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The Role of the Media in Ensuring Corporate Governance

• Introduction
• Importance of Media
• Corporate Governance and the Press
• Adverse Effects of Advertising
• Ethics in Advertising

Introduction

The media can play a major role in corporate governance by affecting reputation in at least three ways. First, media attention can drive politicians to introduce corporate law reforms or enforce corporate laws in the belief that inaction would hurt their future political careers or shame them in the eyes of public opinion, both at home and abroad. Second, media attention could affect reputation through the standard channel that most economic models emphasise. Managers’ wages in future depend on shareholders’ and future employers’ beliefs about whether managers will attend to their interests in those situations where they cannot be monitored. This concern about a monetary penalty can lead mangers not to take advantage of opportunities for self dealing so as to create a belief that they are good managers. Third, media attention affects not only managers’ and board members’ reputations in the eyes of shareholders and future employers, but media attention affects their reputation in the eyes of society at large.

Thus the media do play a role in shaping the public image of corporate managers and directors, and in so doing they pressure them to behave in accordance with societal norms. Depending on the situation this pressure can lead to shareholders’ value maximisation.

 

In a country like India, where there is a variety of newspapers in various languages in circulation, on an average, there is a better environmental responsiveness. This is true even after controlling for the extent of environmental regulation, the availability of information on environmental outcomes, and the level of economic development measured as GDP per capita.

Importance of the Media

The press pressures managers to act not just in shareholders’ interest, but also in a publicly acceptable way, and at times this helps a country to improve its corporate governance.

At times, the power of the media is so intense that a change takes place even in the absence of any legal requirement to act or legal liability not to act, for example, the former chief minister of Tamil Nadu Karunanidhi’s arrest incident—where the police, in order to maintain a law and order situation, had to release the police tapes, which otherwise were said to be very confidential and not meant for public viewing.

Corporate Advertising

Advertising in India is a big business, though small compared to US and Europe. The main lacuna is that there is no agency or a regulator to control advertising. Advertising is constantly bombarded by criticism. It is accused of encouraging materialism and consumption, of stereotyping, of driving us to purchase items for which we have no need, of taking advantage of children, of manipulating our behaviour, using sex to sell, and generally contributing to the downfall of our social system.

Not only are many different media and techniques employed in advertising; advertising itself is of several, different kinds: commercial advertising for products and services; public service advertising on behalf of various institutions, programmes, and causes; and—a phenomenon of growing importance today—political advertising in the interests of parties and candidates. Making allowance for the differences among the different kinds and methods of advertising, we intend what follows to be applicable to them all.

Harms of Using Advertisement as a Media Tool

Advertising can betray its role as a source of information by misrepresentation and by withholding relevant facts. Sometimes, too, the information function of media can be subverted by advertisers’ pressure upon publications or programmes not to deal with questions that might prove embarrassing or inconvenient. More often, though, advertising is used not simply to inform but to persuade and motivate—to convince people to act in certain ways, buy certain products or services, patronise certain institutions, and the like.

Political Advertising

Political advertising can support and assist the working of the democratic process, but it can also obstruct it. This happens when, for example, the costs of advertising limit political competition to wealthy candidates or groups, or require that office-seekers compromise their integrity and independence by over-dependence on special interests for funds. Political parties are using the media as a very effective tool for sending their messages to reach out to the people in the country. “India Shining” is an excellent example, when the Vajpayee government spent more than Rs. 600 crores of public money to get a political mileage, which somehow boomeranged on them.

Media and Corporate Governance

From a policy perspective, this evidence on the importance of media in corporate governance has two important consequences. First, previous research has mostly focussed on the legal and contractual aspects of corporate governance. Research suggests that this focus should be broadened, and that the policy debate should undergo a similar shift in focus. Second, the press pressures managers to act not just in shareholders’ interest, but in a publicly acceptable way. This finding brings the role of societal norms to the forefront of the corporate governance debate. With a few notable exceptions, according to Coffee (2001), the role of these norms has been ignored, yet they may present an opportunity for reformers if they can increase communication about behaviour that violates norms and those norms support effective corporate governance. However, they might also represent a major obstacle to any attempt to improve a country’s corporate governance system. In countries where firing workers to increase profits is viewed negatively, creating the incentives for managers to do so will be extremely difficult, especially in highly visible companies. This should be openly considered in any realistic plan to reform a country’s corporate governance system.

