Loose lips, loose morals, and outdated disclosure practices

I’M A little bemused by the IR establishment’s response to the sensational allegations in the insider trading case against Galleon Management and a host of corporate executives and one IR consultant.

NIRI CEO Jeff Morgan’s immediate response was to publish the following in a Tweet: “Following Galleon & is another reminder to NIRI members & all in IR-Reg FD compliance is a must. Train & refresh! http://digs.by/aT0“

He was echoed today by seasoned IR mentor John Palizza who wrote a blog post under the title Lose Lips Sink Ships – What Investor Relations Officers Can Learn from the Galleon Fiasco In it he reiterated Morgan’s advice for IR departments to revisit their disclosure policies with executives and train them on how to deal with analysts.

Sorry, but I disagree, strongly. This case is not about Reg. FD and corporate insiders inadvertently saying more than they should because they’re blabbermouths.

It’s about money changing hands in return for insider information, a classic case of you-scratch-my-back-I’ll-scratch-yours. In one instance, it’s alleged that an executive benefitted by having the hedge fund conduct trades in his personal account. In another, an analyst at a credit rating agency allegedly was paid $10,000 for a tip. And in yet another, an IR consultant allegedly asked for $100,000 to continue providing tips.

To me, the allegations in this case have little to do with “loose lips.” It’s about loose morals, rotten ethics, and plain old-fashioned sleaze.

That’s one issue I have with the IR elite’s response. They’ve missed the forest for the trees. It’s not about disclosure practices.

Old school IR practices need a rethink

The other issue I have is that reinforcing corporate disclosure policies will do little except to entrench old school IR practices that actually make insider trading a lucrative endeavor.

Instead of saying no one should talk to analysts without first clearing it with IR or an IRO being present (yeah, who does that benefit?), we should be turning current practice on its head.

What if it was simply an offense to talk privately to any investor or analyst about your company’s business or financial performance?

To be clear, I’m saying any executive should be allowed to talk to anyone about anything — as long as they do so publicly.

The definition of “public” would be the same as under the SEC’s guidance for the use of the web for Reg. FD compliance. To me, that’s completely workable with the online tools we have today.

Of course, what I’m saying isn’t popular with most in the IR community because it could mean they’ll be cut out of the disclosure loop and lose some of their power.

Investors won’t bother going through the IR department if they can get direct access to the CEO and CFO on Twitter, Facebook, Ustream, Cinch, 12 Seconds or any of a host of public media. That scares IR people, but it also makes information from informed insiders much more freely available to everyone.

Personally, I think such an environment would be a boon to the IR profession. When access to executives is universal, IR will take on a far more strategic role. Instead of being mere gatekeepers and concierges for executives and big investors, IROs will become valued strategic advisors to the C-suite.

Again, I’m sticking my neck out and likely going to upset legions of the IR faithful, but it’s obvious to me that if we’re ever going to rebuild public trust in the capital market system, we need to be thinking about radical changes rather than entrenchment of the status quo.