Establishing a Foundation for Social Media Screening as a Due Diligence

Buy-Side FeaturesFeatureOperationsOpinions
12 Apr, 2016

It’s easy now to condemn Martin Shkreli by pointing at his fraud indictment, purported lies he told investors and his childish behavior before Congress. But in reality it’s actually difficult to evaluate a manager’s true character. Had investors reviewed the Pharma Bro’s Tweets about his extravagant lifestyle – from pictures of recently consumed $9,000 bottles of wine to braggadocio about the purchase of $2 million rap albums to cockpit views from his helicopter rides to lower Manhattan – would these have been revealing red flags?

Despite comprehensive manager research and due diligence best practices throughout the industry, there has been very little discussion on best practice guidance for social media screening. In HR circles, social media background checks have become standard, and their best practices are certainly a good starting point for establishing a foundation.

Firms like Social Intelligence offer social media evaluations and screen for a variety of behaviors but as experts point out,screening candidates’ social media accounts raises a variety of practical and legal issues. For example, befriending a candidate on social media – especially surreptitiously – in order to see private content is at best questionable ethically and could possibly expose one to a legal action. And as a more practical matter, how much weight should be placed on the private lives of portfolio managers or traders? Everyone is entitled to blow off steam and certainly most of us will admit to decidedly idiotic behavior when gathering with old college friends.

So what information is meaningful and how should it be used? It seems reasonable to screen for a variety of behaviors that potentially provide insight into the character, ethics and culture of a firm. Based on how HR experts are executing background checks, these behaviors might include:

  • Illegal or reckless activity (theft, vandalism, drunk driving)
  • Use of illegal drugs or substances
  • Aggressive acts or threats of violence (evidence of possible domestic abuse, instigating violence or a desire to commit a violent act)
  • Discriminatory activity (making racist or biased statements)
  • Sexually explicit activity

But what can be extrapolated from a fund manager partying in the Hamptons, which for some might include a sampling of the milder behaviors on the list above? For starters, evidence of bad behavior should not necessarily be reason for disqualification but is definitely worth discussion. Questionable personal activities and lifestyle choices do not equate automatically with flaws in professional ability. However, there is paltry little empirical study of social media and job performance.

Though when it comes to money managers, arguably certain behavior may be indicative of lapses in judgement or character - important qualities when evaluating managers. Likewise, it’s important to identify behavior – arrogance, risk taking -- that may be inconsistent with the values or mission statement of a firm. Circling back to Shkreli, it’s doubtful merely reviewing his Tweets would have prevented investors from accepting his alleged lies. Though a thoughtful process would likely have given pause and cause to perform additional due diligence.

Clearly the industry needs further discussion on where social media fits into the due diligence process and how to create an adequate framework for execution. With the millennial generation – which largely lives public lives on social channels – moving into positions of authority, it’s probably a good idea to accelerate the discussion.

Justin Meise is founder of Buttonwood Communications Group a boutique public relations, marketing and strategic communications firm specializing in financial services.