IR groups propose rules for analysts, firms

VIENNA, VA: Two professional associations, one for IR practitioners and the other for securities analysts, have proposed ethical guidelines governing the relationship between public companies and the analysts who track them.

VIENNA, VA: Two professional associations, one for IR practitioners and the other for securities analysts, have proposed ethical guidelines governing the relationship between public companies and the analysts who track them.

The National Investor Relations Institute (NIRI) and the Association for Investment Management and Research (AIMR) said they hope that the voluntary standards foster objective analysis and stave off situations in which analyst reports are biased in an effort to make firms happy or as part of an effort to gain access to senior company officials.

Lou Thompson, the president and CEO of NIRI, said the two issues that drove the groups to do this were the growth of "issuer-paid" or company financed research and access to management by analysts.

"Our position is that at a minimum, everyone should have access to the IR officer," Thompson said. "They can decide from there who gets to see the CEO and CFO, but it ought to be fair."

Under the five standards in the proposed Best Practices for Governing the Analyst/ Corporate Issuer Relationship, analysts are required to issue objective research and recommendations supported by thorough research and to distinguish between fact and opinion. They must not threaten to use their reports or recommendations as part of an effort to improve their relationship with companies.

Before publishing their reports, analysts might request that firms review for factual accuracy only those parts that don't contain conclusions, recommendations, valuations, or price targets. When doing research paid for by the firm, analysts should accept only cash compensation (not stock) and must disclose the nature and extent of the compensation.

Companies are called on to refrain from discriminating against analysts based on prior research, opinions, recommendations, earnings estimates, or conclusions. They also should not attempt to influence research by exerting pressure through other business relationships. Companies should establish policies on how they will respond to requests for access.

When funding research, companies should hire only qualified analysts and not attempt to influence the report.

The rules would not be binding, of course. "We're trying to stake out what the best practices are and hope by delineating that and raising the bar a bit, it will improve communications between companies and analysts," Thompson said.

A comment period will end May 31, and final approval of the rules is expected this summer. The guidelines are located at www.aimr.org/standards.

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