It is therefore essential that all corporate entities are able to respond swiftly and effectively to any threats to their reputation or to the reputation of the individuals within their management. This is particularly the case for hedge funds, given the press's recent appetite for attacks on their reputation as a whole.
Hedge funds must ensure that they are aware of the steps that can be taken to protect their reputation and the full range of remedies that are available to them. In particular, funds must ensure that they take proactive, rather than merely reactive, action.
Disclosures made by employees under whistleblowing legislation can be a major threat to a fund's reputation. It is therefore essential that there is not only a whistleblowing procedure enabling employees to report their concerns internally, but that internal reporting is actively encouraged. This will enable employees to raise their concerns and allow funds to identify issues early, before they are aired externally either to the press or relevant regulators.
It is also important to ensure that all employment contracts have appropriate confidentiality provisions, preventing employees revealing confidential or sensitive information either during or after their employment. It is also possible to take this one step further and ensure that your employment contracts contain carefully drafted and structured 'no derogatory statements' provisions, so that employees are prevented from making derogatory statements about the business, whether or not they are true.
BEFORE THE STORY BREAKS
In many cases, a fund will be aware of forthcoming media attention, either because it has been asked to comment on various allegations, or because a story arises from an event that will inevitably become public knowledge. It is important at this stage to consider whether to co-operate or to take steps to stop any publication.
In Reynolds v Times Newspapers, Lord Nicholls set out a non-exhaustive checklist of ten steps that ought to be taken by a journalist prior to publication. Those steps included verification of allegations prior to publication, providing the subject with a reasonable chance to respond and ascertaining the reliability of the sources.
If you receive notice that an article may be published imminently, you should therefore ask to receive a list of the allegations, the documents on which those allegations are based and a reasonable time to respond, in order to give yourself time to formulate the best strategy. Reacting in this way may well prevent the article from being published in the first place or a more balanced presentation.
Restraining publication is not easy in a society that values freedom of expression. Preventative measures may, however, be taken for breach of confidence, infringement of copyright, defamation or misuse of private information.
Defamation proceedings have long been used by corporate entities in order either to prevent defamatory material being published by way of an injunction, or to seek redress by way of damages following publication. A statement will be actionable in defamation if it tends to harm someone's reputation in the eyes of right minded members of society. However, it is a defence to defamation actions to show that the statement was true in substance and in fact. Therefore, if an article is about to be published that is based on fact, an application for an injunction is unlikely to succeed.
The law of privacy in this country is expanding and may be useful where defamation actions are limited. The case law on what information will be considered to be private is not clear cut and the approaches of the European Court of Human Rights and the UK Courts are not entirely consistent at present. However, the Courts have granted a number of injunctions to prevent private material being published.
An example that might be particularly relevant to hedge funds would be information regarding salaries and bonuses, which may also be accompanied by photographs of the individuals within the management and/or their family. Such information is of great interest to the press at present. However, it is generally considered to be confidential. Unauthorised disclosure of such details by a third party is therefore likely to be considered to be an intrusion into one's private life and an action in privacy might succeed in circumstances where an action in defamation is likely to fail.
AFTER THE STORY BREAKS
Once a story has been published,it will be important to consider whether any statements made were incorrect and whether the hedge fund needs to clear its reputation. This may be achieved by an award of damages at the end of a defamation action. A publication of a reply or an apology is likely to be equally effective, however, and substantially quicker and cheaper.
It might also be worth considering approaching media regulators such as the Press Complaints Commission (the PCC). The PCC has no legal power to prevent publication of material, to enforce rulings or grant any legal remedy.
However, editors and publishers of the press have a responsibility to comply with the Code of Conduct published by the PPC. The Code provides certain principles that should not be breached, such as taking care not to publish inaccurate, misleading or distorted information and ensuring that people's private and family lives are respected.
If a newspaper is found to be in breach of the PCC's principles, the paper is bound by the Code to print the adjudication by the PCC in full and in a prominent position. This avenue can therefore be a useful way of taking action without the need to instigate defamation or privacy proceedings. However, it should be noted that wherever possible, use of a proactive measure, to prevent the article being published in the first place, will always be preferable.
Financial bulletin boards and chat rooms have seen a substantial increase in postings by disgruntled customers of companies and hedge funds alike. Funds therefore need to ensure that they have in place a procedure for ensuring that defamatory or inaccurate statements on well known financial bulletin boards are picked up quickly and dealt with effectively.
It is usually best to write to the website host or internet service provider immediately and demand the posting be taken down. Such entities are often keen to avoid liability for publishing such content by removing postings when requested. Website hosts and internet service providers may also be willing to provide details of the author of the material. Where such entities are prevented from doing so voluntarily due to their own data protection/privacy principles or confidentiality undertakings, it may be possible to obtain a Court order forcing them to do so.
By ensuring that they are aware of the full range of remedies available, including defamation, privacy and a press strategy, and by acting proactively, rather than merely reactively, hedge funds can ensure that they are well equipped to protect their greatest asset: their reputation.