Pimp my chief executive

If company chief executives are being pimped out by brokers to fund managers, as the FT has reported and the FSA wants stopped, it is pretty clear to me that the CEOs themselves (well the ones I've spoken to) are innocent victims (as it were).

What has been going on, apparently on a large scale, is that fund managers have paid brokers for access to the bosses of companies, without the relevant bosses being told that cash was changing hands for privileged access to them.

I have spoken to a number of chief executives this morning about this, who say that if it has been happening, they did not know - and they would be upset and shocked if it were.

There are two reasons for this upset: one ethical, the other practical.

Perhaps the most important point is that when anyone with a commercial interest pays for access, the customer typically believes he or she is getting an advantage over rivals.

And when that happens in financial markets, confidence in the fairness of markets is undermined.

So even if the chief executive does not impart confidential price-sensitive information in the course of the paid-for meeting, the impression created that this might be happening would be seen as putting more moral or less well-heeled investors at a disadvantage.

In practice of course any smart investor will gain an unfair advantage from a confidential chat with a chief executive. And that unfair advantage does not require the chief executive to engage in dangerously loose talk. It just requires the boss to be himself or herself, so that the investor can judge whether he or she is fit for purpose.

But even if you don't believe there is an ethical issue here - and there are plenty of free-marketeers who argue morals have no place in markets - there is another consideration.

Public companies typically want to give as much information as possible to any investor who may wish to put money into them, because cumulatively this would increase their share prices and cut their costs of capital - which makes it cheaper for the companies themselves to invest and grow.

Or to put it another way, some investors have been paying brokers for a service they could have for free, if they cut out the middle man and went directly to the relevant company.

Here is how one CEO put it to me: "Why would they want to pay money to a broker for access to me. If they are a credible institution, all they have to do is ring up my investor relations department and of course I will meet them. I would be a fool to do otherwise."