Chapter 7 PR and the Law The law is the last result of human wisdom acting upon human experience for the benefit of the public. —Samuel Johnson, Miscellanies OBJECTIVES ? To understand the legal environments of PR practice. ? To be familiar enough with the law to stay within safe boundaries. ? To develop an appreciation for working with legal counsel. ? To be sensitive to the impact of litigation on public opinion. You are public relations director for a toy company that has its own line of electronic educational toys with a very distinctive character called “cybercadet” used in the promotions. One of your staff members tells you that the local library in the city where your corporate headquarters is located is using the cybercadet figure on its Web page. Is this illegal? Should you talk with the corporate attorney about filing a lawsuit? As your PR firm’s account executive for a pharmaceutical company client, you are working on a competitive strategy to respond to another company’s new product. You learn that this product is expected to be approved soon by the U.S. Food and Drug Administration (FDA). When that occurs, it will seriously challenge your client’s product. Your boss tells you to run your strategy by the client’s in-house attorney because that way it will be “privileged” information and thus not ever publicly disclosed. Is that the case? You are the staff public relations practitioner for a school district that has just bought a new fleet of buses and vans in which to transport students. The manufacturer sends you some information about the safety of the buses and the adaptability of the vans for use with handicapped students. Your employer encourages you to put this in the school district’s newsletter. Is this a good idea? Would the school district be responsible if some safety problems later appeared? You’ve been asked to write a publicity release that downplays your organization’s financial crisis. Can you do that? One of your clients spent a lot of money for a distinctive logo that you promoted with stories in the trade press describing its development. Now you find an advertisement in The Wall Street Journal for an organization with a logo very similar to that of your client’s. What can you do? You’ve been asked to write the script for an infomercial (a programlength commercial) that mimics a talk show program to the extent of simulating “commercial breaks.” You don’t know anything about the product or the doctor being “interviewed” on this infomercial—other than information your boss has given you. Should you write the script? Your lawyer client calls to tell you that she’s just completed a week of special seminars and received a certificate. She wants to know if she can add the certification to the letterhead of the stationery you helped design for her. What do you tell her? You’re trying to create a full-page ad for a special newspaper section that will call attention to the annual outdoor sports event you handle. Thus, you need a photo of people attending an event that has yet to occur. Last year’s news coverage included a good picture of a couple inflating a raft. Can you use last year’s picture? Your organization’s human resources person calls to ask if you have model releases for the pictures of employees used in the last magazine. One of those pictured doesn’t work for your organization anymore, and you don’t have a release. Is this a problem? As the public relations director for a publicly held children’s book publisher, you oversee all of the pro-motional materials for the books as well as the corporate publicity, advertising and promotions. The company has an investor relations manager who handles all of the financial news and the annual report, although you have helped him with that. He is going on a cruise and tells you that the news release about the second quarter earnings needs to be written while he is gone. He says the chief financial officer (CFO) has agreed to go over the earnings report with you when it is ready and will clear the news release once you’ve written it and send it for you. You agree to do that; it sounds simple. A week later, the CFO brings you the report and reviews it with you. You then write the release, which he approves and sends. That evening you have dinner with your brother, who is a financial analyst, and you tell him about your new experience. In doing so, you tell him that the earnings were down, but the company had expected that because a new series of children’s travel books that was expected to do well has not. This is simply innocent dinner conversation, right? These are all legal questions that PR practitioners in the USA encounter. While the laws governing what is and is not legal in PR vary from country to country, all countries have laws with which PR practitioners need to be familiar. Furthermore, because so much of PR practice is global today, although this chapter deals mostly with U.S. law, PR practitioners must know laws governing what they say and do in all countries in which they are working. Because legal questions sometimes catch you unaware, it’s wise to have a close working relationship with your organization’s attorney. Most public relations practitioners in independent practice have their own attorneys because the practice of public relations is a legal minefield. Some practitioners also carry malpractice insurance. Globally, Internet-based issues have increased legal vulnerability by giving voice and thus power to individuals and groups. A 2010 decision by the U.S. Supreme Court on the First Amendment allows all businesses, not just private ones, to support candidates for public office. In effect, this gives corporate lobbyists greater financial power over elected representatives and candidates for an elected office. The Liabilities of Practicing PR PR practitioners are more conscious than ever of their legal exposure, especially in three areas: (1) normal legal exposure, like that encountered by any other person, encompassing civil and criminal matters, including conspiracy; (2) workoriented legal exposure, such as that found in the course of normal PR activities, including promotions, special events publicity and the handling of crises; (3) extraneous legal exposure, meaning everything from testifying as an expert witness to getting sports event tickets for a client to lobbying without registering as a lobbyist or reporting income and expenses from such activities. This third category also includes using the public relations office as a conduit for any sort of illegal activities, such as the locus for bribes or other illicit activities. Liabilities have increased with outsourcing and contracts with suppliers, especially when these are abroad. Organizations always have been responsible for anything done by their contract workers. The “work for hire” is considered the same as “in-house” work. If a photographer hired by the company failed to get permission to take someone’s picture, that always became the company’s responsibility once the photo was published. But now the photographer may be giving the picture to a PR boutique that is producing the brochure, magazine or newsletter for the company. The company is still responsible for the results, but monitoring the process is a lot more difficult. PR consultant and educator Marian Huttenstine says public relations itself has its functional roots in commercial speech, advertising, traditional speech and the press, and, as a result, statutory and case law for public relations is constantly evolving in all of these areas. PR developed in the USA largely because of the country’s specific social, economic and political cli-mate, and the last of these depends heavily on constitutionally protected freedom of speech and of the press. Huttenstine notes that some of the laws governing public relations practice would not be in place if First Amendment guarantees had not been found to apply to commercial speech. Legal Problems: Civil and Criminal Civil suits involving PR practitioners may occur in relation to communication activities—for example, copy-right infringements—or physical activities, such as accidents during plant tours. In addition, the practitioner may incur statutory and administrative liability in connection with dealings with government administrative agencies (SEC, FTC, FDA, ICC and others). A publicity release, for example, may violate SEC regulations, cause the company’s stock to be closed for trading and result in court action. A carelessly worded ad can result in fines and perhaps court action. The statutory responsibilities are substantial. Sometimes, a civil case results from failure to do something required as a matter of compliance (such as obligatory disclosure of certain information), rather than from doing something wrong—failing to disclose information, for example. Or it might be an entirely internal matter, such as a letter to employees advocating management’s position on a unionization effort. The National Labor Relations Board (NLRB) takes a dim view of persuasive communications that sound coercive. More so than ordinary citizens, PR practitioners are also exposed to many opportunities for criminal actions such as bribery, price fixing, mail fraud, securities manipulation and even perjury. To yield to these opportunities, however, is to risk criminal charges, particularly for conspiracy. It is imperative, therefore, to understand the PR person’s legal standing as the agent of the client. As Morton Simon explains: Whatever the PR practitioner does, he usually does by reason of his retainer by his client and in concert with the client. Joint or multiparty action is therefore almost indigenous to the PR function. This is the root of the conspiracy charge. Simon lists five situations in which a PR practitioner may be subjected to a conspiracy charge. These occur when the practitioner (1) participates in the illegal action; (2) counsels, guides and directs the policy behind it; (3) takes a large personal part in it; (4) sets up a propaganda agency to fight enemies of it; or (5) cooperates to further it. A civil suit and a criminal prosecution can and often do grow out of the same legal situation. Protection from double jeopardy, being tried twice for essentially the same infraction, no longer covers defendants facing both civil and criminal action. In 1997, the Supreme Court ruled that defendants who contend that they have already been sufficiently punished by a civil suit now must offer very clear proof that their civil penalty is the equivalent of a criminal penalty (see Hudson v. U.S.). When a company is fined in civil court it isn’t always likely that its executives will also face criminal action. However, parallel civil and criminal proceedings are becoming common because Congress has pro-vided for a number of different types of civil penalties in cases involving securities regulations, banking, environmental codes, government fraud and drug laws. The government may prosecute and try to impose regulatory fines, order forfeiture of property or keep a company from doing business with certain entities. Legal Cases Simon suggests that PR practitioners are usually involved in four specific kinds of cases: the big case, the human interest case, the routine case and testimony. The big case, as he describes it: [M]ay be antitrust action directed at [a company’s] entire marketing program, a labor relations hearing involving thousands of employees, suits involving product liability—especially those which deal with basic safety or acceptability of a product—minority stockholders’ actions charging mismanagement or fraud, and other litigation basic to the continued success of the company. The human interest case may not involve much money, but by its nature it has a particular appeal to the news media. Simon lists the following examples: [A] minor civil rights charge, a local zoning conflict, a right of privacy suit by a “glamour name,” air or water pollution charges, suits against a company by a retired employee seeking a large pension, and myriad other kinds of litigation which may concern either an individual or some community interest. The routine types of litigation are commonplace results of being in business. They include actions for breach of contract, workmen’s compensation claims, tax refund