More Conflict of Interest [Fribble] April 20, 2000

Fribble More Conflict of Interest

By David H. Rothman,
April 20, 2000

Mark "Squawk Box" Haines, one of CNBC's best and wryest, was interviewing James Morgan of Applied Materials. "And as I usually do," Haines said, "I disclose that I own shares of Applied Materials, and I'm really happy about that. OK. He's taken real good care of my money and everyone else's."

Bingo! A most Foolish approach to the conflict-of-interest question. I myself, in fact, worry about many journalists who are not shareholders. Such people are less capable of grasping the glories of buy and hold. And so they blithely talk of bubbles and sell-offs, and they prattle on about "The Stocks to Own This Nanosecond." They cannot grasp the difference between investors and grasshopperish traders.

Here, then, inspired by Haines's laudable example, is a pesky little proposal.

  1. No reporter or producer should work for a financial network unless he or she owns stocks. Not just mutual funds. Not just bonds. Rather, stocks -- the most-discussed financial instruments on CNBC and the rest. You cannot learn investing in equities, and you can't concoct the right questions to ask guests, unless you are in the market yourself and enjoy it yourself. Otherwise you are the equivalent of an agoraphobe trying to write a guide to New York nightlife.

  2. The journalists' holdings should be long-term. Investing, not trading, best serves the average viewer, who is too preoccupied with little details -- such as jobs and families -- to follow all the hourly ups and downs of Intel or Celera. Journalists should try to identify with their main audience, not the Wall Street traders. Beyond that, frequent trading by reporters and others would increase the chances of manipulation. If nothing else, journalists on TV networks should not benefit financially from unreported, insidery information; viewers should have the facts first.

  3. At the same time, financial networks should list on their websites the holdings of all journalists who matter. Not just the top people. Everyone who influences content. What's more, along with Sue Herera's picture or Mark Haines's, we should see conspicuous links to the names in their portfolios. They need not divulge the numbers of owned shares for each stock, but it would help to list all the holdings with the largest ones at the top. Disclosure should also cover mutual fund and bond ownership; and other kinds of investments; it should give viewers a sense of which ones matter the most. What's more, journalists in Haines's position should always disclose their holdings on the air at strategic times -- ideally at the start and end of segments about stocks they own.

  4. Web-posted disclosures of stocks owned should make it clear they are just that -- disclosures, not recommendations.

  5. Although journalists are the main focus of this proposal, financial networks should also take pains to spell out on the air the possible conflicts of guests who appear on these shows. No disclosure, no free publicity, OK?

  6. Unlike the CNBC-haters on many Web boards, I would rather not see the Securities and Exchange Commission (SEC) intervene closely in the affairs of the mass media. SEC crackdowns on pump-and-dumpsters on the Web? Of course! If they're guilty, send 'em to the slammer! Certainly the feds should punish anyone else, journalists included, who engage in manipulation. But it would be far better for the networks and other news organizations to do all this voluntarily.
Over to you, Mark Haines. Is it just possible that you can set the example for the others and ask CNBC for your online bio to include a conspicuous link to a list of your stocks?

The author is managing editor of a financial newsletter and his opinions in this Fribble are his own and not necessarily the newsletter's. He's also a shareholder of GE, which owns CNBC.