San Jose Mercury News hi-tech business reporter Chris Nolan has long been both feared and revered in Silicon Valley, where her thrice-weekly ’Talk is Cheap’ column was a must-read for industry insiders.
San Jose Mercury News hi-tech business reporter Chris Nolan has
long been both feared and revered in Silicon Valley, where her
thrice-weekly ’Talk is Cheap’ column was a must-read for industry
So when news hit the street (and the press) a few weeks ago that this
influential scribe had been suspended by the Merc for selling
AutoWeb.com stock accepted from the CEO in a special ’friends and
family’ pre-IPO offering, more than a few PR folks were set abuzz.
While the local and national media have spun the Nolan suspension into a
question of journalistic ethics, i.e., whether or not reporters should
be prohibited from buying or trading stock in companies they cover, PR
pros are looking a little closer to home. Much like the media outlets
that they regularly pitch, PR firms in Silicon Valley and beyond are
scrambling to define - and clearly communicate to employees - their own
policies regarding ownership of client stocks.
While most of the major agencies have long had explicit policies on
trading client stock, the issue of ’family-and-friends’ offerings has
clouded the situation. Whereas nearly all firms clearly prohibit
ownership of client stock, is it okay to simply take the initial
offering or purchase discounted pre-IPO, and then trade out shortly
afterward? According to the latest National Investor Relations Institute
(NIRI) guidelines, it is not illegal to do so, as long as the agency or
individual is not compensated with stock in lieu of cash. And for
agencies that specialize in launching start-ups, many argue that the
ability to participate in such pre-IPO deals can be a motivating
That’s the thinking behind the policy at San Francisco-based Access
Communica-tions, a Shandwick subsidiary. According to president/CEO
Susan Butenhoff, the policy at Access regarding ’friends-and-family’
stock is that employees are ’able, but not forced’ to participate in the
opportunity to purchase the preferred stock.
’You do become part of the team at a start-up, and to take stock in the
company is a vote of confidence in its chances of success,’ Butenhoff
explains. ’To have a policy preventing that would not be a good thing
for our clients, from a psychological standpoint.’
But she admits, ’it can be a risk, too. And lots of times,’ Butenhoff
points out, ’junior staff don’t even have the cash to take part in these
Access requires those employees who do choose to purchase stock to
attend a detailed training session on insider trading and the legalities
And, Butenhoff says, ’our preference is that they trade out of the stock
as soon as possible, within 30 days.’ Trading existing clients’ stock on
the open market is strictly forbidden, she explains.
A&R Partners president Bob Angus agrees with Butenhoff. In fact, Angus
believes the whole Nolan fiasco has been ’blown way out of
’We’re offered these deals a lot, and we take advantage of them. As long
as (the stock) is available on the open market and you’re buying it at
the opening price, I don’t see it as an issue at all,’ Angus says. ’We
think it’s a motivating force for our employees; it helps them get
excited about what they are working on.’
But other agencies with client stables full of dot-coms don’t follow
this lead. At the Weber Group, ’Individual employees are not allowed to
take the holdings,’ says San Francisco GM/VP Lee McEnany Caraher.
Carraher concedes that her firm’s policy is a handicap to recruiting the
Valley’s best and brightest: ’It means that agencies here are not as
potentially lucrative as client companies offering stock options.’
Of course, IR firms have had to deal with these issues for years, and
most steer clear of anything that could be construed as questionable.
According to Financial Relations Board chair Ted Pincus, the issue is
black and white: ’Since we were the first in this industry more than 38
years ago, our policy has been set for a long time. No employees or any
members of their families can own any client stocks. And we cannot take
stock in lieu of payment or accept friend and family offerings.’
Through the layers
Another issue complicating the matter is how such agency-wide policies
are communicated down all the layers - and to the newly acquired shops
which may have been doing things differently. For example, Hill &
Knowlton/San Francisco senior VP Rick Rice can definitively state
corporate policy: ’If we represent a client, employees are not allowed
to own the stock.
And if the agency handles a company and you don’t work on it, you still
have to report it to management.’ However, does every employee, from the
greenest account staffer at recently annexed Blanc & Otus know all the
rules, too? Do the fresh-faced AEs in the Mountain View office know they
can’t cash in on the hot e-commerce accounts they are helping
The same situation could be asked of BSMG and The Benjamin Group or
Fleishman-Hillard and Upstart Communications.
On a final, potentially frustrating note, do those firms who prohibit
friends and family deals also frown upon buying stock in a client’s
competitor? To do so would seem like a major conflict of interest were
it disclosed to a client. Like the journalists who have to watch the
dot-com millionaires march through their copy everyday, PR pros with
start-ups on the roster can end up painfully prevented from
participating in the IPO gold rush.
And, as Caraher points out, that’s a bad thing for agencies at a time
when the talent crunch is at an all-time high.