issues, lawsuits filed against the company from any source, challenges by regulators and others. Even routine cases may involve public relations personnel, such as developing strategies and message statements for stakeholders regarding the company’s position, drafting letters for different constituencies, preparing news releases for the website and distribution, preparing and posting background on the issue for employees and/or scheduling and handling media conferences for executives. In these circumstances, the internal PR person has access to the corporate attorney. However, a PR person who owns a firm or works as a consultant is subject as such to a client’s communication as well as to all the routine and normal potential litigation of being in a self-owned business. Cases calling for a PR person’s testimony typically involve his or her participation in the company pro-gram at issue in the legal action or his or her status as an “expert” witness. These may vary from the very high profile, perhaps growing out of preparation of the company president’s statement before a congressional committee to the more mundane, perhaps arising from supplier claims for damages. Cases may also involve a client or a company executive accused of some illegal act. The potential now for any case to attract attention is due to the development of what once was called litigation journalism and later became litigation PR. Carole Gorney, the public relations educator who defined the term in an article in The New York Times in 1992, says litigation journalism is the use and/or manipulation of the news and information media to advance the positions of plaintiffs in civil lawsuits and/or to promote the practices of trial law-yers by attracting new clients for class action liti-gation.7 This promotion also has occurred in high-profile criminal cases. Litigation Journalism/Public Relations Initially, the situation was one in which lawyers simultaneously acted as both lawyer and publicist/ spokesperson for their clients. Law firms now have their own public relations practitioners, and some have marketing staffs to promote the firm. Members of the law firm that engage in litigation PR often get very well known, but their law firms don’t. Some-times, the law firm with a really unpleasant case doesn’t want publicity, and that creates problems for their PR people who have to deal with the media in any event, regardless of what the law firm wants. Companies with their own attorneys may be involved in a case with an activist public in a situation where a lawsuit means guilty, whatever the outcome, especially in a crisis. There are also constraints on what the corporate lawyer can do without getting into trouble with the judge. The New York School of Law advises, “No major corporate litigation should take place without considering its public relations ramifications. The same goes for high profile criminal cases and celebrity cases.” The rationale is that strategic communication is important before litigation begins and all of the way through the process because it can even influence prospective jurors as well as judges and lawmakers. This is particularly important for inter-national cases due to the ubiquity of global audiences on the Internet. Prosecutors also have used litigation journalism. Thus, a case may be tried in the court of public opinion at the same time it is being tried in the courts. The consequence is a conflict between the First and Sixth Amendments, the latter of which protects a defendant’s right to a fair trial. Using public relations practitioners for high-profile cases is not new, but the joint practice by lawyers of public relations and law is. With regard to civil suits, legal concerns have grown for PR practitioners in connection with what Marian Huttenstine calls the duty or legal obligation for clear and accurate communications, detrimental reliance (ill effects of depending upon someone to keep confidences), vicarious liability and respond at superior (being responsible for the action of others) and fair use. Duty is the civil legal obligation to act in a way consistent with what might be expected of a “reason-able person,” as assessed by a judge or jury. Problems in this area generally have had to do with risks and warnings or misleading communications. The determination hinges on the interpretation of whether the reader or listener acted on the message “reasonably.” The consequences of reliance have to be something detrimental (and quantifiable in terms of monetary damages) for the case to be actionable. Detrimental reliance may occur when relied-upon information is faulty or when a promise is broken. One example consists of relying on information from others such as research and development people supplying product information for publicity and advertising that proves to be less than entirely accurate. Another involves using or distributing information from a supplier that later turns out to be flawed. Detrimental reliance also may occur if a PR person is a source for information to news media or others on the basis of a promise of confidentiality that later is broken and the results are damaging to the source. Being responsible for the acts of others under con-tract to your organization has always been a legal obligation. But now there is more of a responsibility on the part of the organization to be sure that those working for the organization either directly as employees or indirectly as contractors don’t do any-thing illegal. Most communication today is electronic, and that means all material ever on a computer can be recovered, even if deleted. Organizations today have greater difficulty meeting this obligation because whole tasks are contracted out and because those under contract often subcontract for special services. An example would be a contractor engaged to do the weekly newsletter, who then subcontracts for art or distribution. For anything the subcontractors do, the organization for which they are ultimately doing the job—not just its contractor—is responsible. The fair use aspect of copyright law has become increasingly complicated because of the use of electronic transmissions. We examine this question in some detail later in this chapter. Working with Legal Counsel Most large institutions, businesses and news media have legal counsel. If your client retains legal counsel, use it. The client’s own counselor is as eager to stay out of trouble as you are. One word of caution, though. Some attorneys are not knowledgeable in communications law, and their instinct is to have a client or the organization say nothing. This is usually not the best public relations response. You need to know where to go for specialized legal counsel. Many practitioners have also built up libraries of cases and regulations relating to both public relations and their clients. In addition, many PR firms have prepared manuals for their employees to alert them to legal trouble spots. Clients, too, may have manuals, and the PR practitioner should examine these care-fully for areas where misunderstandings might create problems. The public relations person within a corporation needs to establish a relationship with the corporate attorney since both hold a seat within inner management councils. Top management levels are where pol-icy is made that will affect the organization’s various publics. In this policymaking process, the role of the PR person is a special concern for how that policy will be understood and accepted by all stakeholders, not just those directly affected. The corporate PR person is in a good position to assist corporate counsel in planning strategies and suggesting how the various publics are likely to receive legal actions.14 The PR person also needs legal counsel’s help, especially in reviewing financial materials, even if he or she is trained in investor relations and also in crises. Determining the appropriate action in a crisis is clearer if attorneys can talk about actions that can be taken and alternatives, per-haps citing similar cases and their conclusions, noting particular similarities and differences. Their experience with the courts also allows them to set some timetables and help develop the company’s message. Transparency is important because legal discovery procedures bring out all sorts of hidden information that will get introduced in the public forum of the courtroom. Any of these documents may later be disclosed. Even documents prepared by in-house lawyers may not be secure if they contain advice to management that is strategic but is essentially non legal in nature. The material must be primarily legal advice for it to deserve attorney/client privilege from disclosure. For these reasons, the relationship between the PR person and the company attorney needs to be complementary, not adversarial. Ways to Stay Out of Trouble Maintaining a good relationship with the organization’s attorney is one of the best ways to stay out of trouble, but attorney Morton Simon identifies five others: 1. Recognize your individual responsibility for your actions—none of this “I only did what the boss said.” The law won’t look at it that way. 2. Know your business. 3. Ignore the vague lines between advertising and PR, because the law often does. 4. Decide how far you are willing to go to run a risk of jail, fine, a ceaseand-desist order or a corrective order. 5. “Know your enemy,” especially which government agency is likely to go after you. It helps to get on this agency’s mailing list and read all speeches its administrators give. Often, these provide the first hint of troubles for your company or industry. Simon notes three general types of legal involvements. The first consists of meeting federal, state and local government agencies’ regulations on everything from antitrust matters to building permits. The second consists of government-related activities—activities that hinge on laws or regulations, such as those governing libel and slander; right of privacy; contempt of court; ownership of ideas including copyright, trademarks and patents; publicity; political views, registering political activity as lobbying and representing foreign governments; contract disputes; stockholder actions; fair trade problems; use of photos of individuals and groups; preparation of publicity releases, advertising copy, games and giveaway promotions; and financial collections. The third type consists of contracts with clients and suppliers of goods and services. These deal with such matters as who owns the music for a commercial if the client moves his or her account from the agency that created the commercial. In any of these three types of cases, a PR person outside the situation is likely to be called by either side as an expert witness. When this occurs, you must devote considerable time to research—gathering facts and physical evidence in the case, not just relying on what you are told. (Most PR testimony consists of fact-finding, in the discovery part of litigation.) Additionally, most PR people alert their own attorneys, who can advise them of any legal traps or personal jeopardy. Litigants generally pay fees for expert witnesses. How-ever, excessive fees tend to invalidate the testimony. (The opposition generally tries to get the precise sum made public, usually as a part of the deposition.) The legal zones of greatest danger to a PR person are print or electronic business memos, emails and letters, proxy fights, use of photos, product claims, accusations that might be ruled libel or slander, pro-motions involving games, publicity that might result in charges of misrepresentation and political campaigns. You should keep handy a checklist of laws covering areas such as contracts, releases, statements of responsibility and rights of privacy. Most important, don’t guess. Get legal assistance. Talk with the organization’s legal counsel. Work closely with media and organization attorneys. The New York Stock Exchange encourages calls and other inquiries. Query any government body involved, and get a statement of legal precedent or request an informal ruling. Getting government advice and assistance won’t work, though, with one of the biggest sources of difficulty for an organization—lawsuits initiated by an employee, a “whistleblower” who has called attention