Email is Not Your Friend

Email is such an ubiquitous part of our lives today that we rarely think about the long-term implication of what sending an email involves. Recently we have been treated to the spectacle of the Securities and Exchange Commission bringing fraud charges against Angelo Mozillo, the former CEO of Countrywide, over statements he made in emails to his associates. The allegations are that in private emails he described one Countrywide product as “toxic” and another product’s performance so uncertain that they were “flying blind” while at the same time maintaining to the outside world that Countrywide was underwriting mainly prime mortgages using high underwriting standards. Of course, what we don’t know, and what will have to be decided in the courts, is whether such “toxic” products were significant enough to constitute a material impact on Countywide’s operations, thereby constituting securities fraud.

A lot of interesting things are at play here, not least of which is the SEC’s desire to appear tough following an era of lax enforcement. This is not very different from the description in Tom Wolfe’s “The Bonfire of the Vanities” of the desire of the district attorney to find a “great white defendant”. While I could devote my entire blog post to this topic, I’m going to focus on a much more mundane issue – the corporate use of emails.

It has been amazing to watch the explosive growth of emails, chat and twitter over the past few years. Back in the dark ages when I first started working, if you wanted to communicate with someone, you picked up the telephone and called them. Nowadays, many people make an appointment by email to make a phone call. When I was still in the corporate world, I would have people in the office next to mine email me rather than talk to me. Emails are such a part of business life that people don’t stop to think of the potential impact they may have using the 20/20 hindsight of litigation.

Once an email leaves your computer it takes on a life of its own. Not only does a copy go to the recipient, but a copy also goes to the corporate server, where your diligent IT department makes sure it gets stored forever. If you are sending the email to a corporate recipient, another copy gets stored on their corporate server. Not only that, but the electronic record is easily searchable for subject matter and key phrases. If that weren’t bad enough, your email is easily forwarded with the push of a button, so you’re never quite sure where it will wind up. Think about answering an analyst’s question and having your email forwarded to half a dozen hedge fund managers.

What all of this means for investor relations practitioners is, as the title of this post says, “Email is not your friend”. Investor relations people should never express opinions in emails that might come back to haunt the corporation at a later time. As a practical matter this means that things such as discussions about materiality of issues, concerns about business practices or other potentially controversial items should not be discussed in emails. The only exception is when the attorney-client privilege applies.

We work in a discipline that is fraught with legal liabilities. While it may seem as if it is taking a step backwards, when communicating with investors, or discussing potential disclosure issues, email should be used sparingly, if at all. You should write every email as if your email is being intercepted - because it is.