Media: Insiders' guide to the Friday night drop

A row at the Sunday Telegraph has thrown light on questionable relationships between some financial journalists and City PR firms. But who benefits most from insider information?
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Last week a rarely-mentioned facet of British journalism emerged blinking into the daylight thanks to a particularly acrimonious employment tribunal involving the City desk of The Sunday Telegraph.

Patrick Weever, former deputy City editor of the Sunday broadsheet, lost his claim that he had been the victim of a "classic Fleet Street knifing" by his boss, Neil Bennett, but in the course of presenting his evidence he brought to attention the shadowy phenomenon known as the "Friday night drop".

The "Friday night drop" occurs when one of the City public relations firms of which a handful dominate the industry gives an exclusive story to a Sunday newspaper. The best stories are market-sensitive and potentially contravene Stock Exchange regulations on insider dealing.

The practice dates from the Seventies when Brian Basham - the Ulsterman who handled public relations for BA during its battle with Virgin - effectively invented financial public relations with his company, Broadstreet Associates.

Before that journalists had always been dealt with by investment bankers, and many of them were well-known figures in Fleet Street. However, in the late Seventies and Eighties as the Government and the City's regulators became more concerned with insider information, the bankers wanted to distance themselves from the press. This is where financial PRs came in. They could be a buffer for the City gents who would previously have had relationships with journalists.

"Brian realised that there was a gap in the market because Sunday newspapers were desperate for business news that would make them relevant," says one former City PR and journalist. "No business news happens on a Saturday, and rather than re-hash the previous week's stories they were looking to produce news about what was about to happen the following week."

The other factor in the development of "the drop" was the unlisted securities market. This listed a large number of smaller companies, many with less strict financial reporting requirements than companies on the main stock- exchange, and these firms needed financial PRs with good relationships in Fleet Street if they were to get any publicity at all.

A culture of financial PRs and Sunday business journalists, who met in pubs on Friday nights after the markets shut to swap gossip, soon developed into a regular exchange of favours. The financial PR world also expanded, with many people from Brian Basham's pioneering company leaving to set up their own PR firms.

Two - often conflicting - interests can be served by getting stories into a Sunday paper: the PR company's and his client's. If a company is about to post disappointing results, the last thing it wants to do is surprise the City. Financial analysts are well paid to forecast how well a company is doing. The last thing they want is egg on their faces when a company performs differently from their forecasts. "The drop" is a way of forewarning the City of worse-than-expected results, and this then often lessens the size of a hit a company's stock price will take on the day it publicly announces its results.

Apart from results figures, "the drop" is also used to go over the heads of directors, directly to shareholders. During contested take-over bids companies will leak information about a target company that they cannot prove in their formal offer document - usually a forecast of next year's performance, but information that could yet sway which way shareholders decide to go in a take-over battle.

Companies that may have begun talks with a possible takeover target will also use "the drop" to smoke out interest in their bid. If the bidder has been talking to a chairman and a board, and getting nowhere, they leak the fact that they are in talks so that the company has to make a statement to the Stock Exchange and their shareholders. The hope is that the shareholders will then want to know why their board is not looking to sell, and thereby make them a nice profit.

Other company uses for "the drop" involve personnel. One well-known non- executive chairman of one of Britain's biggest technology companies wanted to get rid of his chief executive, but didn't want to provoke a row by sacking him. His PR spun a line to a Sunday paper, telling it that institutional investors were pressuring him to get rid of the chief executive. The paper duly reported the story, and the chief executive was forced to resign.

Less successfully, in a famous case, a chairman who thought his board was plotting against him had it leaked to the Sunday newspapers that there was a cabal forming against him. He used the newspaper cutting to try to force the board to back him. However, they confirmed the story - and then they sacked him.

"The drop" allows PR companies to manage the news about their clients, and there are apocryphal tales of PRs dictating the story they want to journalists.

News management does not always work. When British Gas's PR company realised that The Sun was investigating how much its one-time chief executive, Cedric Brown, was being paid, at the height of the "fat cats" furore, they decided to try to manage a leak of his salary.

The Sunday Times was "dropped" a story about how British Gas had restructured its executive remuneration system, making it more accountable, scientific and generally marvellous. Only in the sixth or seventh paragraph was Cedric Brown's salary mentioned. But the tactic backfired: daily newspaper journalists reading the story decided that the salary had been buried and could legitimately be followed up as a fresh angle. The story became huge and Cedric became the name of a pig - so christened by a trade union that was campaigning against unequal pay rates.

At its most insidious, "the drop" takes place when it is in the interest of the PR company rather more than the client. PR companies will gain positive coverage of a new, well-paying client by promising information on another one of its clients - a sympathetic interview with a new chief executive will be published in exchange for price-sensitive information on another.

Or the PR may try to kill a negative story about one of their clients by leaking information on another one and getting the original story downplayed.

A variation on this is when PRs leak news about companies they do not represent, but about which they have information because they unsuccessfully pitched for the company's business and know what its plans are. Usually companies look for a financial PR when they are about to float.

However, some financial journalists, even those not privy to "the drop", deny that such machiavellian practices could be successful. "I am sceptical about the idea that journalists would hold back on stories for the sake of a financial PR," says the Today programme's business presenter, Nigel Cassidy, who is chairing a forthcoming Media Society debate on whether the market manipulates the media. "It's such an extraordinary accusation, not even the most desperate journalist would do it. Not least because the breed of people they least want to please is that of financial PRs."

Patrick Weever said last week that "the drop" was well known, but not approved of by clients. If they want to stop it, they can learn from the apocryphal tale of one of Britain's biggest brewers. The story goes that the brewer's chief executive called in his PR man, one of the major practitioners of the art, and let him see figures that showed the company's results would be poor when announced the following week. Those figures duly appeared in The Sunday Telegraph. When the financial results were announced, the brewer's results were much better than the leak claimed. The PR man was called in to see the chief executive, who told him the first figures were fakes. He had been trapped and was duly sacked.

Weever says he was happy to turn a blind eye to breaking the Stock Exchange rules "to ensure the flow of stories was stronger in our direction than that of our main rival at The Sunday Times" - the two papers which, insiders acknowledge, most benefit from "the drop" because of their readership profile. What makes him unhappy is his belief that the few companies who dominate financial PR are able to use "the drop" to ensure that the business pages lay off their clients for fear of losing their supply of information.

All journalists use their judgement on when to offend a good, regular contact who will be needed in the future. However, that is a long way from the formalised system of back-scratching that was revealed last week.