of authorities, usually government regulators, to some legal problem. Laws at the federal, state and local levels constrain communications in whistleblower cases, so normal strategies may not work. For ex-ample, federal laws place a 60-day secrecy on the existence of a whistleblower. In some cases, an organization can be under investigation for a year or more before the situation is made public, and then it is usually the government entity involved that makes the announcement. All PR communication, then, can be only reactive. The same is true if information about the case is “leaked.” Leaks may originate outside the organization from someone knowledgeable about the situation, but there is always a court seal on such cases affecting both the organization and the whistleblower. At the national level, whistleblowers get their power from the U.S. Federal False Claims Act that allows citizens to “blow the whistle” on an organization’s misdeeds, to start sealed lawsuits on the government’s behalf and to get 25 percent for themselves of what the government collects. At the state and local levels, the government’s primary role is to protect the whistleblower from some kind of retaliation, usually getting fired. Whatever branch of government joins the whistleblower’s suit, the organization is in a default position. The government has both authority and power behind it, and public opinion often sup-ports the whistleblower who is seen as the responsible citizen calling attention to organizational wrongdo-ing.18 (Even if the whistleblower does not file a law-suit, whistleblower information and publicity can complicate legal problems in a crisis situation.) Government Regulations As a practitioner, you may find yourself working with any of hundreds of government agencies. Of this multitude, five are particularly important due to their influence on how PR is practiced: the U.S. Postal Service, the Securities and Exchange Com-mission (SEC), the Federal Trade Commission (FTC), the Food and Drug Administration (FDA) and the Federal Communications Commission (FCC). Postal Service Postal Service regulations prohibit dissemination by mail of obscene materials, information about a lot-tery (two important elements: consideration and chance) and material that would incite riot, murder, arson or assassination. A 1975 law exempts news-papers and broadcast stations from prosecution in publicizing state-operated lotteries. However, news-papers may not carry information on another state’s lotteries in editions that are mailed. Certain state laws prohibit the circulation of magazines carrying particular types of advertising, so space buyers have to beware. Furthermore, although substantial specifications exist for inserts in magazines mailed secondclass, the total reference to the subject in the Postal Service Manual with respect to controlled circulation publications is one sentence: “Enclosures are not permitted.” All mailing pieces face multiple regulations regarding size, weight, thickness and where an address may appear. It is best to have the design of a piece checked by the post office or to use standard shapes and weights already approved. A sender’s freedom to reach publics by direct mail has been limited by a 1970 decision in a U.S. District Court, which has been upheld by the U.S. Supreme Court.19 Senders may be compelled to delete an address from their mailing list and may be prohibited by law from sending or having an agent send future mailings to an addressee at the addressee’s request. The case began when a mail-order business challenged a California regulation stating that the recipient has a right not to have to receive “a pandering advertisement which offers for sale matter which addressee in his sole discretion believes to be erotically arousing or sexually provocative.” If a violation occurs, the addressee may report it, and the U.S. Postmaster General will inform the sender, who then has an opportunity to respond. An administrative hearing is held to see whether a violation has occurred. The U.S. Postmaster General may request the U.S. Attorney General to enforce compliance through a court order. Three points here are significant: 1. The law allows a person absolute discretion to decide whether he or she wishes to receive any further material from a particular sender. (The material need not be erotic.) 2. A vendor does not have a constitutional right to send unwanted material to someone’s home. A mailer’s right to communicate must stop before the mailbox of an unreceptive addressee. 3. The law satisfies the due process rights of the vendor who sends the material. It provides for an administrative hearing if the sender does violate the prohibitory order from the U.S. Postal Ser-vice, and a judicial hearing is held prior to issuance of any compliance order by a district court. As a result, the Postal Service now provides two relevant forms. Form 2150 is directed to a particular sender and is usually requested when a person has received obscene or sex-related materials in the mail. Form 2201 is a request that a person’s name be removed from all mailing lists. In an effort to counter-act legislation that might be directed toward control-ling unsolicited mail, the Direct Marketing Association has asked that all persons who wish to be removed from the lists of their members send their name and mailing address to the DMA (1120 Avenue of the Americas, New York, NY, 10036-6700, or 1119 19th Street NW, Washington, D.C., 20036-3603; http://www. thedma.org). The DMA then contacts individual mailers and asks that they delete the name. (In 1998, the DMA merged with the Association of Interactive Media [AIM], a leading cyberspace trade group that is now operating as a subsidiary of DMA.) Securities and Exchange Commission (SEC) Public corporations (those whose stock is publicly traded and owned) have to be concerned with SEC regulations, and all corporations must be aware of and sensitive to personnel and financial information that might be released. The larger the company, the more likely it is to let something escape that should not have. This is particularly true when the corporation must coordinate its information dissemination with one of its clients (especially in the case of companies with government contracts) or when an out-side firm prepares releases. It is wise to have a procedure for clearing news releases, print and electronic, so that no one is con-fused about what to do and (it is hoped) so that no one jumps the gun and releases a story before it has been cleared (see Figure 7.1). Some institutions release only the information required, but a case can be made for using releases as early warning signals (such as for possible bankruptcy filing) and as timely announcements of good news. Taking the offensive in takeover battles became a PR tactic. However, financial abuses have pushed the SEC to take a more active role in policing disclosures. The SEC is concerned with: ? n Initial public offerings (IPOs) when a company decides to become a publicly held company ? The information a publicly held company gives for investment evaluation, formerly given only to analysts, now required to be publicly available ? Regular reporting of financial condition on a quarterly basis ? Special filings when material issues arise ? Annual report and 10K Public relations practitioners are involved in all five of these, and if you are not handling investor relations, you may be working for a firm or agency that has a publicly held company as an account, or you may be the PR person in a company that has an investor relations practitioner with whom you need to have a solid working relationship, which means understanding his or her role and functions. In an effort to clean up bad business practices and return public trust to publicly held companies, the government enacted in 2002 the Sarbanes-Oxley (SOX) corporate reform law. The law’s aim was to bring transparency and responsibility to business practices. It has been costly to companies because it requires extensive examination of internal audit systems that began to have to be researched, documented and reported in 2004. The act also requires CEOs and CFOs to personally sign off on the validity of all financial reports. Corporate board committee charters and corporate codes of ethics must be posted for public access, and companies are required to have a direct whistleblower line to the board of directors. The law has affected all of the publicly held public relations and advertising conglomerates, of course.21 Although intended for publicly held companies, SOX has also affected nonprofits because many of the larger ones, including schools such as Juilliard and institutions such as the International Swimming Hall of Fame, have adopted Sarbanes-Oxley practices to reassure donors and supporters and to enhance credibility. Figure 7.1 Procedures for Clearing News Releases Handling of Product News Releases 1. First draft of copy to primary sources for preliminary approval. 2. Draft of release to corporate secretary for approval. 3. Revised copy to legal department for approval. 4. Draft to division general manager for approval in certain instances. (Group public relations manager should make judgment in this instance.) 5. Copy of approved news release is then mailed to the company handling news releases, along with media selection sheets for distribution. 6. Media covered will depend on the nature of the product, its importance to the various markets and industries and the marketing philosophy behind the development. (Distribution should be as broad as possible without covering media that would obviously not be interested in the development.) 7. Internal distribution of the news release to be determined by the group public relations manager, but usually is just posted first on the organization’s intranet so employees are not surprised. Approval Chain for Agency-Prepared Releases 1. Clear with primary source at division. 2. Send cleared draft to group public relations man-ager for corporate clearance. 3. Following approvals at corporate level, distribution may be made through agency channels. 4. Copies of completed release to all involved in clearances. (News releases that must be approved at the corporate level include announcements, features, case histories, blogs with corporate management’s name on them, new product releases and any other product-oriented information released in any media, including the organization’s own website.) Handling of Personnel News Releases 1. First draft of copy to individual named in release to check accuracy of facts. 2. Draft of release to source requesting release. 3. Draft of release to division general manager or individual’s immediate superior at corporate level. 4. Draft to corporate secretary and legal department for legal clearances. 5. Draft to group vice president in cases of key pro-motions at divisional level. In instances of key corporate promotions, the chairman, president, executive vice president, general counsel and appropriate group vice president must clear release. 6. Media coverage should include plant cities, corporate headquarters’ city, the individual’s hometown, association publications and appropriate alumni publications, trade magazines covering industries served by the division or group with which the individual is associated and any electronic media. 7. Internal distribution determined by group PR man-ager and, in cases of key corporate promotions, by public relations director. 