Regulation hangs in the air over much of the PR industry at the moment. Public affairs (PA) agencies are dealing with pressure from Parliament to sign up to a controversial code of practice, while agencies from all sectors are absorbing the implications of the first legal ruling on Transfer of Undertakings (Protection of Employment) (see ViewPoint).
Last week news emerged that financial agencies could shortly be subject to the same pressures as their PA colleagues. The Financial Services Authority (FSA), fresh from a review of the controls relating to public takeovers, is recommending that City shops sign up to a code of conduct aimed at reducing the kinds of leaks that move share prices ahead of public knowledge of deals. Controversially, it has brought in the London Investment Banking Association (LIBA) to construct this new code, bypassing the PRCA.
The financial PR fraternity protests innocence on behalf of its staff, but the investigation – which took in seven un-named PR agencies as well as law firms, corporate finance advisors and financial printers – revealed agencies could be leakier than they realise.
Awareness of obligations
The agencies questioned by PRWeek all said they did not allow leaks, but at the same time suggested they are aware of other agencies that, as one agency head put it, are ‘not up to scratch’.
Such comments reflect inevitable industry back-stabbing, but they highlight the same problems as the FSA’s review. A code of conduct will help keep standards high across the industry. And, as such, the PRCA said it broadly supports the notion.
‘The (PR) industry is aware of its obligations,’ says a financial sector staffer close to the review. ‘But there is a lack of awareness surrounding the control of information. It was actually eye-opening how much can slip through the net.’
This is not, then, an accusation of malevolence, but a fear that the unregulated PR industry – its involvement in deals is not regulated by the FSA – needs to clean up its act.
‘Given the observed price volatility on deals it seems reasonable to conclude that parties were perhaps too complacent that their own internal procedures were already robust,’ the review says.
The FSA’s review had wide-ranging conclusions (see below), but the authority is focusing on three areas where it wants PR agencies to tighten up: IT, personal share-dealing and account training.
FD chairman Charles Watson believes all agencies will need to review their IT systems, an approach the FSA supports. The review discovered an almost complete lack of awareness of how information could leak through IT systems. Not simply through firewalls and powerful filters, but through teaching every employee why a decent password on your computer is just as important as thousands of pounds worth of hardware and software.
A PRWeek straw poll of around 20 agencies of all sizes revealed that only two had ever, as the review suggests, employed ‘ethical hackers’ to test the robustness of their IT systems.
The review also suggested complete criminal record and credit checks for all staff members – again very few had taken the time to do so. Some scoffed at the idea and suggested it was ‘hardly necessary’, illustrating the scale of the task the FSA faces in getting agencies to buy into its recommendations.
On the personal share-dealing side – the conflict of interest resultant in dealing in shares of your agency’s clients – most agencies do have a blanket ban.
‘We banned that from day one, 20 years ago,’ says College Hill founder Alex Sandberg.
But although all the agency heads to whom PRWeek spoke suggested they have controls in this area, the FSA is concerned enough to make it high priority. It feels internal policy is being flouted in some cases. Personal dealing is particularly difficult to monitor in agencies that are attached to larger networks or part of large groups.
To make the code work, however, training is key, and a structured training regime is something all but the very largest or most well organised financial PR agencies lack. Already the FSA is in talks with the CIPR and PRCA about financial PR training courses. Last year a well-attended PRCA seminar suggested there is an appetite for the tools that could improve both individual and agency-wide competence.
The code will address all three of these areas, as well as general dealings with journalists. LIBA has already started correspondence with the PRCA and CIPR on the matter.
Some agency chiefs are annoyed – both at the plans themselves and the fact a banking trade body has been put in charge of regulating their activities.
‘It’s all very well creating a code of ethics for PR firms, but the majority of leaks come from the bankers themselves,’ accuses one agency chief – a view supported by many (see Anthony Hilton). ‘There’s a certain unwelcome irony that it is LIBA putting the code together.’
An FSA spokesman confirmed a code was likely to be finalised by the end of the year. Agencies will probably have to adhere to the code if they want to be considered viable in the future – the FSA will champion it, which should be cause enough for it to become an industry standard.
When the code arrives it is likely to change the way financial PR agencies operate in fundamental ways, from giving information to journalists, to the preponderance of ‘off the record’ briefings. As suggested last week (PRWeek, 6 July), it could even result in agencies having compliance departments as a matter of course, which would create a heavy burden for small agencies.
It is true that financial PR agencies are not responsible for the vast majority of leaks, but they could be responsible for some – and for that alone a robust code will be a welcome step.
Plugging the leaks
The main areas for improvement, according to the FSA review:
01. Complacency: all firms felt they were not responsible for leaks, but they have to come from somewhere*
02. Internal review procedures in the event of a leak
03. The number of insiders close to deals
04. Information technology controls*
05. Training on avoiding market abuse and insider dealing*
06. Third-party relationships/correspondence
07. Personal share-dealing*
08. Use of code words that give away the identity of bid targets and acquisitors
*Areas particularly relevant to PR, according to the FSA