Corporate Governance and the Press

The press also intersects with various corporate governance mechanisms.

Shareholder Activists and the Press

While activists such as Robert Monks and Nell Minnow have found the press useful in their fights with managements in the United States, does the press have a similar effect in emerging markets? Recent events in the Republic of Korea indicate that it does.

Korea has long been known as a place where controlling shareholders in the largest Korean firms (chaebol) take advantage of their position at the expense of small investors. National corporate laws convey few rights to outside investors—they score only 2 out of 5 in La Porta and others’ (1998) index that measures the strength of protection for minority shareholders—and expectations in relation to law enforcement are low. According to an index designed to assess countries’ law and order tradition, Korea has a level half of the average in the industrial countries.

The beginning of efforts to force change in Korea dates back to 1996 and the formation of the People’s Solidarity for Participatory Democracy (PSPD) driven by Jang Ha-Sung of Korea University. As in the United States, this investor activist has focussed his attention on changing corporate policies in the largest Korean firms, and has relied both on legal pressures, including proxy battles, criminal suits, and derivative suits, and on the use of the press to shame corporate leaders into changing their policies. Perhaps to an even greater extent than in the United States, the success stories have resulted more from the creation of public opinion pressure than from legal sanctions.

The most successful challenge to date has been the battle to stop insider dealings in SK Telecom. SK Telecom was an extremely profitable company, but its financial results did not show this because the company used transfer pricing to benefit two companies almost 100% owned by the chairman of SK Telecom and his relatives. The PSPD drew attention to these policies. After the London-based Financial Times picked up the story, a media campaign ensued to attract proxy votes. This campaign involved publishing advertisements in newspapers and using television and radio. In March 1998, SK Telecom’s directors capitulated and agreed to the PSPD’s requests.

This success stands in sharp contrast with the failure of legal actions. For example, shareholders’ proposals are severely restricted and cannot involve the removal of directors or auditors. Perhaps the only successful legal challenge has been the one to ensure investors’ rights to speak at meetings, though the right to speak can only be used to affect the reputation of the parties involved, not to trigger any legal remedy. For example, the press gave extensive coverage to the fact that the Samsung shareholders’ meeting lasted 13 hours. The effect of shareholder and public opinion pressure was an increase in the transparency of Samsung’s financial statements.

Institutional Investors

While institutional investors have many legal mechanisms to encourage change in corporate policies, the presence of an active press increases their influence. It provides a relatively cheap way to impose penalties on companies and to coordinate the response of other investors in availing themselves of potential legal protection.

Private and Government Regulators

Public opinion pressure generated by an active press plays an important role in the efforts by private sector organisations to use self-regulation to improve corporate governance. Consider the approach in the United Kingdom to the range of financial scandals of the 1980s, including the collapse of the Bank of Credit and Commerce International and the Maxwell Group. Instead of legislation that proscribed certain activities matched by court sanctions and fines, the United Kingdom pursued self-regulation, enforced through disclosure. The Cadbury Committee, dominated by the private sector, defined corporate governance standards and developed mechanisms to compel the disclosure of performance relative to standards, allowing the force of public pressure generated by disclosure and news stories to change practices. This publicity route had the advantage that the self-regulatory organisation had the power to impose it and the penalty could be introduced quickly. Alternative sanctions, such as fines and court-enforced penalties, were either unavailable or could be delayed through court proceedings, thereby limiting their effectiveness.

 

The Cadbury committee, which submitted its report in December 1992, was the first effort at reform by means of disclosure and public pressure. The key element of the report was a code of best practice with 19 recommendations, including an enhanced role for independent directors, a minimum number of independent directors, and the separation of the roles of the chairman and the CEO. Since 1993, the London Stock Exchange has made a requirement of listing that a company to include a statement of performance relative to the code and a written explanation for any variation in its annual reports. It has since become common practice for company statements issued to the press and for independent press reports to identify performance relative to code standards, with a lack of compliance described largely as a failure of corporate governance by the company and its directors. A similar approach regarding company practices toward executive compensation was adopted in the Greenbury report, issued in July 1995, and in the Hampel report, released in January 1998. All these best practices have been consolidated into a “supercode” published by the London Stock Exchange in June 1998, again with requirements for disclosure rather than compliance.