8. Copies of news release should be sent to everyone included in the chain of approval. Note: These procedures depend on the organizational structure and policy. Each organization will develop its own clearance procedures. IPOs have been troublesome for the SEC since the initial offering of dotcom stocks, and continue to be so. Because companies are offering their shares for the first time, they have to disclose all of their business and prospects for this offering. PR practitioners were in demand when the dot-coms first began offering their shares because a business without bricks and mortar and a tangible product was expected to be a hard sell. The dot-coms sold well due in part to public fascination with the technology and in part to strong publicity. What happened, though, was information in the high-tech world got passed along informally in chat rooms and bulletin board postings. Most of that was uncontrolled, as is characteristic of the Internet. Enthusiasts were doing their own promotion and using poster names that didn’t really identify them. It wasn’t long before the realization came to some of them that what they posted could affect the shares of stock, any stock. Other unauthorized posters use news releases to engage in stock fraud. Why do you need to know this? Companies have to watch for fake, maybe even libelous, information that appears in chat rooms and on bulletin boards daily. Any of these can precipitate a crisis for the company. Simultaneous disclosure (Regulation FD) is the rule for all material information. Financial briefings used to be given periodically to financial analysts, especially those following the company closely. The briefings were usually given by the CEO and CFO with the investor relations person sitting in. An August 10, 2000, ruling by the SEC requires that material information be disclosed publicly at the same time as it is given to large institutional investors and any securities professionals, analysts and money managers. The rule applies only to information given by senior executives, not other managers and supervisors in contact with suppliers and customers. All of these briefings are now followed by a news release. To accommodate the rule’s requirement for full and simultaneous disclosure, companies have broadened access to conference calls so that individual investors are given a call-in number that allows them to listen but, usually, not to ask questions as all of the securities community (large and small investors) is allowed to do. Access is also provided through the Internet with the time and date of the call posted on the company’s website. There, anyone can listen in and then send emails for explanations or additional information. The news release covering the hour or longer conference call follows as closely as possible and is also posted on the website as well as sent to the financial and general news wires. Compliance has increased corporate use of web-sites. Investors may vote their proxies online and get the annual report and 10K and any other filings by email or fax. Site visitors can sign up to receive all kinds of company announcements by email, if they wish, and Regulation FD (for fair disclosure) put a large part of investor relations work online.23 For example, if material information is accidentally released, the company has only 24 hours to make it publicly available. The rule initially was not favorably received by the National Investor Relations Institute (NIRI) to which most IR practitioners belong. However, Reg FD has managed to save companies money and has made it easier for CEOs and CFOs to control the timing and positioning of information, a consequence probably not intended by the SEC. It has also increased the responsibilities of the IR person. Quarterly financial reports (10Q) are required by the SEC, although critics say this encourages companies to look short-term, rather than long-term, to keep stock prices going up rather than down. In the Enron and WorldCom debacles (of 2001 and 2002), the need to keep the stock price climbing was a contributing factor, but that’s no excuse for fraudulent behavior. In fact, that is exactly what quarterly reports are sup-posed to prevent. These earnings reports are prepared by the CFO and reviewed by corporate audit commit-tees, the majority of which are supposed to be outside, independent directors knowledgeable about financial matters. Each quarterly report is accompanied by a news release interpreting the data and is usually written and released by the IR officer. CEOs have to sign the reports as testimony (an oath) that they have read and approved these reports, with penalties for fraud (civil penalties or jail time) if the reports are later proven to be inaccurate or misleading. Special Filings (such as an 8K) are to alert the SEC, investors and potential investors to any changes in the financial climate that are likely to affect earnings and/or the price of the stock. In other words, anything material. The company has 15 days from the event, such as an unfavorable court ruling in a lawsuit, sale or acquisition of significant assets, to disclose. A delay may be requested if trade secrets or competitive data are at risk. However, most companies in light of Reg FD release the material information as promptly as possible. What is important for PR people to remember is that the news releases accompanying these are considered by the SEC to be as important as the forms filed. A misstep, even unintentional, can cause serious consequences. (To his credit, David Duncan, Enron’s chief auditor at Arthur Ander-sen, warned Enron against putting out a news release with “misleading” information in its thirdquarter earnings report, but was ignored by Enron management.) If a leak occurs or the event is likely to cause a flurry of activity for the stock, the exchange will stop trading, but only briefly. A judgment to with-hold can’t be made to defraud, and there must be no downplay in reporting good or bad news. The other occasion for the exchanges to control trading is when large investors, usually major retirement or mutual funds, use computerized sells that automatically put shares on the market, usually in response to special events that push prices down. This policy, called program trading, is supposed to control volatility in the market, but it didn’t stop a market meltdown in May 2010, and a single trade may actually have caused it. The event was over in just a few minutes, but created chaos. Annual reports and 10Ks are the year’s summary of the company’s activities, the 10K being the required form that must be filed with the SEC. For annual report and 10Krequirements, go the SEC’s website. Also look for the Financial Accounting Standards Board’s (FASB) rules on accounting for post-retirement bene-fits other than pensions. FASB refers to these benefits as OPEB (Other Post Employment Benefits) and requires that they be declared a liability. Those provisions took effect in1992. Because of the corporate failures of2002, a few companies—Coca-Cola was the first—now are declaring as liabilities stock options that are available, but not yet taken by management and/or directors. The annual report and the 10K are usually pre-pared by IR officers, PR staffs or firms. Annual reports have become promotional tools used by investment brokers and the company itself in presenting the company to all members of the financial public, from banks to analysts. When annual reports are distributed, a news release summarizing the main points and announcing the report’s publication is also distributed (see Figure 7.2). The annual report may include the 10K as the best way to integrate management messages with financial reports. In annual reports and the news releases that accompany them, the SEC also allows speculative claims. These are called “forward-looking statements” and must be identified as such in the report and the release. In addition to the SEC, which administers six major federal statutes in this area, other federal agen-cies important to financial institutions include the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits, and the Federal Home Loan Bank Board (FHLBB), which is responsible for savings and loan associations. Major court cases have shown that corporate officials and employees must understand the legal obligations of proper corporate disclosure.25 This is particularly true of the corporation’s relationship with financial analysts and the investment community. In the Texas Gulf Sulphur case,26 a federal district court ruling that the U.S. Supreme Court let stand, an insider was defined as anyone who has access to information that, if disseminated, might influence the price of a stock. A PR person who writes a news release, then, could be considered an insider. A PR firm must therefore disclose in its news releases that it is acting on behalf of an issuer and is receiving consideration from the issuer for its service. Richard S. Seltzer, former SEC special counsel, writes: The SEC apparently believes that fraudulent schemes initiated by corporate insiders may be facilitated by the action—or deliberate inaction—of outside professionals: the accountant who “stretches” generally accepted accounting principles; the lawyer who is willing to “overlook” material disclosures; and even the public relations practitioner who seeks to portray a convincing, but inaccurate, picture of corporate events. Figure 7.2 SEC Requirements for Annual Reports and Interpretive News Releases The SEC offers guidance for management’s discussion of a publicly held company’s financial condition and the results of its operations. The Sarbanes-Oxley Act increased internal diligence as support for such statements (MD&A, management’s discussion and analysis of the 10K and 10Q filings). In the news release that accompanies these documents, the National Investor Relations Institute (NIRI) suggests that a summary of the MD&A (Management Discussion and Analysis) and other critical information for investors be incorporated into that release. Information that investors need includes material changes to the financial statement and other required disclosures, resources and liquidity status (assets and debts), high-risk items and potential threats to the company’s overall financial health. Included with this news release, as with all earnings data in news releases that accompany quarterly reports, should be the company’s income statement, with some historical information for investors to make comparisons of profits and losses, and a balance sheet that shows assets and liabilities. NIRI also argues for plain English to be used in news releases. That is an important recommendation because some SEC report language is somewhat arcane except to the most experienced investors. Financial releases usually include a prospective or forward-looking discussion of operations and finances that includes market data and trends of the industry, corporate-specific demands and commitments as well as any other uncertainties that could have material effects on the financial condition and results of operations. Forward-looking statements fall under the SEC’s “safe harbor” rule that protects companies from liability if such required statements are made on a “reasonable basis,” in “good faith,” and if underlying assumptions are disclosed. A news release that is judged to be false or misleading may be found to be fraudulent, in which case it falls under SEC action. Another federal court decision has affected financial public relations significantly. Pig ‘N’ Whistle, a Chicago-based restaurant and motel chain, was headed by Paul Pickle, who had previously been sentenced to three years in prison for misapplication of federally insured funds. Pig ‘N’ Whistle was brought before the SEC in February and March of 1972 to answer charges of having distributed two untrue and misleading press releases concerning stock transactions and acquisition of property in 1969. The firm was also charged with illegal stock registration.28 The two releases, one made on Sept. 8 and the other on Dec. 30, contained untrue or misleading statements about the purchases of the Mary Ann Baking Co. and the Holiday Lodge near Lake Tahoe. Pig ‘N’ Whistle stock shot up to $18 per share after the two releases—which came from Financial Relations Board, Inc., a public relations company—were printed. Pig ‘N’ Whistle had been a client of Financial Relations for eight weeks in 1969.29 The statements released by Financial Relations were handled by only one member of the firm. The president of Financial Relations stated that Pig ‘N’ Whistle had not provided the firm with proper SEC registration papers for the stock. The PR firm was told by Pig ‘N’ Whistle lawyers that immediate disclosure of the purchase made by Pig ‘N’ Whistle was necessary to comply with SEC disclosure requirements.30 Thus, the releases couldn’t wait for registration papers to be filed. The SEC investigated the actions of both Pig ‘N’ Whistle and Financial Relations and ruled that Financial Relations had not exercised due caution in establishing the truth about