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Defending SEBI on Private Treaty Revelations

Sukumar Ranganathan at the Mint writes – Should private treaties remain private?

By itself, a private treaty isn’t illegal or unethical. It is simply a barter deal where the media company gets a stake or an asset from an advertising client instead of money. In return, the advertiser gets airtime or advertising space. However, as some media firms have discovered, it is possible to talk up the value of this stake or asset using the media at their disposal. In effect, these media firms put out news that isn’t true (or isn’t entirely true) with an eye on their own finances and with little regard to readers and viewers. Some of them may also happen to be current or future investors in the advertiser whose story is being talked up. Things have now reached such a state that most people believe that private treaties, by their very nature, are unethical. In an ideal world, it is quite possible that private treaties won’t exist and media firms may be able to sell airtime or advertising space (and clients, buy air time or advertising space) without resorting to such arrangements. Yet, in the real world, there really are some advertisers who cannot afford to pay in cash for advertising. To be sure, there are also many large and well-heeled advertisers who prefer such deals with media firms. In such cases, media firms should ask themselves what the motives of this advertiser are. Few do this, given the competitive nature of the advertising business.

Again, in an ideal world, the Press Council of India would have addressed the issue. As that organization’s report on paid content (essentially advertising passed off as news), however, shows—the council put out an elaborate and strongly worded first report which identified many of the offenders, suggested remedies, and (this isn’t really relevant but I have to say it) made glowing references to Mint and its zero-tolerance code of conduct for journalists; it then buried this report and put out a smaller, weaker second report—that may be too much to expect. Last month, Sebi stepped in and dealt itself a hand in the private treaty phenomenon—it mandated that media firms that had private treaties with an advertiser would have to disclose this in every article about the advertiser.

Generally, disclosure, especially full disclosure, is a good thing. Every time Mint, published by HT Media, carries a story on Jubilant Organosys Ltd, for instance, it notes the fact that the promoters of the two companies are closely related. Yet, Sebi’s order would require all reporters to be aware of the private treaties their company has entered into and I am sure that this will change their behaviour. Remember, we are not speaking about reporters and editors being forced to say good things about an advertiser because it has a private treaty with their company. In Mint’s case, we are speaking about smart and honest reporters and editors and the effect that the knowledge that the subject of a story has a private treaty with HT Media will have on their behaviour. Knowing my reporters and editors, I can say with some certainty that while they will continue to do hard and critical stories on such companies, they will probably avoid doing objective good-news stories about them out of the fear that such efforts could be seen as plugs by their peers in other media firms.

In effect, the disclosure that Sebi requires will affect their behaviour and influence the news process—exactly the thing the disclosure was supposed to prevent.

(Emphasis mine)

Sukumar talks about the conflict between reporting what is otherwise supposed to be unbiased, with being careful about writing good things about companies the media company has a “treaty” with; writing bad things is okay because that gets perceived as unbiased, but good is looked at with suspicion since there’s now the REVELATION of an equity ownership, and that suspicion is bad because dammit, reporters are honest unless proven guilty.

But that’s not altogether correct. Let me tell you why.

Reporters have conflicts all the time even without such treaties being in place. A reporter writing on the oil and gas industry can’t really diss Reliance – doing so will slowly remove his “sources” within the company or indeed, within the sector. (Reliance in particular has been known to favour journalists that write well about it, from now to way back in the 80s – to the extent that it took a tough Goenka to stand against them, and he wasn’t entirely unbiased in the whole game either.)

This conflict is resolved by doing stupid things like writing in a very abstract or roundabout manner, so much that no one except some insiders or journalists know what is really meant, and they all slap the back of the author congratulating him on his bravery and subtlety, while the rest of us reading the paper wonder if writers get to smoke some really interesting material before they write. Or by simply not writing bad news about these companies, unless it’s already public information.

Regardless of media “treaties”, readers are now aware that they aren’t likely to hear unbiased NEGATIVE news from mainstream journalists – that will probably have to come from either unknown people (think http://www.footnoted.org) or by people who have a vested interest in the negative news. Indeed, the news about Enron was revealed by a short-seller even though the discovery was made by a journalist, and even now, the best negative information about the random US public announcements comes from bloggers and traders.

Now add treaties to this mix. When we’re already suspicious that journos write only positive stuff, will the information that the parent company has a treaty and thus an equity stake make a difference? In a way, it will. When I write about a company I must disclose if I own a stake in it; that will tell you if I have reason to be biased. But you are an intelligent reader, and if I present my case appropriately, you can judge for yourself if I’m being honest or talking my book. If I were to write without the disclosure of my interest, that is simply being dishonest to you, and you would surely think I am dirty if you got to know of this interest later. That is exactly the feeling now – that these treaties have compromised the news, and the only way they can redeem themselves is to reveal, completely, their interest; and let us decide if they’re dirty. If some of us will choose to colour them biased because of their equity holding, so be it.

To truly be unbiased, they should not have private treaties, period. It’s a disgusting form of media ownership in what they write if they purport to be unbiased. A blogger like me never started off saying I will be a reporter, or that I will be unbiased – everything I write is opinion, and by nature that is subjective. Plus, I trade. But mainstream media aims to report in an unbiased manner; that is their stated goal, their own claim. How they can claim that and yet own stakes in companies they report on is simply beyond the realm of imagination; if anything, they must be like Caesar’s wife – do whatever it takes to be beyond suspicion. Or at least, not be obviously biased, as an equity stake will make them appear to be.

