SEC Ruling Prohibits IR, PR Pay in Stocks and Shares
By Kelly Holman
Washington, DC
frbinc.com
PR Week
March 15, 1999
SEC Ruling Prohibits IR, PR Pay in Stocks and Shares
By Kelly Holman
Washington, DC
Investor relations pros have applauded a new ruling from the Securities and Exchange Commission, preventing companies from paying their IR and PR agencies in stocks and shares.
"It's the best thing that could have happened to our industry," said Ted Pincus, chairman of the Financial Relations Board, praising the ruling.
The SEC has amended the use of Form S-8 - used by companies to distribute securities as compensation to employees - to deter potential securities abuses among company consultants receiving stocks in lieu of cash for representation.
Pincus said the ruling creates a more level playing field in the IR business by requiring companies to pay consultants in cash rather than in equity. The FRB, the biggest IR agency in the US, has a policy that its employees or their immediate families cannot hold securities in any of the firm's clients.
Joe Mansi, managing partner of New York-based KCSA Worldwide's IR practice, agrees with the SEC ruling. "This is the way it should be. We should not be in bed with a client's stock."
Mary Dunbar, senior VP of Cleveland PR firm Dix & Eaton's financial communications practice, also lauded the new S-8 amendments. "It's the wrong incentive for an IR firm to accept stock," she said.
National Investor Relations Institute's Standards of Practice Guidelines advise against consultants receiving compensation in the form of securities in a client company because of potential conflicts of interest.
However, wording in the SEC ruling concerned NIRI president and CEO Louis Thompson Jr.
A section of the ruling says, "consultants who provide IR or shareholder communications services will be excluded from using S-8 because of the promotional nature of their services." Thompson fired off a letter to SEC chairman Arthur Levitt in early March objecting to the language: "There is no room for stock 'promotion' as part of investor relations activities."
NIRI's Standards and Practice guidelines define IR as a strategic corporate marketing activity, combining the disciplines of communication and finance, that provides present and potential investors with an accurate portrayal of a company's performance and prospects.
Thompson was upset that SEC officials associated IR with stock promotion. "IR pros can talk about your company, the facts and its prospects, but touting is not part of our business," he said.
An SEC official admitted that the SEC amendments are murky when it comes to financial relations professionals: "I don't think we are answering all possible questions, but we are trying to provide a first step toward guidance."
Used with permission of PR Week.
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