AR Classics: Why Congress won’t regulate analysts

Given the current FIFA scandal, it’s interesting to note that it is a year since the most serious call yet for the regulation of industry analysts. Phil Fersht argues against the growing demands placed on vendors by analysts’ requests for data. He raises the argument that analysts who beseech such information must have reduced access to the market. He also makes the point that “these vendors are forced to help fund these analyst firms so they can ensure they can monitor the analyst research and get enough face-time with the analysts to get them to portray them as accurately as they can hope ”

Phil’s answer is “it’s time for government to step in and demand these “research” processes are run fairly, and these analysts are doing their research appropriately.”

It’s worthwhile comparing this with the current case by the US Department of Justice against FIFA. The government alleges “fraud, bribery and money laundering (…) for personal gain, frequently through an alliance with unscrupulous sports marketing executives who shut out competitors and kept highly lucrative contracts for themselves through the systematic payment of bribes and kickbacks.”

But even in this context, there is no suggestion that the federal government should produce additional regulation unique to FIFA. It only enforces existing laws against racketeering. No-one is suggesting that the US Congress should legislate on the rules of world soccer.

Certainly there are practical objections. The US Congress is not a world government, and its ability to legislate for the industry is limited, given that only half the analyst communist is in the United States. Enforcing common quality processes would, perhaps, standardise outputs and remove the space for competition and innovation. In terms of building a head of steam behind these demands, it’s hard to imagine a weaker central plank than the notion that analysts are asking for too much data. Many people will think that it’s a strength of researchers if they look for data they do not already possess. Isn’t it good that they try to cross-check proprietary resources with those provided by major authorities?

Most importantly, it is hard to imagine how to design an efficient organisation to perform quality management for the global analyst industry, and even more difficult to explain a funding model for it.

Empirically, there is also ample evidence from economists that supervisory bodies can lead to less efficient market, especially to what is called regulatory capture (explored by Harvard professors Carpenter and Moss in their new book – pdf here). Capture is the process whereby regulation leads to greater corruption. FIA, of course, is an example of exactly that. There has not been a less likely time for the Federal government to set up a FIFA for technology analyst firms.

Even so, if we can dismiss the possibility of regulation there remains a reputational risk. These are real, as cases like Netscout have shown. In particular, the role of marketing agencies in the FIFA cases suggest to us that any legal assessment of issues in the analyst industry may focus on marketing communications agents. For this reason, it’s well worth reading David Robertson Mitchell’s article aimed at the clients of sports marketing agencies. He says that companies have only three options:

  • Put your head in the sand, carry on with business as usual, and hope this all goes away very soon.
  • Be loud, vocal and bold in your demands for reform and change – use your position of influence positively and leave no doubt where you stand.
  • Terminate your relationships, refuse to pay any fees, and let them sue if they want to. Be loud and bold about why you have terminated, and do it quickly. The first brand to walk away will be praised; the second will hardly be noticed.

Tech vendors are not at the point where they need to act in this way. I recommend that agencies discuss now to agree on their red lines for future ethical issues, so they can work cohesively and promptly if they find themselves getting pushed close to the line.

Duncan Chapple

Duncan Chapple is the preeminent consultant on optimising international analyst relations and the value created by analyst firms. As the head of CCgroup's analyst relations team, Chapple directs programs that increase the value of relationships with industry analysts and sourcing advisors.

There are 3 comments on this post
  1. May 31, 2015, 2:51 pm

    Duncan – thanks for airing this important issue. It’s become even more relevant over the last year alone, as rogue technology and services “analysts” are increasing on the take from whichever vendor is willing to buy their “influence”. Without some form of regulation, the IT analyst industry could find itself in permanent – and i hate to say terminable – decline, which is what is happening in today’s market.

    In reality, regulation is probably impossible – vendor marketeers control most of the analyst industry and they like having the deck stacked in their favour as they know how to play the game. I would argue a more realistic – and effective – strategy would be simply to rebrand these fake analysts as “Vendor Advocates” – let’s just call them what they are.

    I think we are all so jaded of seeing people brand themselves as “analysts” when they are not. The technology and services industry is awash with individuals whose only professional activity is flitting from vendor event to vendor event with the sole purpose of writing entirely non-objective puff pieces praising their vendor hosts in exchange for money (or in the hope said vendors will pony up some dough in gratitude).

    Now, there is nothing wrong with this, as long as these individuals stop masquerading as “analysts”. I can’t proclaim I am a professional accountant, lawyer or hip-replacement specialist without proving to the world I am trained and can deliver those services adequately, so why should we allow these people to call themselves analysts, when they are not. Do these vendors hire these fake “analysts” to do real strategic work for them? Of course they don’t – they use them as marcomm extensions, and pay them as such. So let’s call them what they are. Vendor Advocates.

    Once we can all settle on that term, then we can all stop complaining about their tactics, crying foul when we see their blatant pay-for-play. Once they are officially branded as Vendor Advocates, then they can rent themselves out as much as they like to marketeers willing to buy their services, without having to masquerade as something they are not.

    These Vendor Advocates play an important role supporting the industry – as long as they are correctly branded as such,

    Let’s keep the conversation going!


  2. Lawrence Hecht
    May 31, 2015, 7:11 pm

    Why would anyone want to be called a vendor advocate? How about technology evangelist? That connotates a point-of-view without saying that the advocate is beholden to the vendor’s interest.

    I actually believe that B2B content marketing and evangelism is where most analyst get most of their money. I also believe that most consumers of analysis already assume that there is bias in white papers and analyst work. Interestingly, they still consume the research because it is still the best out there. My question is, how do we keep an economic incentive to do research without demanding purity? I know that community, association and peer-based research efforts are just as susceptible to bias as are analyst-based models. My answer to this problem is at the bottom of this comment.

    In previous posts we’ve talked about the non-starter regulating analysts in a similar way to equity analysts. I agree that there are similar conflict of interest issues with industry analysts. However, I think a better analogy is the regulation of political contributions. In politics, there is definitely pay-to-play. Donors get access for donating money. This puts the “poor” at a disadvantage but is not illegal as long as a politician doesn’t take any specific action. Unfortunately, it taints politicians who pretend to be unbiased and advocates for everyone. When politicians admit to supporting a specific constituency over another they lose some tepid support (customers) but gain legitimacy for putting their cards on the table.

    I personally don’t care if a survey is done by a far-right or a far-left group. As long as the methodology is transparent and sound, that’s enough for me. In fact, I don’t care if a NGO takes donations from corporations as long as the donation is reported and they didn’t change their position because of the donation.

    The analogy is similar to the analyst industry. An industry analyst can do great sponsored research. Yes, there is inherent conflicts of interest, but those can be reviewed by the buyer. An industry analyst is hopelessly biased if their take on a market aligns with the interests of a vendor’s marketing team.

    Again, looking at the equity and political analyst analogies, it is important to realize what group is being protected and why. Equity analysis is regulated in an attempt to protect consumers who are assumed to be naive and information poor. Contrast that to political analysis, which is for the most part not regulated. Why? Because we assume that the public is pretty savvy and can decide issues for themselves.

    So where does that leave industry analysis? B2B buyers are savvy consumers of info. I say let them do what they want. For companies that want to emphasize their impartiality, there is a market for that. For those folks, I recommend pooling together to create a “media watchdog” type organization that calls out bad actor analysts. Then, whenever a research company’s salesperson wants to contrast their independence to another company’s, they can point to the watchdog type website.

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