Election 2016 Problems with the Current Election Analysis: Journalists, Media, Political Analysts – Time to be Transparent, Copy Investment Advisors
Investment advisors have a few things hammered into them. One of them is to avoid conflicts of interest and if there are any to disclose them very specifically and publicly.
Journalists, media, and political analysts / pundits (collectively as ‘political commentators’) need to do copy investment advisors and radically increase their transparency especially during election season. They need to publicly disclose any real or potential conflicts of interest. They need to state their recent voting history, their donations to political candidates, and any income they have recently or might receive due to any political analysis they provide. Essentially, you should not have someone commenting on the race, pretending to be neutral while receiving money / favors from one side or have an undisclosed bias as it is, frankly, deceptive.
Investment advisors now take transparency extremely seriously but this was not always the case. In fact, investment advisors used to act very much like today’s political commentators in that they kept their true cards very close. Through none transparency, they were successful in manipulating investments to their benefit – which is likely the case today for many political commentators.
Many years ago investment analysts would write reports and make strong recommendations that benefited them and/or their company directly. For instance, an analyst could give a ‘Strong Buy’ recommendation for a stock and before publication of the report go and buy as much stock as possible. Or, an investment bank might tell its equity analyst to write an unusually favorable report in order to close an investment banking deal. Perhaps the most obvious way to influence a stock was for fund managers to ‘talk up’ their positions, maybe on TV, in hopes that others will buy and help the return of the fund. In short, there were and still are many ways that an investment professional can directly benefit from, let’s say, providing not such an ‘objective’ opinion.
In order to improve this somewhat murky situation, regulations were created to encourage greater transparency. Today, though not perfect, an investor has a much better understanding of why an analyst, portfolio manager, or investment bank might be making investment recommendations thanks to disclosure of conflicts of interest. And, the mere increase in transparency has greatly lessened attempts to artificially manipulate returns by opinion makers. Very similar regulations are needed for journalists, media, and political analysts / pundits covering elections.
The following is taken from a Credit Suisse report on Apple stock. These quotes clearly lay out potential conflicts of interest that the company and analysts might or do have as it relates to Apple stock. These concepts can obviously be modified for use in the political sphere by tweaking their focus and language:
“The subject company (AAPL.OQ) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.”
“Credit Suisse provided investment banking services to the subject company (AAPL.OQ) within the past 12 months.”
“Credit Suisse has managed or co-managed a public offering of securities for the subject company (AAPL.OQ) within the past 12 months.”
“Credit Suisse has received investment banking related compensation from the subject company (AAPL.OQ) within the past 12 months.”
“Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (AAPL.OQ) within the next 3 months.”
“As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (AAPL.OQ). A Credit Suisse analyst involved in the preparation of this report has a long position in the common stock of AAPL.”
“Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (AAPL.OQ) within the past 3 years.”
Why shouldn’t the general public know similar information on political commentators? Shouldn’t the public know if a political commentator has received compensation from a campaign, party, or candidate during the last 12 months? Or, wouldn’t it be nice to know if such a commentator intends to seek consulting compensation from a political campaign over the next 3 months? What about something as simple as a good faith written statement outlining current conflicts of interest of the political commentator and the election or candidates?
For good measure, let’s take a look at some other investment disclaimer language. The following is taken from Morgan Stanley:
“Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.”
“The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report:”
It would be useful for political commentators to emulate even Morgan Stanley’s more basic disclosure. For instance, clearly stating that the political commentator ‘seeks to do business with’ political campaigns and parties ‘covered in’ this political research creating a ‘conflict of interest that could affect the objectivity of’ this research, would be an excellent start.
Goldman Sachs also includes similar disclosures regarding potential conflicts of interest:
“We, (analyst’s names), hereby certify that all of the views expressed in this report accurately reflect our personal views, which have not been influenced by considerations of the firm’s business or client relationships.”
“I, (analyst name), hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.”
Goldman Sachs includes two elements of particular interest. First, it would be very instructive to hear from political commentators that their statements ‘accurately reflect personal views, which have not been influenced by considerations of … client relationships’. In other words, wouldn’t it be really nice to know that what you are about to hear from a political commentator is simply their own opinion and not a fabricated one designed to help generate income?
Second, political commentators need to make it very clear if any part of their compensation relies on them providing a certain type of opinion. Wording could vary of course but something that says that ‘no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed’ by the political analyst.
For someone in the investment community, these recommendations for greater transparency are likely painfully obvious. Of course political commentators, like any investment analyst, should make any conflicts of interest transparent and public. However, for those in the political industry they will most certainly resist. They know that much of their commentary is done for a specific reason – they are getting directly or indirectly paid to provide such a specific commentary, they want to land a good consulting job for a specific candidate and are willing to ‘modify’ their real opinions to do so, they plan on working in the administration of a candidate, etc.
For many in the general public, they don’t think about these things. In fact, it would seem like most believe that political commentators are providing their honest opinions. I am sure these issues are very similar to when investment analysts could write whatever they wanted about, for instance, a company – not declaring that their company’s head of investment banking just leaned on him and told him his next report had better be positive for Company A and negative for its competitor, Company B, as they were hoping to close a large deal with Company A.
And, these issues will become just or even more relevant for the 2016 US Presidential debates. Those within the political world most definitely know the political leanings of the debate moderators. But the remainder of the nation really will not know and simply assume they are neutral journalists. These moderators will set the tone for the debates and could easily sway the conversation in favor either of the candidates.
Returning to the investment analogy, assume that only investors who were long (or short) a stock could ask questions during a quarterly earnings conference call – would that make a difference on how the general listener viewed the quarterly earnings? Of course it would influence it, perhaps by a lot. Assuming only short investors (or those benefiting from a decline in the stock’s price) were allowed to ask questions to a CEO during a conference call – other investors would think by the end of it the sky was falling (short investors are habitually negative).
Increased transparency will bring many improvements to the political world – not least of which will be that commentary will become more civil, objective, flexible and honest. This cannot wait. Political commentators have lost much of their credibility during 2016 and have unfortunately, in my opinion, turbo-charged the emotional aspect of the race. Transparency of potential conflicts of interest will be a rather ‘easy’ step to push things in the right direction.