PR ETHICS: The pre-IPO question: to offer stock or not? ’Friends and family’ pre-IPO offerings have raised serious ethical questions Aimee Grove polls some PR pros to define their company policies.

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 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 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.

Cloudy situation

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.

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