Archive for July, 2013

Crisis rules

July 16, 2013

When a company gets into a crisis – a real crisis with the mob at the gates wanting to tear the place down – management can call a lawyer. Or a politician. Or a PR person. Lanny Davis, a Washington lawyer who served in Bill Clinton’s White House when the Prez got caught with his pants down, is a player in all three realms. He’s a guy people call when it all hits the fan.

Now Davis has a book, Crisis Tales (Threshold Editions, 2013), laying out five rules for how to survive a crisis. War stories from many crises in business and government illustrate these rules. Says Davis:

My work in crisis management has taught me a series of rules and one overall guiding principle. The guiding principle: Tell it all, tell it early, tell it yourself.

The core idea of the book is to take control of a story – a narrative, as the pundits say – by becoming the person who tells the story. This is a valuable lesson for companies and CEOs whose business blows up, literally or figuratively, in the harsh light of media or public attention. And it’s a good guideline for us as investor relations professionals.

A top-line look at Davis’ five rules of crisis management:

  1. Get all the facts out.
  2. Put the facts into simple messages.
  3. Get ahead of the story.
  4. Fight for the truth using law, media and politics.
  5. Never represent yourself in a crisis.

This is a crisis communications guide worth perusing. I’m uncomfortable in the swampland we call politics, even cynical about anyone whose address ends in “DC.” But Davis’ examples of damaged reputations – and the process of damage control – are instructive.

In a public company, it’s well worth considering the strategy for handling a crisis before something blows up. What’s your crisis plan?

© 2013 Johnson Strategic Communications Inc.

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Inside information & avoiding illegal trading

July 3, 2013

Pillory woodcut2In medieval times, morality plays taught people through dramatic performance the difference between good and evil. A related phenomenon was the public punishment of malefactors by locking them in “the stocks.” The prisoner was immobilized in a wooden device, usually in the town marketplace, making his or her crime very public and subjecting the individual to ridicule and abuse as an example to all.

Today, we pillory people through online news and social media.

I thought of the stocks – the medieval kind – as I read how former KPMG senior partner Scott London pleaded guilty to providing inside information obtained through his auditing job for use in illegal trades. Fourteen times, Mr. London gave confidential info on KMPG clients like Herbalife and Skechers to a “friend” to make trades that ostensibly would rescue the man from a financial pinch. The friend, by the way, raked in $1.3 million and gave Mr. London a Rolex, some jewelry and about $50,000 in cash.

“I didn’t do it for money,” London said in a hallway outside [the] courtroom. “I did it to help out someone whose business was struggling. It was a bad, bad mistake.”

It’s not a mistake that will generate much sympathy – especially from professionals entrusted daily with nonpublic information. Now the 50-year-old Mr. London is held captive in the public square, recoiling from scorn and a possible prison term, wondering at what he has lost:

“It was probably the worst day of my life,” London said moments after entering the guilty plea. “Imagine what you do, you do it for 30 years, you go to school for it, and in a matter of weeks it’s all gone. It’s my fault.”

Yes, it was his fault: 14 illegal transactions amounted to 14 betrayals of trust. Each leak of earnings or M&A news corrupted the market.

I don’t share share this to throw more rotten vegetables at the guy in the stocks – but to say that investor relations people have a role to play in protecting ourselves and those around us. Illegal trading didn’t begin or end with Scott London. The SEC makes 50 to 60 cases a year nailing people for misuse of inside information as traders or tipsters. IR people are not immune to this conduct that brings scandal.

Trading on inside information can be a professional, organized crime involving stock-market sharks, such as the Galleon hedge fund guys. But it can also be a temptation for fairly ordinary people: a secretary, an accountant, a doctor helping in a clinical trial … and, yes, an IRO.

My feeling is that people in IR should not trade in our own stocks, or those of other companies about which we have nonpublic information. The NIRI Code of Ethics includes a pledge to “Not use confidential information acquired in the course of my work for my personal advantage nor for the advantage of related parties.” That seems to allow investing in one’s company or client as long as you’re not using confidential information. But for my personal investing, I’d rather not worry about when I know something or don’t. Apart from receiving (and holding) my employer’s stock as compensation when I was on the corporate side, my position is simply not to trade in companies I work with. Maybe that’s extreme, but I prefer to avoid being pilloried.

Also, investor relations professionals should seek clear policies to prevent trading on nonpublic information by everyone in our organizations – and periodic reminders to keep people well-warned.

What’s your take on IR people trading, and on cautioning co-workers?

© 2013 Johnson Strategic Communications Inc.

The intangibles investors like

July 1, 2013

Conversations with investors often focus on the numbers, but we also need to give thought to the “soft information” – intangibles. The cover story in this week’s Barron’s, “World’s Most Respected Companies,” provides a pretty good tutorial on which qualitative issues gain the respect of institutional investors. Respect doesn’t always mean a buy decision, but it opens doors.

The direct point of the article is a ranking: Berkshire Hathaway is #1 in a survey comparing institutional investors’ esteem for the world’s 100 largest companies, Walt Disney #2, Apple #3 (down from #1 last year), Google #4 and Coca-Cola #5. No surprises there.

More interesting to me are the comments institutional investors make about intangibles they consider important. The top three qualities that inspire respect, according to the Barron’s investor group, are sound strategy, strong management and ethical practices:

Barrons respect

Those three are followed by other qualities like innovation, competitive edge and growth. In this survey “the numbers” are secondary: Growth in revenue and profit is key for just 5%, strong balance sheet for 1%.

A few of the institutional investors’ comments:

[On Berkshire] “It’s a well-conceived business model, owning good basic businesses, bought at good prices, and managed by great people. A company much to be respected.” …

Does the firm have a defensible long-term business model, and is it built to innovate, compete, and grow? And how good is management, particularly when it comes to capital allocation? …

[On JPMorgan, #45, best of the disrespected megabanks] “How many CEOs would have come out front and center and said, ‘This is my fault?’ … If he weren’t at the helm, you have to think long and hard whether you want to be in this stock …”

“There is value in investing in companies with high integrity. The likelihood is that they won’t do bad things, very bad things, that will affect their stock prices.”

For the investor relations professional, the question is: Are we communicating these intangibles to our investor audiences?

We ought to be thinking about the intangible value-creating qualities as we approach second-quarter earnings (or any season). The message isn’t just this period’s earnings. It is the strategy guiding the company’s business for the coming years, the leadership team’s experience and performance, and whether investors can trust management to deliver on promises.

What’s your opinion?

© 2013 Johnson Strategic Communications Inc.