A group of users has filed a class action lawsuit against LinkedIn (LNKD), claiming that the company has actually broken into the third-party email accounts of its users and then sent endorsement emails to non-members as a way to boost sign-ups.
It’s an explosive allegation — and LinkedIn has promptly denied it. Over the weekend, Senior Director of Litigation Blake Lawit wrote a blog post on the matter. He noted:
“As we’ve said before, our core value at LinkedIn is Members First. This guides all the decisions that we make when it comes to our members, including how we communicate with them and how we use their data. That’s why we felt we needed to explain we believe that the claims in this lawsuit are without merit, and we wanted to correct the false accusations and misleading headlines.”
The bad news for LinkedIn: Making denials in a blog post is not enough.
Sure, there are reasons to shrug off the accusations. For one, it’s not tough to file a lawsuit in the U.S. And more importantly, wildly successful companies like LinkedIn are juicy targets.
But in today’s world, data is becoming a critical asset — part of the reason is has become tempting for companies to cross the line. A notable example is Bloomberg, which allowed its journalists to view client information through its terminals. To deal with this situation, the company hired ex-IBM (IBM) CEO Sam Palmisano to conduct an investigation. He then provided many sensible recommendations to improve security.
LinkedIn needs to take a similar approach. The company should provide concrete details of how it addresses data security. What are the protections and systems in place? What have been the investments for security? Will LinkedIn actually investigate the issues regarding the lawsuit?
The bottom line: While a data-driven business can be extremely valuable — as seen with LinkedIn stock’s 2013 doubler — it also needs to be trusted.
That’s a tough balance to find, but it probably means that the best strategy is to be overly transparent — and that means more than blogging about lofty concepts like being member-first.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.