This week, CNBC laid down new restrictions on its news staff and managers that will effectively bar them from owning individual stocks and bonds. Several pundits have expressed belief that the move at CNBC might trigger a sea of change among other media outlets to strengthen their security ownership guidelines.
CNBC employees have until Jan. 2005 to comply with the new restrictions. After that time, they will only be able to own index funds and other broad-based mutual funds, as well as stock in General Electric (NYSE:GE), the parent company of the network. Employees who have nothing to do with the broadcasts -- hair stylists, secretaries, and the like -- will be allowed to keep their existing stock holdings, but they will be unable to buy any more. These restrictions are not only for the employees, but also extend to their spouses and dependents.
CNBC claims that the new policy has been under planning for about a year. In a statement the network said it wanted CNBC to have "the highest possible standards." The network insists that this change has nothing to do with the firestorm that arose this past summer when anchor Maria Bartiromo prefaced an interview with Citigroup (NYSE:C) Chairman Sandy Weill by disclosing she owned 1,000 shares of the company's stock.
I find the restrictions to be both overkill and incomplete. CNBC has exempted non-employees such as on-air personalities like Louis Rukeyser, Jim Cramer, and Lawrence Kudlow, since they are not full-time employees of CNBC. If the "highest possible standards" is the goal, clearly that's a loophole the network should close. But the network's existing standards strike me as being more than satisfactory, with minimum holding periods of four months for stocks or bonds, as well as other restrictions -- and newscasters or writers must mention any conflicts when discussing a company.
As for other media outlets following along, CNBC isn't actually the first to place outright bans on stock ownership. TheStreet.com's (NASDAQ:TSCM) journalists have been barred from owning individual stocks for years. Reporters at the Dow Jones (NYSE:DJ) newspapers -- The Wall Street Journal and Barron's -- are also barred from covering companies they own. Fox (NYSE:FOX) allows its employees to own stocks, but they must disclose on air when they are discussing a company they have a stake in. Each regularly performs audits on their employees. At what point does it become enough?
Here's my beef with CNBC's decision. While it may reduce the possibility of manipulation of an individual security, these folks would have to be demented not to understand that their business lives are deeply tied to the performance of the stock market anyway. Think CNBC has much incentive to be overly negative about the market? No. In fact, a look at viewership trends in the late-90's versus, say, 2002, puts this in stark relief.
People watch when stuff goes up. It's human nature. So now CNBC employees' job performance and their retirement benefits are linked not to their own individual decisions, but to whether the market goes up or not. It's grasping to suggest that this will be a central motivation for the station or any one of its employees -- show only good news. But it demonstrates something simple -- CNBC's limitations on trading will not ultimately impact its effect on the overall market. It makes me think that the limitations they've placed are ultimately unnecessary.
