The Only Sensible Policy for Commenting on Rumors

If you’re lucky, you’ll learn a tough lesson about commenting on rumors early in your marketing communications career. It typically unfolds something like this.

Someone says you’re shutting down a product that you acquired a few years ago. You know that’s false, so you deny it. Then someone says you’re using customer data to train an AI model. You know that’s false, too, and you deny it.

This is easy, you think. The truth shall set you free.

Later, a rumor circulates that you’re planning a major layoff. As the director of communications, you know you might not be aware of the plans if the rumor were true. So you stay late, catch the CEO on their way out, and ask. They tell you it’s false. Again, you deny the rumor.

Then social media lights up with claims that a private equity (PE) firm wants to buy your company. Competitors bring it up in deals, and salespeople ask what to tell customers. You check with the CEO, who tells you it’s false. Once again, you deny the rumor.

This comms stuff is easy, you think. I’m a natural.

A few months later the curveball comes: another PE rumor. You ask the CEO, and this time they say, “Sorry, I can’t talk to you about that.”

You go back to your desk, and the light bulb goes off. Oh my God. I’ve painted the company into a corner.

• You can’t confirm the rumor. You don’t know whether it’s true, and if it is, confirmation could breach confidentiality agreements or jeopardize the deal.
• You can’t deny it. The denial might be false, creating a credibility problem and, as we’ll see, potentially an even bigger legal one.
• And here’s the capper: you can’t say “no comment” without sending a signal, either. Anyone who has paid attention to your communications history will wonder why you’ve suddenly stopped denying rumors. Your past answers have turned “no comment” into tacit confirmation.

This isn’t just a clever communications hypothetical. As we’ll see, even the Supreme Court recognized the “no comment” signaling problem.

The best way out of this situation is not to get into it. Adopt a consistent policy of declining to comment on rumors or speculation, whether they’re true or false. It’s oh so tempting to deny a false rumor. But if you only comment when rumors are false, everybody knows what it means when you don’t.

If I were dropped into this mess, I’d announce a new policy: “Henceforth, we will not comment on rumors or speculation. Accordingly, we will not comment on this one.” The timing might raise eyebrows, but at least you’ve given yourself a truthful response and a policy you can follow the next time a rumor emerges.

There is another option, though not a good one: deny that acquisition discussions are underway when they are. That’s what Basic Inc. did in the events that led to Basic Inc. v. Levinson, a landmark 1988 Supreme Court case about what a public company says while considering a potential acquisition. [1]

So what happened?

Basic was a publicly traded manufacturer, and another company, Combustion Engineering, was interested in buying it. The two companies talked on and off for more than two years. During that period, Basic made three public statements denying merger negotiations or saying it knew of no corporate developments that would explain unusual trading in its stock. In December 1978, the companies announced a deal.

Some Basic shareholders had sold their shares before the announcement. They sued Basic and several of its directors, arguing that the denials had misled the market and caused them to sell at prices lower than they otherwise would have received.

Basic’s response was essentially: Those were only preliminary talks. We hadn’t agreed on a price or the structure of a deal. Until we did, there was nothing significant to tell investors.

That's exactly what I would have said: hey, until there's a deal there's no deal, so there's nothing to announce. That sounds reasonable enough. Plenty of acquisition talks go nowhere. But the Supreme Court rejected the idea that talks only become material when the parties agree on price and structure. Even earlier discussions might matter to someone deciding whether to buy or sell the stock. It depends on how serious the talks are and how consequential the deal would be.

Now for the tricky part: that didn't mean Basic had to announce the talks. The case was about what Basic said when it chose to speak. It might have been able to keep the discussions confidential. But telling the public there were no discussions was a different matter if those discussions were material to investors.

The Supreme Court didn’t rule that Basic had broken the law. It sent the case back for another look at the facts. Nor did it say that every false denial of a rumor is securities fraud. The point for communicators is simpler: “There’s no deal yet” doesn’t necessarily make “There are no discussions” a safe thing to say.

The case matters for another reason. If a public statement misleads investors and affects the stock price, investors who traded at that price may be able to bring a claim even if they never saw the statement themselves. That’s the idea of fraud-on-the-market that Basic established. Your words can travel much further than the people who read your press release.

And remember our “no comment” problem? In footnote 17, the Court observed that if a company denies merger rumors when they’re false but says “no comment” when talks are underway, people may take “no comment” to mean yes. The Court didn’t prescribe a policy, but it understood how a company’s past answers can paint it into a corner.

I’ll admit that my opening example was a bit contrived. At a public company, the CEO, CFO, and head of investor relations will all have a major say in how the company responds to an acquisition rumor. No director of corporate communications — or CMO — has to make that call alone.

But rumors don’t stay neatly within investor relations. They reach employees, customers, prospects, and sales teams. Some may affect the stock; others affect trust and the ability to do business. The communications team needs to understand the stakes, help shape the policy, and make sure every spokesperson follows it. The key is to establish a consistent pattern of declining to comment on rumors or speculation before a rumor comes along that you can’t deny.

That’s why every marketer involved in corporate communications should know Basic. You may not make the final policy call, but you should be at the table — and ready to contribute to the discussion — when it’s made.

Notes

[1] To be fair, I don’t know whether the people at Basic had painted themselves into a corner through their earlier responses to rumors. I do know that Basic publicly denied merger discussions while discussions were taking place.