CHARLOTTESVILLE, VA—The Association for Investment Management & Research and the National Investor Relations Institute have forged proposed ethical guidelines governing the relationship between publicly traded companies and the securities analysts who cover them. The two groups agree in their 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 companies must not discriminate among the analysts who cover them based on the analysts’ research or recommendations, past or present. They also should never deny analysts either information or access to company representatives in an attempt to influence their research. Nor should companies exert pressure on analysts through other business relationships, such as investment banking.
AIMR and NIRI developed the guidelines through a Joint Task Force on Corporate Issuer and Analyst Relations, with participants from Europe, Canada and the United States, formed in June 2003. Task force members include analysts and investor relations professionals, with people from standard-setting and regulatory organizations sitting in as observers.
According to Thomas Bowman, president and CEO of AIMR, “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.
“At the same time, 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, concluding 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 the nature and extent of the compensation they received for their work.