In my recent article on ethics, I raised a question, “How often do IR professionals find themselves in an ethical dilemma?” A few Accreditation in Public Relations (APR) Fellows shed light on how investor relations (IR) professionals in public companies view ethical issues.
Timothy O’Brien, founder and owner of O’Brien Communications, a public relations firm based in Pittsburgh, Pa., asserted that, “[O]ne of the most critical jobs of an IR professional is to expect and know how to deal with ethical issues.” He elaborated, “In other words, ethical matters are part of the norm, not the exception, and it's not a negative thing. Or put even more simply, doing the right thing is in the job description.”
For clarification, O’Brien inquired whether a dilemma is “simply the matter of making a tough choice but the right choice? Or is it a choice of the lesser of two evils?” While I referred a dilemma as a tough choice, O’Brien referred to his experience working and supporting IR for most of his career, saying that “the term ‘ethical dilemma’ is thrown around much too carelessly.” The APR Fellow argued, “Being faced with a decision to do the right thing is not a dilemma.”
Concurring with O’Brien, Sean Williams – Vice President & Practice Lead, Education & Internal Communications of True Digital Communications, a digital marketing firm based in Bedford Heights, Ohio – said, “IR pros have to follow the law, regulations, policies, common practice, and serve their organization — conflict between the former and latter may present different types of dilemma, but I'd claim it unlikely that these will be matters of ethics.”
Essentially, O’Brien believed if an IR professional distinguishes between the right and the wrong and “is committed to doing the right thing,” a dilemma rarely exists. While he agrees difficult choices could be stressful and risky, O’Brien said it may be a misplaced assumption if we interchangeably use “tough ethical choices” and “dilemmas.”
O’Brien’s reasoning was “IR is highly regulated by the SEC.” Therefore, he believed, “It's not that difficult to know how to follow the laws or regulations, and to work with legal counsel and senior management to make sure.” In addition, O’Brien said, among others, codes of ethics stipulated by PRSA, NIRI and the CFA Institute will help guide IR professionals in matters that fall outside the scope of the law.
In the article, I also referred to the magnitude of the conflict (if and once occurred) when saying, “the more profitable the business, the greater the conflict IR professionals may face.” The two significant illustrations were the Townsend and Woodbridge cases where hundreds of millions of dollars were involved.
From a different angle, O’Brien said, “[I]f you have a personal and professional moral compass, and if you adhere to all of the codes of ethics … , there is not a greater conflict proportionate to the amount of money or profit involved.” The APR Fellow went on to say, “If we accept this assumption that the more profitable the business the greater the conflict, are we to presume then that if higher profit is involved then ethical decision-making is more relative, or are we to assume that any decisions made are more suspect?”
O’Brien opined, “We live in world where some people do the right thing and some do the wrong thing. The fact that IR professionals work in an environment where valuation is at the core of what they do makes them no more or less vulnerable than any other professional discipline with regard to the challenges of human nature.”
How about in a situation where confidentiality obligations are raised by the legal department; the management is of the same view and concerned with corporate reputation; the IR professional knows his/her fair disclosure obligation; it is in the best interests of investors that they know the bad news to make their informed decisions? What should the IR professional do? Doing the right thing may cost the IR professional his/her career. Is the IR professional willing to do the right thing in such situation?
As one APR Fellow of the Public Relations Society of America (PRSA), the global largest organization representing public relations (PR) professionals, pointed out during in-depth interviews described in Neill and Barnes' book (2018) titled Public Relations Ethics: Senior PR Pros Tell Us How to Speak Up and Keep Your Job, "[A] lot of ethical decisions are made for monetary reasons and not for the right ones.”
In response, O’Brien said legal counsel is solely compliant-driven, thus “[w]e need to be in lock step with Legal and senior management.” Notwithstanding, O’Brien pointed to the extent legal department appears to violate its charter, which is rare. “When it happens it usually makes news,” indicated O’Brien. “So I don't think we can make any general assumptions about this. Bottom line here, IR isn't the only one with a duty to comply with Reg FD and other requirements.”
With regard to the issue of the C-suite, O’Brien said, “Some CEOs don't like what they hear from their teams and they may want to do something different.” He further added, “This is common in scenarios well beyond IR. It's not a dilemma and it's not a tough choice if the choice is between complying with the law and telling your CEO what he/she may not want to hear.”
While agreeing that in some cases, doing the right thing may cost an IR professional his or her career, O’Brien believed, “[I]n a highly regulated atmosphere, it's not a difficult choice.”
In his view, O’Brien doesn’t think magnitude matters. He elaborated, “To that PRSA Fellow's point. The thinking is, if a lot of money is involved, there is more pressure on IR people to compromise their ethics.” Furthermore, he countered, “If more money is involved, those same pressures could also apply to R&D, operations, sales and marketing, advertising and PR.
“Once an organization places a big bet, it takes courage to sound a warning bell when things may not be going as planned. That said, IR is no different than any other part of the company. The professionals know what they should do. Whether they do it or not has nothing to do with the amount of money involved.”
However, O’Brien later agreed that magnitude would matter in “a billion-dollar deal, [whereby] the public scrutiny may be higher, media attention, regulatory pressures and potential downside.” Though he cited a saying, “If you can't trust someone in small matters, you can't trust them in big ones,” arguing that when we discuss magnitude, “we lose sight of the core issues at play.”
O’Brien further added, “Those core issues, I think, are that IR people need to be informed of the regulatory landscape and know how to adhere to it while balancing credibility in the process.” He then advised, “Sometimes, that's not easy but it's the job. If you can embrace this mindset, the path before you is very clear.”
Mary Beth West, principal and founder of Mary Beth West Communications, a public relations agency based in Alcoa, Tenn., pointed out that communicators who practice in non-public companies “may not understand the extent to which a disclosure misstep can land them (personally and via their corporate entity) in hot water legally . . . which is an ethical accountability aspect of IR work that isn't necessarily present for communicators working in other sectors.” West explained it was because “PRSA's Code of Ethics is an ‘opt-in as you will’ set of inspirational guidelines, not a mandate with accountability for non-compliance.
“By contrast, the Securities & Exchange Commission doesn't mess around with this stuff. A mere ‘Oops!’ in failing to disclose information properly can have ugly consequences for IR professionals working for companies / entities under SEC regulatory purview.”
In her article titled Regulation FD: A Refresher on the SEC Rules Governing Selective Disclosure on the Vorys law firm’s website, Partner Elizabeth Turrell Farrar discussed the requirements, key concepts and penalties of the fair disclosure regulation adopted by the SEC in mid-2000. West remarked the article was “a thoughtful summary” that the SEC sought to reinforce protection for investors after the Enron and WorldCom scandals.
So how do IR professionals in non-public companies view ethical dilemmas?