The extent and success of a disclosure and publicity approach is widespread. In Hong Kong (China) the stock exchange has historically not had the legal authority to impose penalties on companies that misbehave. Instead, it uses the media as a sanction, taking out advertising space to notify the public about a firm’s security violations. The threat is usually enough. Shaming is both a personal penalty for the executives involved and may introduce a financial penalty if others now update their beliefs about the reliability of the executives and company and increase their terms for financing projects suggested by the executives.

The Press Versus Other Mechanisms for Addressing Governance Problems

In some markets the penalties that can be imposed by the press are at least as important as other mechanisms for fighting misgovemance that the literature more commonly focusses on. Consistent with this contention is a recent survey in Malaysia that asked institutional investors and equity analysts to identify the factors that were most important in assessing corporate governance and deciding to invest in publicly listed corporations. The analysts thought that the frequency and nature of public and press comments about the company were more important than a host of other factors that receive more attention in academic debate, such as the company’s relationship with the regulatory authorities, the number of independent non-executive directors and their qualifications, the existence of remuneration and audit committees, and the identity of company auditors.

Business School Governance and Business Week Rankings

In 1988, the magazine Business Week started to publish a ranking of the top US business schools. Despite its arguable criteria (most students experience no more than one business school, yet their responses are used to rank them), this ranking gained a lot of attention, and soon assumed the role of a standard in the industry. While there may not be of any systematic study of the effect of the introduction of these rankings on the governance of business schools, their impact is undoubtedly huge. Suddenly teaching ratings became important and faculties were held accountable, new programmes were introduced to cater to students’ needs, and some schools were even caught coaching their students how to respond to the Business Week questionnaires.

Selective Coverage and Media Credibility

So far we have treated the media as a single entity that aggregates and then communicates information. A critical issue we have ignored is the credibility of the information the media communicates to the public, which is, of course, extremely important. The fact that the Financial Times reported on the SK Telecom and Gazprom insider deals brought credibility to the stories, because even in Korea and Russia, the Financial Times is more credible than local newspapers. Similarly, the Business Week ranking of business schools had a much greater impact than the US. News and World Report ranking because the former is not only more diffused, but also more authoritative than the latter.

 

The issue of credibility is particularly delicate because it opens up the question of newspapers’ incentives to conduct further investigations to establish the validity of the information reported to them and their incentives to report the information they receive accurately. It is precisely when newspapers do have an impact that they have an incentive to enter into side deals with the parties involved and be paid not to reveal damaging information. Threats to increase (or withhold) future advertising revenues in exchange for stories that reflect well (or badly) on company management and directors are one example of side deals. Of course, such side deals might hurt the reputation of a newspaper in the long run and hence its credibility.

If it is more difficult for an individual newspaper to build a reputation of integrity in a market where all the other newspapers are colluding, the possibility for multiple equilibria arises. One equilibrium is where newspapers have credibility and thus avoid side deals for fear of losing it. Another is where newspapers do not have credibility and happily accept bribes not to publish damaging information or to publish false damaging information. Important factors that determine which equilibrium prevails are the competitive environment in which newspapers operate, the ownership structure of the media, and libel laws. In a competitive market, a newspaper agreeing not to publish bad news is likely to be scooped by another newspaper and to lose credibility. Thus the more competitive the environment is, the less likely is the collusive equilibrium.

Similarly, an independent newspaper whose survival rests solely on its own success is less likely to collude with established business interests. By contrast, a newspaper owned by a business group is naturally less likely to publish bad news about the group itself. This, in turn, affects its credibility in correctly reporting other news, thereby reducing its incentives to build a reputation (and increasing its incentives to collude). More stringent libel laws reduce the likelihood of a newspaper publishing information that suggests that managers are “bad”, again reducing the information content of the media.

Consumer Demand and Selective Coverage

Demand considerations also lead to a selective focus on stories with wide interest, such as executive compensation levels, (rather than on other elements of good corporate governance) the composition of boards and the role of auditors, even after scandals such as Enron and Worldcom. Readers may not be able to appreciate the nuances of corporate situations, leading to news stories that simplify firm performance relative to environmental or corporate governance standards in too stark a way. In the United Kingdom, for example, while the recommendations developed in the Cadbury, Greenbury, and Hampel reports are often qualified, they are rarely reported that way. The “public” version is a gross oversimplification around bright line rules, producing “box checking” and intense pressure to conform to standards different from those intended.

