NDAs mislead, slow, weaken and pressure analyst relationships


Non-disclosure agreements (NDAs) are a continual bone of contention between vendors and the analyst industry. Lighthouse feels that their impact is almost universally negative, especially in relation to briefings and analyst events. This post aims to outline the four main negative effects and respond to the three most commonly given reasons in favour of the use of these documents.

Vendors use NDAs not only in an attempt to guard business secrets, but also as a way to make executives more attentive to protocol when sharing information. The impact of NDAs on analyst relations is to ensure that the vendor or provider firm only builds deep relationships with analysts who are prepared to sign NDAs. Typically, analyst firms are not allowed to use their own NDAs: the vendor’s NDA must be used. Often these NDAs are exceptionally unfavourable to the analyst: many even forbid the analyst from disclosing information after it is in the public domain.

Four negative effects

There are four principal negative effects of NDAs. They act to disorient, decelerate, compromise and stress the analyst relations process.

  1. They disorient AR programs doubly: first by focussing attention onto analysts who sign NDAs, and second by focussing analysts’ attention onto information with NDAs. So first, it filters out some analysts who may be influential. Some firms, especially end-user focussed firms (those which mainly advise buyers), only want information that is generally available so that they can advise clients about what is actually available to buy and proven. One such firm is the Real Story Group, which includes CMSwatch: it not sign NDAs for that reason. The less likely a firm is to sign an NDA, the closer to end users it may be. As a result, the NDA policy actually shifts the AR programme away from analysts influencing sales and towards analysts who advise your competitors. Secondly, another disorienting effect is that it focusses analysts onto the vendor’s upcoming news flow and development plans. This rarely if ever is of value to end-users, even those in the early majority. Large enterprises rarely want to implement new releases. Indeed, the general conservativism is reflected by the fact that IE6 is still the most widely used version of Internet Explorer. What analysts often want to focus on is the current reality of the vendor and its clients. If the vendor focusses too much on the future, then the analysts analysts have to go somewhere else for the grit, and end up speaking to those partners and clients who are most responsive to analysts’ approaches for that sort of information: and those are often the least positive about the vendor.
  2. NDAs decelerate both the AR process and the process of research. The act of negotiating and refining NDAs takes time and energy away from discussing content. That reduces the productivity of the analyst, and means that analysts rely more on those vendors where the information flows most freely. Vendors like to believe that they have information that is unique or scarce, but that’s not true. Indeed, much of the information that analysts see marked as confidential or under NDA is already in the public domain. Working through public information, friends, family, alumni contact and social media users you can find out almost anything you need to find out as an analyst.  NDAs being declined can burden analysts with more base research to discover similar data and, in doing so, produce resentment and slow down the pace at which research is published about that vendor.
  3. NDAs compromise the AR process in two ways, by pushing analysts away and by producing a legal risk. First, NDAs act as a sort of tax  on information and, like taxes, they can partially reward avoidance rather than compliance. So they also encourage analysts to get information from informal connections, leading to more vendor complaints and ‘feedback’ when drafts are discussed. They also undermine the AR team’s own authority, since it stimulates the leaking of information from their own organisation. Second, although NDAs aim to insulate the company from risk there is a legal risk relating to fair disclosure rules. If the firm is providing different levels of information to analysts who are in the business of writing publicly available research used by (among others) investors, then that is not fair disclosure. It’s a unquantified reputational and legal risk.
  4. Finally, NDAs place stress on the relationship In the opinion of Alex Anderson:Most top tier analysts will flat out refuse to sign a special NDA and by asking you risk damaging your relationship with them.” Even that blunt statement is an understatement. Relationships with analysts are developed not mainly by the volume of information, but by the trust, reciprocity, continuity, equity, warmth and simply liking shown for an analyst.  The NDA can suggest to the analyst: ‘we don’t trust you; we don’t expect you to equal our professional standards; we don’t respect the past understanding we had; we don’t want to treat you as well we have done; we don’t have the rapport you thought we had’.

These four objections are, perhaps, specific to the analyst relations process but it seems to us that they might apply to other business processes as well.

Three bad reasons for NDAs

The most frequently used reasons for using an NDA seem to us to be pretty implausible in the analyst relations process.

  • “NDAs help defend patents applied for.” If you’ve applied for your patent, it’s probably well protected already. If you’re explaining a patent in a way that makes it possible to replicate the process simply on the basis of comments in the briefing, then your process is probably not patentable.
  • “NDAs help protect business secrets that are highly valuable to the competition.” The reality is that if the competition wants your business secrets, then routine competitive intelligence activities can probably gain them. The chance of something passing from an analyst to the competition is very small: after some landmark cases in the 1980s, analysts have been very scrupulous. However, if these are business secrets that you don’t share with clients in the sales process, then there’s really no reason to discuss them with analysts.
  • “If you don’t use an NDA then business secrets cannot be protected.” Regardless of NDAs, business secrets are automatically protected. Analysts are the least likely people to reveal business secrets; certainly much less likely than your own senior management (just eavesdrop on the phone calls in any US airport. And, of course, the burden of proof is almost impossible anyway.

To find out more about NDAs, come to our seminar ‘Win them Over’, based on Efrem Mallach’s book of the same name. It runs in April in London, Singapore, Hong Kong and San Jose, CA. For a brochure about our training courses or about Efrem’s book, email me at [email protected]

P.S. I should point out that a much easier and more practical tool is the embargo, which says that specific information can’t be shared until an particular date or occurrence. Almost all analysts are happy with embargos. Part of the reason why they are not widely used is that often spokespeople seem deeply unsure exactly what information is still confidential!

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