the information furnished by Pig ‘N’ Whistle. The SEC said that Financial Relations should have done independent research before allowing any release to leave its offices. As a result, Financial Relations established within 30 days new procedures for reviewing the credentials of any new clients and for verifying the facts given to it for publication. This verification of facts covers any information that might affect investment decisions by stock purchasers. The SEC also ordered Financial Relations to cease any contact with Pig ‘N’ Whistle. In the 1970s, following the Pig ‘N’ Whistle case, the SEC began reviewing possible new disclosure regulations designed to protect the stock purchaser. The most important outcome of this, from the point of view of public relations, was that the kind of information released has to be more detailed and exact. Statements must be registered and must include a budget and cash flow projection for the company. It is an SEC violation to issue a false and/or misleading release, whether or not a profit is realized as a result. Public relations practitioners have to provide more information and be more certain now than in the past that the information is true. Further, the people who do the research and write the releases now assume the same liabilities as does the company about which the releases are published. The information the public relations department or firm releases—the financial operations, history, future outlook, management and marketing structure of the company for which it is working—must therefore be carefully considered. The SEC has placed a heavy burden on public relations practitioners by holding them accountable. Financial releases must also be considered in the context of other public information put out about the company. This underscores the need to speak with one voice, to ensure that no information is misleading. Especially important is pro forma accounting in earnings reports. Earnings reports now must be explained in the news releases from publicly held companies. The investor relations officers are on the front line here. The Financial Crisis of 2007–2010, Reform and Adjustments All of the rules and regulations already in place did not prevent the worst financial crisis in the USA since the 1929 Depression. The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted by the 111th U.S. Congress on July 31, 2010. The full title is: “An Act to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.” The legislation was a response to the recession of 2007–2010 and effected the broadest changes in the financial regulatory system since the depression of 1929–1930s. Since the act impacts all of the U.S. financial regulatory agencies, actual policy statements remain in development stages. Once complete, adaptations to the new policies will be reflected in new policies set by individual financial service segments. Follow-Up and Executive Compensation Disclosures Most Transparency Disclosures Resulted from Sarbanes-Oxley. Existing follow-up or additional disclosure is necessary under four circumstances: 1. New information must be updated when new events make previous statements misleading. 2. Responses to outside reports must be made if these are misleading and come from people in a position to have had the information approved by the company, such as an underwriter, director or large shareholder. 3. Trading of shares held by executives and all insiders, including the company itself and company-managed pension plans, must be reported unless all material information about the stock’s value already has been made avail-able to the public. (The company is liable if it has given material nonpublic information to outsiders.) 4. Acquisition and merger information must be dis-closed when negotiations reach agreement in principle. The Dodd-Frank Act, Title IX, Investor Protections and Improvements to the Regulation of Securities, changed financial responsibilities involving: “the power and structure of the SEC, credit rating organizations and the relationships between customers and broker-dealers or investment advisers.” Under this title, studies and reports will be required from the SEC and the Government Accountability Office (GAO). Changes affecting investor relations specifically include an incentive for whistleblowers and a provision that the SEC may issue rules making it easier for shareholders to nominate individuals to the board of directors. The act does require that investors be told why the same person is to serve as chair of the board of directors and CEO or why different individuals serve as board chair and CEO. Sarbanes-Oxley encouraged a separation of the two responsibilities, but didn’t prohibit it, so Dodd-Frank seems to keep that in place. Another change requires that at least once every three years a public corporation submit to a shareholder vote for approval of executive compensation. Executive pay, especially bonuses, out-raged a public struggling to handle an economy they saw as damaged by financial institutions. The act’s establishment of a Bureau of Consumer Financial Protection has within it a new consumer advisory board to inform it of emerging market trends. This suggests that IR needs to do its own research to follow trends and interpret them in terms of its own company. One provision of the act is that the U.S. Freedom of Information Act no longer applies to the SEC, so the SEC can refuse to supply documents that it considers a part of its regulatory and oversight activities. Rumors, Leaks and Insider Information with Disclosure When you are faced with rumors or leaks, you have three options: you can admit and disclose; you can make no comment or deny; or you can dodge and mislead. Courts have disagreed over where to draw the line clearly between exploratory preliminary talks and serious negotiations.33 The former may be reported in a relatively leisurely manner, but the latter should be reported quickly because information about them almost always leaks. It is just as important to understand the SEC’s view of information to which there is “equal access.” People who have knowledge that others do not have access to are called insiders. Thus, an insider, viewed broadly, is anyone who has information “everyone” else doesn’t have (for example, information not generally available) that would give that person an advantage in buying or selling a company’s stock. The court’s rather narrow definition in the Texas Gulf Sulphur case stipulated that an insider is an “officer, director or beneficial owner of 10 per-cent of any class of equity or security.” This definition has never been accepted by PR people, who looked with horror at headlines such as “Press Release Goes to Court.” Insider trading means using inside information to buy or sell securities, puts, calls and/or other options on securities. This is considered insider trading whether the action is taken in the name of the person initiating the transaction or in the name of someone else. The U.S. Supreme Court upheld lower-court insider trading convictions of former The Wall Street Journal reporter R. Foster Winans and two co-conspirators on Nov 16, 1987. The SEC viewed the ruling as an affirmation of its efforts to halt insider trading, efforts that had become very aggressive in the 1980s. The Court’s opinion upheld the convictions of the former reporter for securities, mail and wire fraud. The Court refused to reject the misappropriation theory, which holds that information may be misused no matter how it is obtained. (In this case, the reporter had obtained it in the course of writing his “Heard on the Street” column.) The misappropriation theory strengthens the SEC’s broad interpretation of insider trading. Collaboration of any kind that looked like insider trading to an already suspicious public caused many cases to surface in 2009–2010, and the issue became part of a broad regulatory reform sweep resulting in the Dodd-Frank Act. New SEC policy is likely to firm up some interpretation of insider. As soon as a company becomes aware of any insider trading, the SEC and the stock exchanges must be notified, and if the situation is somewhat vague, consultation is available. When a decision is made and a news release prepared, the SEC and the exchange must receive the information before it is made publicly available through any medium. Then the release must go to all of the news and business wire services and other media as would any other disclosure. SEC rules on insider trading that were put in place in 2000 clarified the law and also gave better information to people who want to know when corporate directors, executives and other insiders are buying or selling their company’s stock. The rules were part of Reg FB and are the first to deal specifically with insider trading. Rule 10b5-1 says that insiders only have to be “aware” of confidential material information, in contrast to some previous decisions in which insiders used the information to buy or sell stock. Knowing means not selling or buying until the information is publicly available. Rule 10b5-2 extends the rule to family members and any other individuals in nonbusiness relationships who got the confidential information and agreed not to disclose it. This helps honest corporate insiders. If they had a regular program for exercising stock options or buying shares, timed for tax advantages, for example, they can still use that plan, even though in the intervening time they have become aware of sensitive information. What the SEC will look for is irregular trading. If new stock is to be issued, there is a registration period during which two types of publicity are for-bidden: any estimates (dollars or percentages), even in broad or general terms, of earnings or sales for the industry or any product lines; and any predictions of increases in sales or earnings from any source. In 2006, an effort began to have the SEC exert more control over disclosure by lawmakers and staff of their trades and explicitly prohibit them from using information for insider trading. Accounting Reform Bill Congress passed a corporate reform bill July 26, 2002, largely in reaction to the Arthur Andersen/Enron situations. The bill’s components set the following in place: Corporate fraud that involves altering or destroying documents is a federal crime punishable by a $5 million fine and up to 20 years in prison; a five-member nongovernment board with subpoena power was created to oversee accounting companies; new rules were imposed on financial analysts to prevent conflict of interest; an accounting firm’s consulting services are restricted when the firm is the company’s outside auditor; personal loans from companies to top officials or board members is prohibited; the time for defrauded investors to sue the company was extended; and a federal account for defrauded investors, with the funds to come from payment of civil fines and company assets, was created. This puts additional responsibility on the IR person to keep a watchful eye on corporate processes as well as actions. Federal Trade Commission Although the SEC looks out for the rights of investors, another equally alert agency, the Federal Trade Commission (FTC), looks out for the rights of both investors and consumers. On the investor side, it monitors compliance with antitrust legislation and has been aggressive in monitoring proposed mergers that impinge on antitrust laws. On the consumer side, the FTC’s scrupulous surveillance has resulted in charges of false claims relating to publicity releases as well as to advertising.35 Pharmaceutical companies and health care providers have paid the most in settlements for false claims. Both the company/client making the assertions and the PR department or firm disseminating them are legally liable. This can fall under the previously discussed area of duty and detrimental reliance. The only protection is to take prudent precautions. Consequently, the PR writer should seek some verification for product or service claims before publicizing them. One suspicious (or cautious) publicist insists on trying a product before he writes the release. “If it works, and works well, I write a better story. If it doesn’t work, I don’t write it!” This is fine if the thing to be publicized is tangible, but often it is