Last week, The New York Times reported that Reuters Breakingviews, a supplier of syndicated opinion columns to various newspapers including this paper, disclosed that some of its journalists had written about some companies, without disclosing their interest in securities issued by these companies. In some cases, the journalists had traded in the securities before or after their reports.
Reuters is reported to have identified 21 articles in which the company determined that the writer’s financial interest was significant enough to warrant a disclosure, or around which the writer had a “questionable trade” before or after publication. Reuters is said to have a code of conduct that forbids journalists from writing about companies whose shares they own without making disclosures to management, and from dealing in securities about which they have written recently or about which they intend to write. Disclosures to readers of the columns about the interest is apparently not mandatory yet under the code of conduct, but media reports say the company is reviewing its policy in this regard.
The development is very interesting for India – in August, the Securities and Exchange Board of India (SEBI) issued a directive that editorial content should contain a disclosure of the financial interest held by the company owning the medium that publishes the editorial content. The intervention from the regulator was focused more on financial investments by media-owning entities in companies whose securities were listed or are proposed to be listed, rather than on journalists who write the editorial content.
“Needless to say, biased and motivated dissemination of information, guided by commercial considerations can potentially mislead investors in the securities market. Such journalism would not be in the interest of securities market,” a press release from SEBI said. SEBI reasoned that there were “prescribed norms of journalistic conduct that require journalists to disclose any interest that they may have in the company about which they are reporting.”
Arguing that “there are no equivalent requirements in the case of media companies holding a stake in the company which is being reported / covered,” SEBI enclosed a press release of the Press Council of India, which “accepted” SEBI’s “suggestions” on disclosure of such interests. The press release from the Press Council of India issued in early August was not well disseminated, and SEBI re-issued the press release under its own press release. The press release of the Press Council of India, a toothless body, thanks to the statute constituting it, giving it no powers to enforce its decisions had simply said the SEBI’s “suggestions may be kept in mind by the media.”
SEBI, despite having been very assertive of its expansive jurisdiction, stopped short of issuing a general order under Section 11B of the SEBI Act, 1992, a provision that gives it wide-ranging powers to issue directions in the interests of the securities market. SEBI issued a “press release” invoking, however, the principle of “interests of the securities market”. The true legal test would emerge if media companies were to defy SEBI’s “suggestions”, and SEBI were to then issue a specific order under Section 11B of the SEBI Act in the facts of a specific case.
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Internationally, media carrying financial information are exposed to the risk of effective litigation for damages for commission of “tort” – a wrong that causes injury. Common law jurisdictions where a court is able to award damages for tort within a reasonable period of time, tend to have a high standard of self-regulation, where disclosure is the key – coffee vendors notify you that the hot contents of your cup can scald you, gun-makers warn you that guns can kill, and securities analyses notify you that they could hurt you financially.
Where the civil court system fails to deliver justice within a reasonable timeframe, regulators like SEBI step in, in an interventionist do-gooder role. Of course, SEBI cannot adjudicate a civil suit for damages and award compensation, but it issue directions that can hurt reputation and finances. In such circumstances, judges, themselves frustrated with the court ecosystem, tend to see greater equity in supporting the do-gooder regulators, rather than sparse abstruse legal and constitutional principles and be seen as notorious hyper-technical supporters of the “bad guys”. Judicial attitude leans in favour of being more deferential and protective of the law made by the executive bureaucracy, as compared with a greater vigil courts maintain in protecting the citizens from law made by politicians in legislative bodies.
SEBI has assumed that a “journalistic code” effectively covers requirement of journalists to disclose their interests. It has focused on the employers of journalists, who invariably have to rely in some form or another, on the financial ecosystem, a large part of which, SEBI regulates. This is wide fishing net, which, in the absence of high-standard self-regulation, would enable the regulator to step in and assert its role as protector and do-gooder. SEBI’s regulations on prohibition of fraudulent and unfair trade practices already represent a serious codified measure that can be pressed into service in taking punitive action. Against this backdrop, ignoring effective and real self-regulation can be perilous. Indian media would do well to emulate Reuters Breakingviews.
(The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own.)
Email: somasekhar@jsalaw.com