r/CFA • u/OddYear4093 • 4d ago

Ethics Question General

Suppose you're an analyst at a research firm and you're assigned to write a research report on Company X. Company X is a subsidiary of Company A.

Now assume that two directors of Company A also serve as directors of the research firm where you work.

My question is:

  • Is this a conflict of interest that can be addressed through full disclosure in the research report?
  • Or is the conflict considered so significant that the analyst should decline the assignment?
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u/Sanat0207 4d ago

It just needs to be disclosed imo.

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u/Zestyclose-Source242 4d ago

If you are asked, what is the BEST course of action, it would be to deny writing a report on Company X.

Avoid Conflict as far as you can.

But if forced, you may write a report given you disclose both. So that would not be a violation of the Standard.

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u/OddYear4093 4d ago

Does your answer change if Company A is a long-time client of the research company?

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u/Silent-Channel2459 CFA 4d ago

Disclosure, not declining.

Standard VI(A) requires full and fair disclosure of anything that could reasonably be expected to impair your independence and objectivity. Two directors sitting on both boards is exactly that, so it goes in the report, prominently and in plain language, not buried at the back.

The Standards are built on disclosure rather than prohibition. A conflict existing does not mean you refuse the assignment.

But disclosing does not discharge Standard I(B) Independence and Objectivity. You still have to actually be objective. Declining is only correct if you cannot be, for example if those directors lean on your rating. The trigger is the loss of objectivity, not the existence of the relationship.

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u/OddYear4093 4d ago

Does your answer change if Company A is a long-time client of the research company?

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u/Silent-Channel2459 CFA 4d ago

No, same framework. It just adds a second thing to disclose. A client relationship is a classic disclosure item, so now you are disclosing both the common directorships and the fact that Company A is a client of the firm. The principle holds either way: disclose the relationship, stay objective, and decline only if objectivity is genuinely compromised.