Finally, demand for corporate governance news might depend on the structure of corporate ownership. Thus the extent of coverage and the consequent sanctioning role of the press are likely to be more important when a broad group of citizens have a personal interest in the outcomes, because of their direct or indirect (through pension funds) shareholdings. The important corporate governance role played by the media in Korea and Malaysia described earlier is probably attributable to the widespread dispersion of ownership in publicly traded firms in these two countries.

The media play an equally important role in shaping corporate policy in addition to governments and regulatory bodies. The media selectively reduce the cost of acquiring and verifying information. This information is crucial in shaping the reputation of the key players who determine corporate policy. The reputation that decision makers seem to care about is not just the reputation in the eyes of current and future employers, but more broadly, their reputation in the eyes of the public at large, that is, their public image. Only concerns about their public image would explain the responsiveness of corporate directors to environmental issues, which have a zero or negative impact on the wealth of their ultimate employers, that is, the shareholders.

These effects of the media are not only anecdotal. The more diffuse the press in a country is, the more companies are responsive both to environmental issues and to minority shareholders’ concerns, even after controlling for the presence of specific laws and regulations and the level of law enforcement. The media can help shareholders or can hurt them. It is to be noted that the media is important in shaping corporate policy and should not be ignored in any analysis of a country’s corporate governance system.

Ethics in Advertising

Advertising is one of the major tools corporates use to direct persuasive communications to target buyers and the public. They advertise to inform potential buyers of the existence of a product and to establish a positive attitude towards it. According to Aristotle, one of the basic concepts in effective persuasion is to be ethical. Every advertiser needs to be ethical. Raymond Baumhart has quoted this in his book An Honest Profit: What Businessmen Say About Ethics in Business, “Ethical is what my feelings tell me is right. Ethical means accepted standard norms in terms of your personal and social welfare : What you believe is right.”

 

For decades, broad social and economic issues have been raised concerning the role of advertising in society. This is an era of vigilant and well informed consumer who wants to know what is there in a product, who produced it and under what working conditions. This is an era in which corporates will have more lasting relationships with consumers than just marketing products.

Social accusations have been directed at advertising in such pungent, and imaginative terms that they appear to emanate from talents as creative as those within the advertising community. Advertising is said to destroy the finer things of life. If has been described by some as vulgar, idiotic, degrading, shrill, noisy, blatant and aggressive. It is said to exalt lower values and glorify mediocrity.

A number of humanities and social science scholars view advertising as intrusive and environmental and its effects as inescapable and profound. They see it as reinforcing materialism, cynicism, irrationality, selfishness, anxiety, social competitiveness, sexual preoccupation, powerlessness and loss of self respect. These are strong indictments which imply that advertising is a powerful force, that could cause a lot of harm, if unregulated.

Beneficial Effects of Advertising

• Information: Advertising aids in the education of general public; facilitates the exercise of free choice and free will; and subsidises mass communication providing essential services to the public.
• Values and Life-Styles: Advertising contributes to the improvement in the standard of living; contribution to the sharing of opulence (comforts) among the masses; and represents as essential factor in the economies of abundance.
• Creative experience: Advertising adds new and interesting experience to life.

Discussion on the ethical aspects of advertising can be organised around the various features identified in the statement mentioned above: its social effects, its creation of consumer desires and its effects on consumer beliefs.

Adverse Effects of Advertising

Deception

A deceptive advertisement is one in which a material untruth is told or hinted at. The use of a secondary meaning of a word is also considered as deceptive. For example, a soft drink may be described as an orange drink, though it is artificially flavoured.

Fear Appeals

Fear appeals have been criticised. The intent of fear appeals is to create anxiety in the minds of the consumer and provoke him/her to make use of a particular product to allievate the fear in him/her.

