JOIN USThe market regulator–Securities and Exchange Board of India (Sebi)–has just mandated, through a press statement, that print and electronic media entities will have to disclose their interest in the company in question.
The Sebi statement on Friday came in the backdrop of a well-known trend in recent years that has tended to blur the distinction between editorial and advertisement content.
Some media houses (not Deccan Herald) in the country in both print and electronic segments have picked up significant financial stakes in a large number of companies which are listed in the stock market or are in the process of making public issue of shares.
The purpose of such deals, known as “Private Treaties,” has been a mutually beneficial business proposition: promote partner companies by giving positive media coverage (articles, pictures, news coverage and interviews, etc.), enhance their market value and in the process, also boost the valuation of own stake in the company. The other side of the deal is the assured advertisement revenue from such “client” companies who also get advertisement spaces at discounted rates.
But Sebi now wants such private deals made public so that the unsuspecting readers and viewers are better informed.
The market regulator has now mandated that all media reports must disclose the media house’s interest in their Private Treaty companies in the news report whenever it appears and also give a complete list of stake holding in the private treaty companies on the media house’s website.
Sebi in its release said: “Sebi had taken up with Press Council of India its concerns on practice of many media groups entering into agreements, such as ‘Private Treaties’, with companies. Typically, such arrangements are with companies which are listed or which proposes to come out with public offerings. These, in general, entail a company giving stake in it (shares, warrants, bonds etc.) in return for media coverage through advertisements, news reports, advertorials etc. in the print or electronic media.”
Though these are financial arrangements between two parties, Sebi has concluded that such acts can lead to misinformation to the gullible investors who are not a party to it. “It was felt that such agreements (treaties) may give rise to conflict of interest and may, therefore, result in dilution of the independence of press. Such biased and motivated dissemination of information, guided by commercial considerations can potentially mislead investors in the securities market,” Sebi stated.
One of the English dailies in the country, for example, on its website on Private Treaties has boasted that it currently has 134 companies under 19 industry groups as its treaty partner.
Sebi felt that such brand building strategies of media groups, without appropriate and adequate disclosures may not be in the interest of investors and financial markets. It said that though there are prescribed norms of Journalistic Conduct that require journalists to disclose any interest that they may have in the company about which they are reporting, there are no equivalent requirements in the case of media companies holding a stake in the company which is being reported.
The market regulator, in fact, has been preparing to stop the unethical exercise for quite some time. Early this year it approached the Press Council of India to agree on a set of guidelines. The PCI subsequently informed Sebi that in its meeting held on February 22, 2010, at New Delhi, it has accepted the following Sebi’s suggestions and mandated the following:
1. Disclosures regarding stake held by the media company should be made in the news report/ article/ editorial in newspapers/television relating to the company in which the media group holds such stake.
2. Disclosure on percentage of stake held by media groups in various companies under such ‘Private Treaties’ on the website of media groups should be made.
3. Any other disclosures relating to such agreements such as any nominee of the media group on the Board of Directors of the company, any management control or other details which may be a potential conflict of interest for media group, must also be disclosed.
DH News Service
Why the move
* Private treaties might give rise to conflict of interest
* Could dilute independence of press
* News content could be compromised
* News guided by commercial considerations misleads investors