not. Services must be carefully explored, too. Some professionals, such as lawyers, have been sued for deceptive ads. Since the writer is legally responsible, some PR writers, especially those in independent firms (as opposed to corporate staff), require notarized statements from research and development staff of product attributes. The conscientious PR person may be less concerned with the action of government agencies than with consumers’ wrath or loss of confidence. Nevertheless, the PR writer should still be aware that fraud or misrepresentation, as it applies to advertising, pro-motion and publicity, is watched over by the FTC, the local Better Business Bureau and state and local law enforcement authorities. And the PR person should certainly be aware that payola and similar illegal promotional activities are grouped by the law in the category of “bribes.” Among the promotional activities monitored by the FTC are infomercials—program-length commercials that are scripted to simulate standard entertainment or educational features. The FTC now has guidelines for infomercials. Instead of attempting to prosecute the producers of the products (miraculous aging cures) or services (making $1 million in real estate), the FTC has decided to go after the producers of the infomercials. The FTC guidelines require that the infomercial producers have “reliable, scientific evidence” before making any claims for a product’s efficacy or safety. The FTC also requires disclosures that the infomercial is a paid commercial if it runs longer than 15 minutes. These disclosures have to appear at the beginning and end of the program, as well as before any ordering information. The FTC rulings make infomercial production companies cautious. Now that many TV stations have lost advertising and face increasing programming costs, infomercials have filled the broadcast time slots. Production companies know this is a lucrative business, but not if a costly lawsuit results. Responsibility to consumers creates a broad-brush approach. An FTC policy holds celebrities accountable for the statements they make in advertising. Although many celebrities, especially athletes, endorse something in their sport, some celebrities sign endorsements without knowing anything about the product or service. Their only contact might be in having the product shipped free to their home or office. Anyone who assumes the FTC is not watching should look at the FTC’s 2010 complaint to Reverb Communications. The FTC said that between November 2008 and May 2009, employees of the firm used iTunes account names to post positive reviews of client video games, leaving the impression that the comments were by disinterested reviewers. The illegal practice, called “astroturfing,” occurs when campaigns are disguised as grassroots support for a product. The FTC’s news release said Reverb employees were hired to promote the games and often got a percentage of the sales. Under the FTC Act, anyone with material interest in a product and who promotes it without disclosing a vested interest is being deceptive. The firm agreed to remove the deceptive endorsements, not do it again and settled without being fined. However, if the FTC does find the firm in violation again, it will be fined. Food and Drug Administration Like the FTC, the U.S. Food and Drug Administration (FDA) is active in protecting consumers. For instance, the FDA developed guidelines for consumer advertising initiated by drug companies. The first prescription drug advertising in fall 1983 appeared on cable TV shows aimed at physicians, but there is no way to exclude the lay public from exposure to the same advertising. Advertising drugs directly to consumers has created all manner of problems, and stirred ethical issues as well. After Merck got into legal problems with its Vioxx over the drug’s connection with heart failure, Pfizer decided to limit its advertising of new drugs to consumers until the products have been on the market for six weeks. The same year as Pfizer’s decision, 23 drug companies agreed to an advertising code of conduct in August 2005. Physicians have expressed some concern that ads, even those that include prescription information, still emphasize the advantages of the product. Nevertheless, the marketing, promotion and advertising of prescription drugs already has the drug companies’ PR people heavily involved. In 1991, the FDA told doctors who serve as paid agents of the drug industry that they too would be targets of FDA surveillance. At the same time, a warning went out to the pharmaceutical industry to stop touting (in promotional brochures and articles) FDA unapproved uses for products. Complicating the whole matter is evidence that some substances in the body, even at low levels, can cause brain dis-orders, even cancer, in some people, especially children. The FDA considers the images, and, in broadcasting, the audio, including the use of music. The FDA is getting pressure from food and drug industries to loosen their restrictions in the name of corporate free speech, but there’s opposition to that. Of special concern to consumer advocates and the health industries is the publicizing of “off label” or unapproved uses of products. Although the FDA approves products for specific uses, sometimes research indicates additional benefits for something that may or may not be directly related. The FDA has moved away from a previous stance of keeping sales representatives from even giving such research reports to physicians, but it still does not permit wide dissemination of such materials. Medical devices and procedures also fall under FDA approval. The lesson here is that promotions and news releases, as well as labeling and advertising, can get you in trouble with the FDA. For safety, the FDA needs to be in the preapproval loop so the company won’t get into trouble for “misleading” the public. A series of food and pharmaceutical crises in 2006 and 2007 regarding Chinese involvement in production of both food and drugs for U.S. markets has put consumer pressure on the FDA to get involved in more, rather than less, surveillance. In 2008, 2009 and 2010, serious problems with human and animal food grown and produced in the USA led the agency and consumers to demand more inspection and funds to support that. Salmonella cases have been caused by cereal, peanut butter and eggs, for example.37 A 2010 egg recall brought to public light a problem with what the FDA was authorized to look at and what fell under the jurisdiction of the U.S. Department of Agriculture. Prompt action in August 2010 gave the FDA more authority. Federal Communications Commission (FCC) In 1981, the Federal Communications Commission (FCC) deregulated broadcasting—an action that primarily affected its public affairs programming requirements and the fairness doctrine for television and radio. In 1987, the FCC did away with the fair-ness doctrine altogether, as discussed in the ethics chapter. Deregulation has made it more difficult to get public service time because broadcasters are not required by the FCC to broadcast public service announcements (PSAs). Also, the demise of the fairness doctrine has made broadcasters more hesitant to accept issue advertising in any form, whether purchased time or public service announcements, because avoidable controversies can hurt advertising revenues. The fairness doctrine required a station to provide reply time to any person or group who thought the presentation of a controversial issue had either attacked them or not presented their point of view. In October 2000, the FCC repealed the only “fairness” rules left—the personal attack and political editorial rules—because these were based on the long-gone fairness doctrine. Still in force is the equal time rule, section 315 of the Communications Act, which requires stations to give equal access to political candidates during elec-tions. The FCC also requires stations to give political candidates the lowest rates, to charge the same rates to candidates for the same office and to offer them an equal amount of time. Political ads are not subject to censorship for any reasons. Stations are protected because they may not be sued for any libel or slander in the commercials. In its role of monitoring public decency, the FCC oversees free radio and television networks from 6 a.m. until 10 p.m. The FCC has no control over cable, satellite radio or sites such as YouTube. In its oversight, the FCC has relaxed some rules as the social climate has changed, but has not relaxed its regulation over words, which are “bleeped,” or images that are pixilated in accordance with broad-cast network “standards and practices.” These were put in place by the networks to keep out of trouble with the FCC, audiences and advertisers. However, in July 2010, the 2nd U.S. Circuit Court of Appeals rejected the FCC’s indecency regulations as unconstitutionally vague and “chilling.” The ruling is frustrating over-the-air stations as well as the FCC. Many people forget that the FCC also regulates telecommunications, including telephone and computer networks and satellite communications. How-ever, in 2010, the FCC lost its battle for authority over broadband providers to be sure they give equal treatment to all Internet traffic on their networks. The FCC argued for “Internet neutrality,” saying it needed the authority to prevent providers from dis-criminating against some websites or online services, such as phone programs or browser software. The FCC argument was based on traditional nondiscrimination rules for common carrier networks that service the public, such as phone lines and electrical grids. Contesting that position was Comcast Corp, the largest cable company in the USA. In 2010, the U.S. Court of Appeals for the District of Columbia sided with Comcast and ruled that the FCC lacked the authority to require equal treatment for all Internet traffic over a network. The ruling could also affect the FCC’s plan to expand broadband by using federal funds that subsidize telephone services to rural and poor communities. Court Rulings and Legal Responsibilities Many aspects of PR are affected by court rulings and a variety of civil and criminal laws. Here we will touch on those that seem particularly important. One aspect of almost all of the legal responsibilities resulting from these is the presence of truth as a required element. Johnson & Johnson’s Tylenol was the subject of a civil suit settled in May 1987.38 Actually, what was being contested was Johnson & Johnson’s slogan for the product: “You can’t buy a more potent pain reliever without a prescription.” The slogan was not true, said Judge William C. Conner, and he accused Johnson & Johnson of false and misleading claims in its advertising for Tylenol that exaggerated its superiority over other pain relievers. The judge reviewed all of Tylenol’s ads and said the case pointed out five good lessons for consumers and advertisers: 1. Don’t be fooled by headlines and pictures. 2. Beware of every word, even the smallest ones. 3. Numbers don’t mean much, even the big ones. 4. Know the ingredients behind the product. 