Advertising to Children

Many advertisements cater to children. Most of the advertisements such as those for chocolates and ice creams are directed at children. Children between ages of 2 and 11 spend at least 3 hours a day watching television. Second, pre-school children cannot differentiate between commercials and programmes. They do not understand the selling intent of commercials and cannot distinguish between fantasy and reality. Third, children between ages 7 to 12 have difficulty in balancing appeals of highly sugared products—the long term health risks of diseased gums and tooth decay are high. Fourth, there are hardly any counter ads for fruits and vegetables. Fifth, most of these advertisements are deceptive as they omit significant information such as the complexity and safety of operating toys. However, defenders of advertising to children offer the following positive effects:

1. Advertising gives product information to the child that assists him/her in making decisions.
2. Children are developing skills through advertising and will be more independent and make better selections among products targeted towards them.
3. Advertising is an influence on the process of socialisation—it is a means whereby children learn the value system and norms of the society they are entering.

Materialism

Materialism is defined as a tendency to give undue importance to material interests and objects. It leads to a sort of “Mammon-worship”. Consequently, there is a corresponding lessening of importance to non-material interests such as love, freedom, and intellectual pursuits. The message of a television communication is essentially materialistic. The message of television advertising is that the acquisition of a few things will gratify basic needs and aspirations. It is the message of the communication that the major problems confronting an individual can be immediately solved by the use of some products. Thus externally derived products are made a prescription for life’s difficulties. The commercials do not give importance to the individual to deal with his/her life’s problems.

 

Promoting Stereotypes

There is an accusation that advertising has contributed to the role of stereotyping of women. Nearly 90% of the advertisements show the woman as a housewife. Most of the advertisements portrary only beautiful girls thereby creating inferiority complex in the minds of plain-Janes. This also increases expectations of the viewers.

Advertising Alcoholic Beverages

There is a national concern with the problem of alchoholism. That is the reason why advertising of alcohol is banned in several states in the country. However, there is a possibility that states that have resource constraint may revert to it. However, when exposed to it children see the advertisements for beer, wine, etc. long before they are old enough to drink.

Competitive Advertising

Competitive advertising is a form of advertising in which two or more brands of the same product are compared and the comparison is made in terms of one or more specific product attributes. It is considered legal and is used quite widely. Comparitative advertising can lead to consumer confusion and is ethically questionable.

Increasing Costs

Advertisements that provide information to consumers about the existence of certain products indirectly increase the final cost of a product. The ultimate burden of the cost is passed on to the consumer.

Exploiting Visual Appeals

Men succumb to visual appeals, the use of bathing beauties to attract men’s attention is ubiquitous. Television advertisements strongly influence both the sexes.

“I’m the Best”

Nearly all the advertisement contain some measure of exaggeration. Many a time the audiences are carried away by the exaggerated language of the commercials where each manufacturer claims his product to be the best, the finest and the greatest. The buyers get carried away by these tall claims and make purchases.

Absence of Full Disclosure

Often the information relating to deficiencies and limitations of the product of service relating to matters of health or society is not disclosed. For example, most of the advertisements catering to cooking oil do not disclose the harmful effects such as increasing in obesity of an individual by using the product.

Use of Celebrities

Most of the advertisements use celebrities from the world of cinema or sports. The celebrity for the sake of money does such advertisements and influence the common man’s choice of a product. These celebrities would not have even used the product once.

Fantasy and Reality

Nowadays, most of the advertisements make use of fantasies. The audiences in the fit of excitement may try out some dangerous pranks. For example, the advertisement of a popular soft-drink shows a boy going in search of the drink in question and later on lifts a bottle from a moving truck. Such incidents provoke the audiences to try out these stunts with dangerous consequences.

Advertising Standards

When it comes to the advertising and marketing, ethical issues become quite blurred. The advertising business in India has, therefore, tried to regulate itself with clear statements on what is proper and what is not. The code of the advertising standards council of India expects, inter alia, that there will be:

1. No offence to generally accepted norms of public decency
2. bTruthfulness and honesty in claims and respresentations
3. cNo indiscriminate use of advertising for products which are hazardous to society or to individuals
4. References to eminent personalities/political figures and the use of national emblems are not normally permitted
5. Comparative advertising should respect the principles of fair competition generally accepted in business.

