Much of the movement in the U.S. securities exchange comes from the subtleties of communication.  Many laws have been passed in the past century to protect the common investor from the potentially duplicitous messages of companies and their public relations specialists.  The primary legislation governing investor communications are the Securities Act of 1933, and the Securities and Exchange Act of 1934.  Both focus upon disclosure, requiring filings of financial information and candid press releases without misleading investors.

Securities fraud is a constant factor in the U.S. business world.  Recently, there has been the barrage of accounting scandals from once respected companies like Enron and WorldCom, as well as the recent headlines focusing upon the conviction of celebrity Martha Stewart in her fraudulent activities with ImClone.

It is important that a public relations practitioner balance both their obligations to their employer and to their publics.  As the “voice” of a company, practitioners hold great control over corporate communications, but may also hold liability for misleading company investors 

Literature on the Issue:        

With “In the Stocks: Perilous Press Releases,” Morton and Loving examine the ethical and legal considerations practitioners must face when informing investors.  Focus is made upon the critical court cases regarding liability for press releases, such as the Texas Gulf Sulphur case, in which a mining corporation downplayed rumors of recent valuable finds in their press release, resulting in lawsuits from investors who sold their shares at the seemingly poor news.  These critical cases form a legal picture that demands truth and candor in corporate communications.

 Even if not responsible for the stances of their employer, internal and external public relations specialists can be legally liable for misleading investors.  While there is strict criteria on what constitutes a fraudulent release, practitioners should follow the legal precept of “tell the truth, the whole truth, and nothing but the truth” while disseminating information or risk litigation.  (Morton, Loving 136)  They cannot rely on the defense that they were just “doing their job.”  (Morton, Loving 138)

Expanding upon the legal and ethical principles in Morton and Loving’s article, Schick’s “Truth, Accuracy (and Withholding Information)” examines the ramifications of practitioners leaving out material information to mislead publics.  He uses the situation of a public relations director for a popular park. The main attraction of the park (a train) is under construction for the season.  Schick poses the question: Would leaving out the fact that the main attraction is out of order in the seasonal press release violate professional standards? (Schick 7)

 Even if the withheld facts are available at a later time, the action can disrupt the channels of public communication.  Indeed, corporations that give misleading information to investors are still liable up to the point that they publicly change or add to their initial release.  A practitioner not following a system of full disclosure destroys a public’s expectation of “the whole truth,” and can be subjected to ethical and legal censure, especially when matters of finance and fraud are involved. (Schick 10)

A more technical direction to the crafting of effective, open communications is found in Howard’s “Preparing Annual Reports in the 1990s.”  In an age where dishonesty can be easily disguised behind flashy reports, Howard states that practitioners must not only take caution to follow SEC guidelines, but also research the needs of their investors.  Reports can be crafted to clarify the body of investor concerns, and resolve any conflicts between managerial (internal) and investor (external) impressions of the company. (Howard 26) 

While it is important for a report to reflect a company’s corporate culture, Howard stresses that it must also be crafted to follow ethical and legal guidelines in reflecting corporate reality.  A practitioner must have full knowledge of the managers and activities of his company.  Practitioners cannot simply glorify corporate vision.  They must report their findings in accordance with professional ethics and, as always, disclosure law. (Howard 27)

Analysis of the Issue:

            In this age of insider trading, “cooked books,” and Martha Stewart, I find the power that corporate public relations specialists hold over the economy to be frightening.  With a glossy but inaccurate financial report, or a press release slanted even slightly toward a company’s favor, it has become possible to completely destroy the financial future of millions of individual investors.  As more investors are harmed by public relations practitioners skirting the line of puffery and withholding facts versus fraud, there becomes the chance that our corporate system will be one based not upon growth and prosperity, but rather bitterness and mistrust.  There is part of myself that sees the current economy in such a state now.

            There are always incidents in which the faith in public relations comes into question, such as former PRSA President Anthony Franco’s arrest for insider trading, and the scandals mentioned above.  However, it brings hope to me, and surely other investors, to read articles by practitioners emphasizing the law and ethics of corporate communication to their colleagues.

References:

Morton, Linda P. and Bill Loving. “In the Stocks: Perilous Press Releases.” Public Relations   

     Review 20.2 (1994): 127-139.

Schick, Thomas A. “Truth, Accuracy (and Withholding Information).” Public Relations

     Quarterly 39.4 (1994): 7-10.

Howard, Elizabeth. “Preparing Annual Reports in the 1990s.” Public Relations Journal 49.5  

     (1991): 26-27