5. Repeating a slogan doesn’t make it true. Special events have also captured the attention of the Internal Revenue Service (IRS). A 1991 IRS ruling would tax, at the rate of 34 percent, donations that nonprofit organizations receive from corporate sponsors. Athletic events got the first warnings, but also liable are cultural events that enjoy corporate sponsorship. The ruling was directed at Mobil Oil Company for the Mobil Cotton Bowl and John Han-cock Insurance for the John Hancock Bowl. The potential reach of the ruling rallied all nonprofit groups to seek exemptions. The repercussions of the IRS ruling are indeed broad, extending even to universities that name endowed chairs or buildings for donors. Another area to watch is the increasing number of discrimination and bias suits being filed by both employees and customers. Several airlines have found their companies in the news for refusing to board passengers who are considered to be dressed inappropriately or too large for one seat, requiring them to buy two seats to accommodate their size. Issues of race and gender continue to be a problem with some women working in very uncomfortable environments where sexual harassment is accepted behavior. Organizations involved often find it difficult to attract qualified employees. Some actions may even inspire boycotts, which keep the issue alive in the court of public opinion. Investor relations is another area of growing importance, especially in terms of public confidence in a company. The global financial meltdown in 2008– 2010 shattered investor confidence in all financial institutions. One of the world’s oldest and most secretive banks, UBS AG of Switzerland, was sued by the USA for depositor information on its citizens. UBS has offices in 50 countries, including the USA. The U.S. Treasury wants to know about the U.S. customers’ accounts because it is against U.S. law to take from the USA or to bring into the USA unreported funds of more than $10,000. Environmental cases are also in the forefront of litigation, particularly since the 2010 oil spill in the Gulf of Mexico that focused on British Petroleum, but involved other companies in addition to BP PLC (British Petroleum). Litigation attorneys predict that it may be 2028 before suits and appeals connected to the spill are resolved. BP’s public relations issues in handling the problem may take even longer to be resolved. (See the chapters on management and crisis.) Free Speech and Organizational Voice Whether or not you, as a PR practitioner, are involved in preparing your organization’s advertising, you share responsibility for maintaining the organization’s credibility. This is especially true in relation to handling the publicity resulting from any lawsuit, because it is bound to have some impact on both consumers and investors. Such situations are exactly what public relations practitioners have in mind when they argue for speaking with one organizational voice and coordinating all communication efforts. The freedom of that organizational voice may be jeopardized by legal actions, primarily against some forms of marketing and advertising. And although all courts have long recognized that organizations, like individuals, have a “voice,” some Supreme Court decisions have restricted commercial freedom of speech in ways that have threatened to muffle organizational or institutional voices. The latest one, though, mentioned earlier in this chapter, may indicate a shift in the Supreme Court. In the Court’s 2010 ruling giving corporations the right to spend money in elections, the majority defined a corporation as an association of citizens that deserves the same rights as an individual. In recent decades, court rulings on commercial speech have gone up and down; some have been favor-able, some restrictive. On the favorable side, in 2001, the Supreme Court struck down a Massachusetts law that restricted tobacco advertising on the basis that the state failed to prove that its regulations were not more extensive than needed to prevent underage use of tobacco. Massachusetts prevented cigarette ads within 1,000 feet of schools and children’s facilities. Confusing the issue is a 2002 claim by Nike that commercial speech does not include news releases or letters to editors and others. Nike, in trying to recover from the accusation that it runs sweatshops in poor countries, contracted with APCO World-wide for a social responsibility PR campaign. That was before the California Supreme Court decided to allow a case against Nike to go forward. That decision, that PR has the same obligation to truth as advertising and is commercial speech, was upheld at the next level, so Nike decided to take the case to the U.S. Supreme Court. Nike had sent letters to editors and to universities saying that all of its employees in China, Indonesia and Vietnam were paid twice the minimum wage, had just as healthy and safe work environment and got free food and medical care. The company also had issued news releases explaining the situation with their factories. The case against Nike was brought by Mark Kasky, a San Francisco activist, who said that news release statements should be regarded the same as advertising. Kasky’s claim was that Nike violated laws prohibiting false or misleading statements in commercial free speech. Those who practice integrated communication always have accepted the idea that news releases and advertising are both commercial free speech and have supported free speech for all corporate communications. After an appeal to the U.S. Supreme Court was denied, Nike settled the case with Kasky in 2003 by agreeing to pay $l.5 million during the next three years to the Fair Labor Association based in Washing-ton, D.C., that includes consumer groups, human rights organizations, companies and universities. The funds were for worker education and training to create a global reporting standard for factory conditions and to monitor factory processes. Restrictions The first major restriction on institutional voices involved the banning of tobacco advertising on television. (There are efforts now to ban the advertising of all tobacco products in all media.) The free speech counterargument is that, as long as the product is legal, producers should be permitted to advertise it. (In fact, farmers are subsidized to grow tobacco. There seems to be some inconsistency in government policy, at least.) In 1995, lawyers were restrained from “ambulance chasing” by mail for 30 days. In that ruling, standards from the 1980s Central Hudson Gas & Electric Corp v. Public Service Commission were applied. Basically, these are: the speech must be accurate and not mis-leading; the government must establish a substantial interest in regulating the speech; the regulation must advance the government’s interest; and the regulation must be narrowly written so as not to trample unnecessarily on other rights. The early 1990s saw a flurry of legal action against artists and arts organizations—much of it centered on the National Endowment for the Arts (NEA), which had funded some exhibits and artists that provoked controversy over obscenity. The NEA was not the only focus for challenges to First Amendment rights. The rap group 2 Live Crew was arrested while performing, and some record and audiotape store owners were arrested for selling the group’s recordings, in both cases because the lyrics were alleged to be obscene. Other controversies come from unscripted words uttered in live broadcasts and from violent behavior shown in promos and advertising of upcoming events. The eventual legal decisions in all of these most recent cases came out in favor of free speech, but the controversy is not over. Observers see a threat to individual freedom in another case, involving a suit by the Attorney Registration and Disciplinary Commission of Illinois against a lawyer who listed his certification by a trial lawyers’ group on his stationery. The American Advertising Federation filed a brief in court supporting the lawyer, saying that the certification mention doesn’t constitute advertising, and even if it did, the restriction is far too broad. In any case, the Federation urged, restrictions can’t validly be placed on speech unless the speech is misleading. One reason for what appears to be court vacillation on the issue of corporate speech doctrine may rest with the mixed will of the people in the country. Periodically, polls indicate that there is some waning of public support for unlimited “free speech” by individuals or corporations. The 2010 ruling by the U.S. Supreme Court giving more primarily political free speech rights to corporations elicited negative reactions. Public evidence of a desire for limits on corporate speech includes such things as the federal no-call list, which is enforced by the FTC and the FCC. Although some organizations argue that this is an abridgement of corporate speech because political and nonprofit charities are exempt, as well as some businesses (related to credit issues), most people are relieved to have at least their landline phones and faxes quieter. On the judicial side, a problem maybe in trying to decide what is in the best interest of the individual or the community. (See Chapter 6 on communitarian vs. utilitarian ethics.) Contempt of Court Contempt may occur when you comment on a case that is pending before a court in such a way that it can be construed as an attempt to influence a jury or prospective juror. When a case is in its pretrial stages, you should avoid putting your argument in advertising or publicity. A company with its case in court can’t take it to the public by issuing releases or buying ads explaining its position. It can’t send out a mailing if the judge has ordered that no public comment be made on the trial. If the news media’s coverage of a trial erodes public confidence and hurts the company, it still can’t respond. Failure to comply may result in a contempt citation. Even issue advertisements can cause problems. Aetna Insurance’s 1988 ads about damage suits running up the cost of insurance created problems subsequently in choosing a jury that had not been “exposed.” The tobacco industry that is still involved in injury lawsuits due to appeals needs to tell investors what to expect, but can’t because of gag orders placed by judges hearing many of its cases. Trial courts are restricted from making blanket gag orders unless a fair trial might be compromised. However, the court is expected to decide whether new evidence can be admitted and to put a time limit on the restriction. So, the tension is between the company trying to fulfill disclosure rules on material information and gag orders in courts where it is trying cases. With the 2010 BP oil spill lawsuits and appeals likely to go on for years, the company is going to be under many constraints to tell its side of the story. Although the Texas Gulf oil spill is a high-profile corporate case, contempt of court could become a problem for any company involved in jury trials. Just how much advertising can influence juries is the issue, and research findings are on the side of those who say it does. But even if influence can be shown, does this necessarily impair the plaintiff’s right to a fair and impartial hearing? Judges have not always agreed. Many companies, nevertheless, see the need to launch defensive action in the face of the litigation journalism/ public relations mounted by plaintiffs. With the lines between advertising and publicity blurred and in an age of “melded media,” it may be difficult to prove unfair influence over a jury either way. Publicizing Political Views, The U.S. Supreme Court already ruled that state laws could not prevent firms from publicizing or advertising their position on political issues that materially affect their property, business or assets. Now, federal law has given support to organizational free speech. Thus, corporations, like individuals, have the right to support candidates and convey information of public interest, whether or not the issue directly affects the company. When corporate campaign contributions were illegal in most states, corporations developed political action committees (PACs), which can gather funds and direct their use. PACs, although they report to the Federal Election Commission, are also required to advise the IRS of their purpose, and report annual contributions of $200 or more and expenditures of $500 or more. With the 2010 Supreme Court rulings, some companies may no longer see a need for PACs. However, the experience of retailer Target suggests that the use of a PAC may the safest way to direct its support. In 2010, the retailer donated $150,000 to MN Forward, a political action group backing a Minnesota Republi-can gubernatorial candidate who did not support gay rights. The donation stirred up a backlash from Tar-get consumers, institutional investors and advocacy groups in all media, including virtual rallies. Target did not withdraw the contribution or make a donation to a gay rights advocacy group. One cause for consumer outrage may have been the conflict with Target’s asserted values and its record on corporate employee diversity. In any case, any corporate donations to specific candidates automatically creates potential for a public relations crisis. A PAC could be a safer choice. Many PACs choose to support issues and candidates that are in sync with the corporate mission and values; some-times that may mean