NEW YORK (Reuters) - Wall Street’s top public relations firms have long supplied grist to a mill hungry for tips about financial deals, but revelations in an insider trading case could lead to that stream of information slowing down.
U.S. authorities have accused former Lehman Brothers salesman Matthew Devlin of tipping friends and relatives about 13 impending mergers with confidential information he got from his wife Nina, a partner at Brunswick Group, an international financial communications firm.
While Nina Devlin is not charged in the case, and Brunswick has said the information was obtained without her knowledge, the breach of client trust is immense, PR experts said.
Brunswick said on Monday it has suspended Devlin pending the outcome of an internal review by outside counsel, saying it was an “appropriate course of action in this situation”.
Experts said the case shows the danger of “pillow talk” between PR professionals and their spouses, or gossip with friends.
The Devlin case involved some of the biggest deals in the last four years including Alcoa Inc’s $27 billion hostile offer for Alcan in 2007 and Dow Chemical’s $15 billion acquisition of Rohm & Haas this year.
There will likely be a crackdown at PR firms with such sensitive news, not only on who has access to information but where and when they have access.
Most firms Reuters spoke with said they are taking a second look at their policies for handling information considering tighter restrictions on taking documents home and access to computer systems. Most had already sent out policy reminders to their staffers and are consulting their lawyers.
That could all send a chill through a niche but lucrative business that operates in the shadows of almost every major merger deal.
PR firms that specialize in mergers and acquisitions develop the communications strategy between the client companies, their lawyers and investment bankers as they try to sell a deal to the media, investors and other key groups, such as employees, customers and suppliers.
The role gives them access to a well of extremely sensitive financial information so trust is a crucial ingredient of the relationship. Most specialist firms like Joele Frank PR, Abernathy MacGregor, and Kekst & Co, now part of Publicis all mandate regular training and refreshers on client confidentiality for their staff.
Rivals and industry experts were not certain whether Brunswick would lose clients’ trust en masse or whether it could address the problem aggressively and, in doing so, change the way the industry operates.
“Of course it could affect the way we all work -- our reputation is our business,” said a senior partner with decades experience in the field at a top firm.
Several executives asked not to be named for fear of appearing to celebrate the difficulties of a competitor.
Some of them question whether Nina Devlin will be able to regain the trust of clients enough to remain at the firm.
“I wouldn’t fire her but she probably should be fired because you can’t win a debate on confidentiality with clients,” said another PR partner who asked not to be named.
On Friday, for example, Dow Chemical, one of Brunswick’s biggest clients, suspended using the firm’s services saying it was “shocked and disappointed” by events.
Occasionally some of the information PR firms are privy to is leaked to a media outlet of choice as part of the public relations strategy agreed with clients, but journalists also go to bankers, lawyers, and companies themselves to break deal news. Other times, news goes out broadly in a press release.
Tough new curbs on who has access to critical information could reduce the number of background briefings given to journalists covering deals.
Some PR experts say such briefings are questionable.
“I would advise the PR firm not on to go on background too often because they’re apt to reveal ‘insider guidance’,” said Howard Rubenstein, founder of the 54-year-old firm Rubenstein.
Brunswick has a strong reputation in London where it is headquartered and has many large UK companies as its clients.
“We reached out to all our clients to address this matter with them directly within 24 hours,” the company said in a statement on Monday.
Brunswick will working hard to assure clients that it can still be trusted, said industry watchers.
“It’s a black eye for Brunswick,” said the first PR partner who asked not to be named. “They’re in damage control mode, it must be a huge blow to them.”
Reporting by Yinka Adegoke; Editing by Tim Dobbyn
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