Invitation to Comment
Charlottesville, VA, March 11, 2004 - - The global Association for Investment Management and Research and the National Investor Relations Institute have jointly forged proposed ethical guidelines governing the relationship between corporate issuers and the securities analysts who cover them.
The two professional associations, which represent both sides of an important communication channel between public companies and investors, agree in their proposed best-practice guidelines that analysts must remain objective, conduct thorough and diligent research, and never bias their research reports in an effort to make companies happy or to receive better information or access.
At the same time, they also agree that corporate issuers must not discriminate among the analysts who cover them based on the analysts’ research or recommendations, past or present. They also should never deny to analysts either information or access to company representatives in an attempt to influence their research. Nor should issuers exert pressure on analysts through other business relationships, such as investment banking.
AIMR and NIRI developed the best-practice guidelines through a Joint Task Force on Corporate Issuer and Analyst Relations, with participants from Europe, Canada and the United States, that began work in June 2003. Task force members include analysts and investor relations professionals, with people from standard-setting and regulatory organizations sitting in as observers. The guidelines have now been released for an international public comment period, ending May 31, before they are finalized later this year. The complete guidelines and accompanying explanation may be viewed at www.aimr.org/standards.
Samuel Jones, CFA, who served as co-chair of the AIMR-NIRI Joint Task Force, said, “Our guiding principles for developing these standards were based on the view of both AIMR and NIRI that information is the lifeblood of efficient, effective and fair capital markets. Investors need transparent information that is fairly and consistently disclosed if they are to make good investment decisions and allocate their capital appropriately.”
(Jones is senior vice president and chief investment officer at Trillium Asset Management in Boston.)
Thomas A. Bowman, CFA, president and CEO of AIMR, commented, “Investors’ interests must be front and center in all matters guiding the relationship between public company executives and research analysts. Both exist to serve the best interest of investors, although in different roles and from different perspectives. So it is important that corporate issuers respect an analyst’s duty to ask hard questions, point out potential risks to investors, and make fair, unbiased assessments based on facts and their own forecasts.
“But at the same time,” Bowman said, “analysts have a responsibility to be skilled and competent in conducting their research – to differentiate between fact and opinion, and to be fair and impartial in their analysis of companies. Analysts must not let outside pressures threaten their impartiality and influence their research conclusions or recommendations.”
The joint guidelines also address the ethical issues inherent in issuer-paid research, stating that such research may be appropriate when companies engage qualified analysts who are committed to producing objective and thorough research, and when analysts fully disclose in the research report the nature and extent of the compensation they received for their work, among other things.
Overview of Best Practices for Governing the Analyst/Corporate Issuer Relationship:
Standard I: Information Flow
Analysts, Investors, and Corporate Issuers must not disrupt or threaten to disrupt the free flow of information between corporations, investors, and analysts in an attempt to inappropriately influence the behavior of those with whom they are communicating.
Standard II: Analyst Conduct
A. Analysts must issue objective research and recommendations that have a reasonable and adequate basis supported by thorough, diligent, and appropriate research and investigation.
B. Analysts must distinguish between fact and opinion and must ensure that the information contained in their reports is clear and complete.
C. Analysts must not bias or threaten to use their research reports or recommendations in an effort to improve their relationship with Corporate Issuers.
Standard III: Corporate Communication and Access
A. Corporate Issuers must not:
1. discriminate among recipients of information disclosed by the issuer based on the recipient’s prior research, opinions, recommendations, earnings estimates, or conclusions;
2. deny or threaten to deny information or access to company representatives in an attempt to influence the research, recommendations, or actions of analysts and investment professionals; or
3. attempt to influence the research, recommendations, or actions of analysts or investment professionals by exerting pressure through other business relationships.
B. Corporate Issuers must provide access to corporate management, officers, or knowledgeable company officials to qualified persons or entities, including analysts and investors. Corporate Issuers must establish and adhere to policies that set forth how the company will respond to requests for access and under what circumstances and to whom companies will grant access to corporate management and officers. These policies should be disclosed to analysts and investors upon request.
The policies should address:
1. How the company defines access,
2. How the company prioritizes requests for access or information,
3. How the company will respond to each request, and,
4. Under what circumstances and to whom different types or levels of access will be granted.
Standard IV: Reviewing Analyst Reports and/or Models
A. Prior to publication of their reports, Analysts may request that Corporate Issuers review for factual accuracy only those portions of an Analyst’s research report that do not contain or disclose conclusions, recommendations, valuations, or price targets.
B. Corporate Issuers may review for factual accuracy only those portions of an Analyst’s research report that do not contain or disclose the conclusions, recommendations, valuations, or price targets, prior to publication and with the permission of the Analyst. Corporate Issuers must not explicitly or implicitly request information that would disclose the conclusions, recommendations, valuations, or price targets, or comment on these matters. A Corporate Issuer is only permitted to comment on historical or forward-looking information that is in the public domain.
Standard V: Issuer Paid Research Reports
A. When engaging in research paid for by the Corporate Issuer, Analysts must:
1. Only accept cash compensation for their work and must not accept any compensation contingent on the content or conclusions of the research or the resulting impact on share price.
2. Disclose in the report:
· The nature and extent of the compensation received for drafting the report.
· The nature and extent of any personal, professional, or financial relationship they, their firm or its parent, subsidiaries, agents, or trading entities may have with the subject-company, its personnel, parent, subsidiaries, or agents.
· Their credentials, including professional designations and experience that qualifies them to produce the report.
· Any matters which could reasonably be expected to impair their objectivity in drafting the report.
3. Certify that the analysis or recommendations, if any, contained in the report represent the true opinion of the author or authors.
B. When hiring Analysts to produce research for their company, Corporate Issuers must:
1. Engage qualified Analysts who are committed to producing objective and thorough research that fully discloses any matters which could reasonably be expected to impair their objectivity.
2. Pay for the research in cash and only in a manner that does not influence or seek to influence the content and conclusions of the research.
3. Not attempt explicitly or implicitly to influence the research, recommendations, or behavior of Analysts or otherwise pressure Analysts to produce research or recommendations favorable to the Corporate Issuer.
4. Ensure that the disclosures required of the analyst in Standard IV(A) are included in the research report, that are published or distributed, in whole or in part, by the Corporate Issuer
About AIMR:
AIMR is the global, non-profit professional association that administers the Chartered Financial Analyst® curriculum and examination program worldwide and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. AIMR has almost 70,000 members in 116 countries. Its membership includes the world’s more than 55,000 CFA charterholders, as well as 127 affiliated professional societies and chapters in 46 countries. AIMR is headquartered in Charlottesville, Va., with additional offices in London and Hong Kong. More information may be found at www.aimr.org or by calling 1-800-247-8132 or 1-434-951-5499.
About NIRI:
NIRI is the professional association of corporate officers and investor relations consultants responsible for communications among corporate management, shareholders, security analysts and other financial publics. NIRI's 4,700 members represent over 2,500 publicly held companies in the United States. As its mission states, "NIRI is dedicated to advancing the practice of investor relations and the professional competency and stature of its members."
News 
Market Data 
Discover 
