A free and active press generally provides impetus for instilling enhanced corporate governance practices in any economy, as it does in India. However, conflicts of interest that the media faces may create distorted incentives that dilute these objectives. One such conflict is presented by the concept of “private treaties” whereby media enterprises take stakes in companies in return for agreeing to provide adequate media coverage for the investee company through advertisements, news reports, advertorials, etc. It is possible that this practice may mislead investors in securities markets as media reporting may not present the accurate picture regarding companies.
In order to alleviate these concerns, SEBI last week issued a press release, which requires media enterprises to disclose (i) their stakes in companies in the news article or report relating to such companies; (ii) shareholdings through private treaty arrangements on their websites; and (iii) arrangements with companies relating to management control, board nomination and the like. These disclosures will be applicable in the case of companies that are listed or are proposed to be listed on a stock exchange.
This is bound to bring in transparency in investments by media enterprises and to provide a solution to the conflict of interest created by private treaties. For a further analysis of the impact of these disclosure norms, see the SEBI Updates Blog, the Financial Express and the Hindu Business Line.