a step towards change.

This is an interesting area and a rich seam of use cases where social tools and social business design can add a lot of value, so we are very keen to learn more about internal needs, projects already underway and new developments in this area. We have internal and external projects running in a major investment bank, big four auditor, an assurance firm and a major equity investment house, but we are very keen to develop a more diverse portfolio in this area, so please get in touch if you are interested in our ideas.

Here is a video of the talk:

Here are my slides (slightly revised for clarity):