support for candidates from different parties. Lobbying Laws Basically, in the USA, the First Amendment gives individuals, groups and corporations the right to petition their government at any level. However, in some cases registration is required. (See Individual Practitioners’ Responsibilities below.) Federal lobbying laws are different from state laws, so you need to check both. State laws cover lobbying at the municipal level to give both accountability and transparency to efforts to affect policy. At the federal level, broad changes in 2009 affecting lobbying appear in the Act to Improve the Laws Relating to Campaign Finance, Ethics and Lobbying. The act defined legislative and executive lobbying and clarified rules for nonprofits, especially advocacy organizations. If your organization is specifically a lobbying entity, it has to register and report. Volunteers for any nonprofit don’t need to register. However, if they are paid by the organization, they’ll need to register. For nonprofit groups, lobbying activities are mostly tied to their tax status. Tax-exempt nonprofit organizations (IRC501(c) (3) are permitted to lobby to an “insubstantial amount,” but prohibited from engaging in political activity. There are strict financial limits on lobbying expenses. An exception is made for nonprofits that qualify under IRC501(h). These include educational institutions; hospitals and medical research organizations; organizations supporting government schools; organizations publicly supported by charitable contributions; organizations publicly supported by admissions and sales; and other organizations supporting certain types of public charities. These do not include churches, auxiliaries or associations of a church or members of church affiliated groups. For churches, the line between legal and illegal is a bit fuzzy, but the IRS handbook “Tax-Exempt Status for Your Organization” offers guidance affecting 501(c)(3) organizations. The handbook says churches can get involved in nonpartisan voter education activities or public forums. Religious institutions also can separately incorporate organizations, under 501(c)(4) rules. Such organizations have more freedom to engage in partisan activities. Washington, D.C., has 17 religious lobbying offices. Of these, 12 are separate religious denominations; three represent several denominations in the same family of churches; and two are large ecumenical groups—the National Council of Churches (32 denominations) and the National Association of Evangelicals (47 denominations). Individual Practitioners’ Responsibilities Public relations practitioners must register with the U.S. government when they represent a foreign government or act as a lobbyist, and they are personally legally liable for the accuracy of statements they write for advertising and publicity—regardless of who directed them to write the material. They are also responsible for material and information they provide as a news source. Additionally, they are personally and individually responsible to their employer, organization or client and can go to federal prison for their misdeeds such as fraud. Registering Political Activity Public relations practitioners representing foreign governments must be registered with the U.S. government as foreign agents. Complexity created by globalization adds to this problem and contributes confusion to the ban on internal audiences receiving messages crafted for propagandizing international audiences. (See information about the Gillett Amendment in Chapter 1.) In what is being called “public diplomacy,” many public relations practitioners are involved in creating messages as a part of relationships with other parts of the world that inevitably cross national boundaries because of the Internet. All sorts of issues arise, such as transparency and figuring out what communication activity falls under the need to register. Many public affairs jobs include lobbying. If you spend more than 50 hours lobbying legislators or have been paid more than $6,000 from a single client to lobby in the last six months, you’ll need to register. You can do this through the Secretary of the U.S. Senate, and sometimes you can register at that office’s website. It’s a good idea to remind clients to register and to report their lobbying expenses because it helps them avoid a fine. You must register again each calendar year. You’ll need to register with the Clerk of the U.S. House of Representatives if you lobby members of the House. You’ll need to register with other political groups if you lobby in different areas. If you don’t register for the Senate and/or House, you can pay a civil fine of up to $50,000. You also cannot make gifts worth more than $50 to legislators and not more than a total of $100 worth to a single individual in a year. If you have been working for the U.S. government, you cannot lobby the group or departments for which you worked for a year after you’ve left the job. Annual registration forms require that you report government positions you’ve held for the last two years after you’ve left office. If you are lobbying for your state, each state has its own rules for registering, and the rules on the amount being paid for doing so varies by state. Registering as a lobbyist also involves a fee; again, that varies by state. You can look up that information for your state, and you can find rules of registration for lobbying for different countries too. Product Liability and Publicity and Advertising Calling consumers’ attention to a product that later harms them raises liability concerns among public relations writers and advertising copywriters who handle publicity. Many writers now ask for certification of product reliability before writing news releases and ad copy, as assurance that the product will perform as claimed and will not cause harm. Agency managers and in-house managers who were previously reluctant to ask for such protection for their ad and publicity copywriters might reconsider now that many media are doing so. Media have been characterized as “conduits” for harmful product or service information in judicial proceedings, and they don’t like the idea of facing expensive lawsuits. Complying with Consumer Rights People have sought legal means to obtain information that will help them make rational decisions about their lives. As a practitioner, you need to know what responsibilities you have to respond to requests for information. Freedom of Information Act The FOIA brings much government-held information within the reach of the news media and the public in general, including reams of data provided by corporate executives to meet the regulatory requirements of various government agencies, commissions and bureaus. The public relations corporate staff officers should know what information is filed with these various government offices to anticipate any that might cause problems if released under an FOIA request. Corporate lawyers will advise you about what confidential material is protected under the law, but generally the only types of information exempted from disclosure under the FOIA are trade secrets (narrowly defined) and confidential, commercial or financial data that are obtained from outside the gov-ernment. Competitive disadvantage is a legitimate argument for protecting confidentiality, but it must be proved; the mere possibility of harm to a competitive position is not adequate. Some portions of otherwise protected material still may have to be released if, after critical portions are eliminated, the basic confidentiality is protected. Another way to justify confidentiality is to show that release of the information will make it difficult for the government to get the same type of information in the future. It may be that you are searching for information by using the FOIA. Different U.S. government agencies have their own agency’s interpretation of the FOIA that you can locate with a Web search. Countries that have some freedom of information guide-lines can be accessed with a Web search by country and by agency. Right to Know Many states in the USA have enacted “right to know” laws patterned on the FOIA. These laws make information publicly available regarding the presence of hazardous substances in the environ-ment or other social threats. Some of the information becoming available under such laws is being released as a result of court rulings in favor of company management against regulatory agencies such as the Occupational Safety and Health Administration (OSHA). Open-Meeting Laws PR people need to be aware of which of their organization’s meetings must be announced and open to the public. “Sunshine laws” require that almost all government meetings, except those dealing with personnel matters, be open. Highly unfavorable publicity can result from violations. In many states, it is impermissible to say only “personnel matters” or “closed” on the notice of a meeting. The matters to be discussed must be specifically listed on the agenda, even though that part of the meeting may be closed. Federal law requires that governmental bodies keep a tape recording of any executive session that is closed to the public. How-ever, anyone who makes that tape recording or a portion of it public is subject to civil and criminal penalties. (Guides to different states’ access laws are often published in Quill, the magazine of the Society of Professional Journalists.) In their role as a news source, PR people often respond to calls from media representatives or initiate calls to share information that may or may not be about their client(s) or organization. If their statements are false or misleading, they may find them-selves involved in litigation—even if confidentiality has been promised by the media. Copyright Laws Copyright laws protect a creative work, both in form and in style, from publication in any manner. Basically, “publication” means use and includes all media. This protection of intellectual property extends across borders. The purpose, according to the World Intellectual Property Organization, is “to encourage a dynamic creative culture, while returning value to creators so that they can lead a dignified economic existence, and to provide widespread, affordable access to content for the public.”49 Before quoting from or using in any other way copyrighted works, you must ask for permission from the creator or the owner of the rights. There are some exceptions to this general rule, however. If artistic efforts (writings, art, graphics, photos or other creative work) are done on company time by an employee using company resources, the material belongs to the organization (the person’s salary constitutes his or her compensation). In some cases, an organization will make an arrangement for one-time use and permit the artist to earn extra money by subsequently selling the work elsewhere. However, the artist can only sell work done on company time when a prior agreement exists between employer and employee. In work for hire, then, permission requests go to the organization involved in presenting it, not to the individual who created it. If the organization wants to use other work by the employee that is not a part of his or her regular duties or that doesn’t qualify as “work made for hire,” permission must be obtained. An example would be a piece of art produced by an employee privately and on his or her own time that is to be used on a company holiday greeting card. When work is purchased from an outside person (as supplier), there can be confusion later unless an agreement is drawn up. Most PR people either buy file rights or one-time rights (which are nonexclusive). But even then you should make sure there is a written agreement when the work is ordered. A Supreme Court decision issued in 1989 said that written agreements between a freelancer and the commissioner of the work are valid only if the work fits under one or more of nine definitions found in the law: work created within the scope of employment; collective work (ads); part of an audiovisual work; a translation; a supplementary work; a compilation; instructional text; a test or answers to a test; or an atlas. The transfer of ownership of the copyright is defined as an assignment?...

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