Unfair Trade Practices Through Advertisements Under the MRTP Act

Provisions bearing on unfair trade practices were incorporated in the Monopolies and Restrictive Trade Practices (MRTP) Act by an amendment in 1984. As defined under Sec. 36A of the Act, unfair trade practice refers to any trade practice, which for the purpose of promoting the sale, use or supply of goods or services adopts one or more specified unfair practices and causes loss or injury to the consumer, whether by eliminating or restricting competition or otherwise.

 

The following trade practices are considered to be unfair practices.

Misleading Advertisement and False Representation

These include the following :

1. Falsely representing that the goods are of a particular standard, quality, grade, composition, style or mode
2. Falsely representing that the services are of a particular standard quality or grade
3. Falsely representing that the re-built, second-hand, renovated, reconditioned or old goods are new goods
4. Representing that goods or services have sponsorship, approval, performance, characteristics, accessories, uses or benefits they do not have
5. Representing that the seller or the supplier has a sponsorship, approval or affiliation which he does not have
6. Making false or misleading representation concerning the need for or the usefulness of any goods or services
7. Making a representation to the public in the form of a warrantee or guarantee of the performance, efficiency or length of life of a product or of goods that is not based on an adequate and proper test thereof, the proof of which lies upon the person making the representation
8. Making a representation to the public in a form that purports to be:
   1. A warranty or guarantee of a product or of goods or services
   2. a promise to replace, maintain or repair an article or any part thereof or to repeat or continue a service until it has achieved a specified result. Such form of purported warranty or guarantee or purpose is materially misleading or there is no reasonable prospects that it will be carried out
9. Making a materially misleading representation to the public concerning the price at which a product or like - products or goods have been, or are ordinarily sold
10. Making false or misleading representation of facts disparaging the goods, services or trade of another person

Bargain Sale, Bait and Switch Selling

This includes advertising for supply, at a bargain price, goods or services that are not intended to be offered for supply at the price, for a period that is, and in quantities that are, reasonable.¹ In India, apart from voluntary codes of the advertisers’ bodies, the government also has enacted laws to protect consumers and others in society.

Under the MRTP Act, there are also provisions for safety standards, against offering gifts or prizes with the intention of not providing them and conducting promotional contests and also against hoarding or destruction of goods.

Section 36B empoweres the MRTP Commission to enquire into unfair trade practice, while Section 36D provides that on enquiry if the Commission comes to the conclusion that the practice is prejudicial to the public interest, or the interest of any consumer or consumers generally, it may order discontinuance of the practice. Besides, under Section 12B, the Commission has been empowered to award compensation, in appropriate cases, for the loss or damage caused to government, trader or consumer on an application made by him in respect of an unfair trade practice. Recently, the Commission has been vested with powers to initiate suo moto proceedings against any one offending the above cited sections of the MRTP Act. Such an order for payments of compensation may be enforced in the same manner as if it were a decree or order made by a high court in any suit.

Recent Trends in Advertising

The increase in competition in the market place with several new entrants has resulted in more aggressive advertising, giving rise to more intra-industry complaints, plagiarism of advertisements published outside India, and advertisements on satellite television channels in utter disregard of the Advertising Standards Council of India’s (ASCI) code. What is more disturbing is the recent increase in vulgarity/obscenity in advertisements in various media, including outdoor. This violation of public decency has been linked with cinema (feature films) and television (serial programmes) in the perception of the general public, which has raised a hue and cry in the sensitive and discerning segments of the viewing/reading public.

 

The British Codes of Advertising Sales Promotion

The Committee of Advertising Practice is the self-regulatory body that devises and enforces the British Codes of Advertising and Sales Promotion. The Advertising Standards Authority is the independent body responsible for ensuring that the system works in the public interest.

Advertising Code Principles

1. All advertisements should be legal, decent, honest and truthful.
2. All advertisements should be prepared with a sense of responsibility to consumers and to society.
3. All advertisements should respect the principles of fair competition generally accepted in business.
4. No advertisement should bring advertising into disrepute.
5. Advertisements must conform to the codes. Primary responsibility for observing the codes falls on advertisers. Others involved in preparing and publishing advertisements such as agencies, publishers and other suppliers also accept an obligation to abide by the codes.
6. Any unreasonable delay in responding to the ASA’s enquiries may be considered a breach of the codes.
7. The ASA will on request treat in confidence any private or secret materials supplied unless the courts of officials acting within their statutory powers compel their disclosure.
8. The codes are adhered to in letter as well as in the spirit.

