Platform: The cracks are starting to show in Chinese walls - Agencies hoping to use Chinese walls will have to pass stringent examination to prove their confidentiality, says Stephen Lock

On 12 January, the House of Lords rewrote English law relating to conflicts of interest and ’Chinese walls’. While law firms, accountants and management consultancies react to the judgement, the PR industry has remained silent.

On 12 January, the House of Lords rewrote English law relating to

conflicts of interest and ’Chinese walls’. While law firms, accountants

and management consultancies react to the judgement, the PR industry has

remained silent.



PR consultancies tend to think conflict of interest starts and finishes

with the question: ’can we work for client X and, in the process, still

work with/pitch for client Y.’ Actually, this is just the flotsam

surrounding the ’conflicts’ issue.



PR consultancies - especially those in financial PR - often talk airily

about using Chinese walls, when at best they are really talking about

separate teams working on different accounts. In truth, many PR firms’

walls are a little shabby: lots of creepers tumbling over the side. The

House of Lords has now thrown into doubt the whole nature of Chinese

walls and questions whether most have any meaning at all.



The case that caused this furore was Prince Jefri of Brunei versus

KPMG.



In early 1998, the Manoukian family sued Prince Jefri of Brunei.

Subsequently, the Sultan of Brunei asked KPMG to mount an investigation

into his brother, Jefri’s, financial affairs. Prince Jefri sought to

prevent KPMG from doing this, as they had already acted as his adviser,

and applied for an injunction from the courts. The House of Lords

rejected KPMG’s argument that they had erected Chinese walls to prevent

a conflict.



The result had a sobering impact on accountants and lawyers around the

country. And it is becoming increasingly clear that this judgement

affects all professionals and also applies to anyone you once worked

for, rather than anyone you do work for.



Lord Millett, in his judgement, said Chinese walls in this case ’were

established ad hoc and erected within a single department ... an

effective Chinese wall needs to be an established as part of the

organisational structure of a firm’. Thus did the House of Lords rule

that separating clients between distinct teams, as a way of avoiding

conflicts, was not enough to form a Chinese wall. In doing so, it

probably demolishes most PR consultancies’ definition of a Chinese wall

in practice.



Now, without giving legal opinion (see your own lawyer), PR

consultancies who want effective Chinese walls should consider several

actions.



First, write it down. It was clearly important to the court that a firm

had a written formal policy about conflicts of interest and acted in

accordance with it. Then, carefully select staff on projects to ensure

that, in working on one mandate, they are not conflicted by

confidentiality obligations to past, as well as current, clients.



It is unclear just how ’physical’ a wall needs to be. Clearly sharing

the same floor of an office is likely to undermine any claim that a wall

is in place. It was interesting that the House of Lords considered it

likely that people talked to each other about work where physically able

to do so, even if in separate departments.



Unfortunately, within most PR firms, even with formally segregated

departments, it is nearly impossible to create impregnable IT walls. Can

staff from one side of the ’wall’ access computer files on the other

side? Even passwording documents is not enough and proper IT ’fire

walls’ are necessary.



Several City law and accountancy firms have concluded, in the face of

this judgement, that the best Chinese wall is no wall at all.

Accordingly, they have greatly tightened up their definition of what

constitutes a conflict.



What does seem clear, however, is that when consultancies say to clients

’we have a Chinese wall here’, they had better be prepared to prove

it.



Stephen Lock is managing director of Ludgate Public Affairs.



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