The City Spin Game: How PR Shapes Company News
Before you read a word about a company in a newspaper or on a financial website, a small army of professionals has usually been at work. Press releases have been drafted and redrafted. Quotes have been approved by lawyers. Numbers have been framed in the most favourable light available. The people behind this process are financial public relations advisers, and understanding what they do is an important part of reading the financial press with clear eyes.
Financial PR is a substantial industry in the City of London. The major firms, including Brunswick, FTI Consulting, Finsbury Glover Hering and Camarco, represent listed companies, investment banks and private equity firms. Their job is to manage the flow of information between their clients and the outside world. Journalists, analysts and investors are all audiences. The message going to each may be tailored differently, but the underlying goal is the same: to present the client in the best possible light, or at least to limit the damage when things go wrong.
This is not inherently dishonest. Listed companies have a legal obligation to disclose material information through the regulatory news service, and financial PR firms operate within those rules. But the framing of that information, the tone of the language, the order in which facts are presented, and the choice of which comparisons to make are all within the PR adviser’s control. Two sets of company results can tell the same underlying story while creating very different first impressions depending on how they are written up.
One of the most widely used techniques is selective emphasis. A company that has missed its profit forecasts might lead its results announcement with revenue growth, an improved order book, or progress on a strategic initiative. The profit shortfall will be disclosed, because it has to be, but it may appear lower down the announcement with more hedging language around it. Phrases like adjusted, underlying, and normalised are common signals that the number being highlighted is not the one the accounting standards require the company to report. These adjusted figures are not necessarily misleading, but they are chosen because they look better than the statutory equivalent.
Timing is another tool. Bad news tends to emerge on Friday afternoons, a pattern so well established that it has its own name in financial circles. The Friday night drop exploits the reduced attention of journalists and investors heading into the weekend and the lower trading volumes that follow. An announcement made at 4.30pm on a Friday will receive less immediate scrutiny than the same announcement made at 9am on a Tuesday. By the following Monday, newer stories may have taken over, and the original announcement has had time to be contextualised by the company’s advisers in interviews and briefings. This is not illegal. It is a rational use of timing.
Profit warnings are a particular area where language is carefully managed. Regulatory requirements mean a company must inform the market promptly when it expects results to differ materially from expectations. But what constitutes materially and how promptly is promptly leave room for interpretation. The language used in profit warnings often carries its own code. References to challenging conditions suggest the problem is external and temporary. Operational issues indicates internal problems the company believes it can fix. Strategic review is frequently a signal that something more serious is being considered, up to and including a sale of the business.
Investor relations, which sits alongside financial PR within most large companies, manages the direct relationship with institutional shareholders and analysts. This involves regular meetings, site visits and briefings that are not available to ordinary private investors. The rules around selective disclosure have been tightened since the introduction of the Market Abuse Regulation, which replaced the earlier Disclosure and Transparency Rules across the UK and EU. Under these rules, companies cannot give material non-public information to a selected audience without simultaneously releasing it to the wider market. But the tone, emphasis and interpretation given to publicly available information in private meetings can still create an informal informational advantage for institutions over retail investors.
For private investors reading company announcements and financial press coverage, a few habits help. Reading the full regulatory announcement rather than just the press release removes one layer of PR packaging. Looking for the statutory profit figure alongside any adjusted alternative gives a cleaner picture of what the company has actually earned. Noting the date and time of an announcement, particularly if it falls late on a Friday or during a busy news day, is worth doing. And treating unusually optimistic language with the same scepticism as unusually pessimistic language is good practice: the City spin machine can run in both directions when circumstances require it.
The underlying business reality of a company always emerges over time. The cash flow statement, which is harder to dress up than the profit and loss account, often tells a more honest story than the headline results. Cash generated from operations, capital expenditure requirements, and the movement in net debt are the numbers that financial PR has the least influence over. Getting into the habit of reading them alongside the more prominently highlighted figures is one of the most useful disciplines a private investor can develop.
This post is drawn from The Street-Smart Trader by Ian Lyall. Republished with permission.
Street Smart is a series drawn from first-hand experience of the City of London, updated as each new chapter arrives.
Investment values can go down as well as up. This post is for informational purposes only and does not constitute financial advice. Always do your own research.
This article is for informational purposes only and does not constitute financial advice. Investment values can go down as well as up. Always do your own research before making any financial decisions.