One of my senior colleagues tells me that I worry too much and that Sebi’s order is fine even if it changes the behaviour of the reporters because all this will mean is that we don’t do good-news stories on such firms but continue to do bad-news ones.

But doing that wouldn’t be fair, and Mint is a fair paper.

Another of my senior colleagues tells me that Sebi’s order is good because it will eventually discourage media firms from entering into private treaties.

Again, that doesn’t seem to be right because such treaties are a form of commerce and Mint prides itself on being for free markets.

So what should we do?

If Mint is for free markets, then Mint should really not concern itself with the regulation – reveal what they have to, and let us the readers decide if they’re being biased. It’s a test which gives them no benefit of doubt in any argument, if they own an equity stake on one side – but to report without the benefit of doubt simply makes reporting what it should be, an exercise backed with as many facts as possible. There were those days in which using one data point and throwing on a pile of opinion made for a great report – but those days are gone. (and honestly, those were the Goenka-Ambani fight days, and we should be glad they’re gone)

On the other hand, the need for Mint not to get into such private treaties is not an assault on free markets – no, not at all. It’s an indication of a truly free press, a press that stands behind the ideal that it is important, above all, to appear unbiased. Would you believe a positive review about a hotel if you were told that the journalist got to stay there free, and the hotel gave her free food as well? That happens too – and due to the bad taste it leaves, some revered review publications go to extremes to ensure they will never even take a single favour from the hotels they write about. Why wouldn’t a Mint or a Times group take on the same route? Exit the treaties or reveal what they own – that’s really all that’s being asked of them.

But why do I rant against Sukumar’s point of view? There is as much or worse that is already happening in the world of markets – analysts may not own stakes, but get paid by companies (either directly as “consultants” or by sponsored junkets and such). These aren’t required to be revealed – and SEBI should have done that as well. Analysts aren’t required to state if their families (spouse, children, parents) own a stake in the companies they write about – and more importantly, if that stake went up or down in (say) the past month before the report. Routinely people say “it is safe to assume we have an interest in this stock” as a disclaimer – that is not enough, they should reveal if they’re long or short. SEBI needs to not just act on these issues, they need to reveal what will happen to violators – even with the current SEBI media order, I don’t see what will happen if a publication conveniently forgets to mention its ownership.

Having said all this, let me state that I find Mint the most refreshingly honest of all the reporting channels out there. If they were to tell me they owned a stake in a massive number of companies, it wouldn’t change my opinion of the writers I love to read, who I think will go beyond the petty issues of who’s a Bhartia-best-friend. Even though the grapevine suggests that they ended up having to let go of a very senior journalist because he got on the wrong side of a certain ex-finance minister; even if that’s true, I blame the abuse of power by the minister. For someone from Mint to raise questions about this SEBI rule is borderline justifiable because they appear better than the rest – but in the same vein, I would say that if there’s nothing to hide, there’s no need to fear. Go ahead, tell us what you own about what you write.

  • MPK says:

    >There is also one more amusing aspect to it. Hindustan Times is famously biased both commercially and politically on wherever the Birla interest swings. Now the only reason Mint can have these rules of fair reporting is because it is a start-up and a distant second or third to Economic Times. It has the freedom of a start up and a damn good founding editor Raju Narisetti who established the culture but who packed up his bags and left once the proprietors started to nose around. It is in Sukumar's interest that Mint not make a lot of money by private treaties. Because once it does so, you will have to throw all those manuals of free and fair reporting into the Shobhana Bhartia dustbin. So what should he do? Instead of making the proprietor happy by writing a rather ridiculous argument against full disclosure, pray that SEBI's full disclosure is a first step to stop this practise

  • Anonymous says:

    >Agree with you Deepak. Most of the mainstream media (including Mint) don't generally write negative stories or ask tough questions in their interview with corporate honchos. Let me give an example. I have seen so many detailed interviews carried by Media (again, including Mint) of Deepak Parekh and Keki Mistry of HDFC. But, i have never seen these gentlemen EVER getting queried on how their floating rate loans never really float in the downward direction. Food for thought for Sukumar Ranganathan?

  • Work Ant says:

    >Deepak

    This is exactly the same feedback that stuck me when I read this. Just was thinking about sending a cold email to Sukumar as feedback. Good to see you pick it up. Just to add my 2 paise worth:

    Point #1 : Disclosure affects reporting coverage and reporters will avoid writing good things about cos bound by private treaties.
    Response : If the reporters are good and have done due diligence, they would not hesitate to write their reports. The folks who might avoid are the ones who are lazy to not do their own diligence.

    Point #2 : Disclosure discourages private treaties and hence is not fair since it restricts a form of commerce.
    Response : Ever heard of insider trading, front running etc. These are forms of commerce too. If left free, they are detrimental to a fair market. In their abused form, Private treaties are just a more evolved form of such cheating and is not far from paid news. Further news media has the objective of reporting unbiased coverage

    Other items :
    – SEBI should also make it mandatory for the listed companies involved make a corporate announcement when they ink a private treaty with a news organisation.
    – What is really required though is objective analysis. How often has a newspaper written glowing reports about a stock and then sold it off within 4 weeks of such report & vice-versa. The data today will be elusive. May be someday?