Substantiation

1. Before submitting an advertisement for publication, advertisers must hold documentary evidence to prove all claims, whether direct or implied, that are capable of objective substantiation.
2. If there is a significant division of informed opinion about any claims made in an advertisement, they should not be portrayed.
3. If the contents of non-fiction books, tapes, videos and the like have not been independently substantiated, advertisements should not exaggerate the value of practical usefulness of their contents.

Advertisers have the primary responsibility for ensuring that their advertisements are legal, decent, honest and safe. Advertisers should obtain written permission for portrayal of individuals/testimonials. Advertisements should be clear in terms of price of product, free offers, guarantee and availability of products.

No advertisement should cause fear or distress without good reason or provoke violence and anti-social behaviour. Unfair comparisons and exploitation of goodwill of competitors are unethical practices.

Cigarette Code

The cigarette code applies to advertisements for cigarettes and their components such as tobacco and tobacco substitutes. According to the rules of the code:

1. No advertisement should incite people to start smoking.
2. Advertisements should not encourage smokers to increase their consumption or smoke in excess.
3. Advertisements should never suggest that smoking is safe, healthy, natural, necessary for relaxation and concentration, popular or appropriate in all circumstances.
4. Smoking should not be associated with social, sexual, romantic or business success and advertisements should not be sexually titillating, though the choice of a particular brand may be linked to taste and discernment.
5. No advertisement should play on the susceptibilities of those who are physically or emotionally vulnerable, particularly the young or immature. (For example, “If you are an adult, smoke………cigarettes)
6. Anyone shown smoking should always and clearly be seen to be over the age of 25.

Other Restraints

There are restraints on some advertising. Certain services like legal and medical services are restricted in the way they can be advertised. For example, doctors cannot advertise boldly, individually in view of medical ethics. Similarly, prescription drugs cannot be advertised for. There are restraints which respect to certain media—liquor or cigarettes cannot be advertised on state channels.

Advertising has a large social responsibility as it is highly visible. The role of government is very important in regulating advertising. It might be possible for the government to restrict advertising levels in certain industries. This restriction could take the form of mandatory controls on the rates at which firms could increase their advertising budgets. It could even include a provision for firms to decrease their level of advertising. The control should be on large organisations who have a monopoly in the market and not on small firms who would be wiped out by such controls.

Remedies for the Evils of Advertising

The following are some of the remedies for the evils of advertising:

Substantiation

A document procedure wherein the advertiser is required to submit proof that advertising is truthful. In other words, to substantiate their advertising claims, advertisers from selected industries should submit evidence that claims made with respect to safety, performance, quality of comparative price are true.

Fullest Possible Disclosure

The consumer expects an affirmative disclosure from the manufacturer of the product including the price, contents, usage. etc.

Corrective Advertising

These measures allow the advertisers to rectify the past deception in making suitable statements in future commercials. This will have a good effect.

Self-regulation

Setting up of a Board to investigate the matters relating to complaints against the advertiser.

• Adverse effects
• Advertising Code Principles
• Advertising standards
• Cigarette code
• Consumer demand
• Corporate advertising
• Corrective advertising
• Ethics in advertising
• Fullest possible disclosure
• Governance problems
• Government regulators
• Impact of media
• Institutional investors
• Media credibility
• Media role
• Recent trends
• Sales promotion
• Selective coverage
• Self-regulation
• Substantiation
• The Fourth Estate
• Unfair trade practices

1. What is the role of media in effecting corporate governance?
2. How does selective coverage impact media credibility? How can the media build its reputation with regard to corporate reporting?
3. Discuss the importance and the need for ethics in advertising.
4. Advertising is a powerful tool in marketing. What are its demerits when it is handled inappropriately?
5. Discuss the recent trends in advertising.
6. How does advertising serve the society? How can the baneful effects of unethical advertising be countered?

• Advertising Laws and Ethics, Dept. of Advertising, University of Texas, Austin.
• Dyck, Alexander and Luigi Zingales, The Corporate Governance and the Role of Media (August 2002).
• Ethics in Advertising (1997) Pontifical Council for Social Communications.
• Rubak, Josh (2000) Ethics in Advertising.