Category Archives: Crisis Communications

Stories about trends in the U.S. and global economies. The hottest new IPO. A cool product or service intended to change the world. A big earnings gain or miss. Reports about various countries’ fortunes both politically and fiscally all across the world. CEO changes, restructurings and recessions, just to name a few.

Absolute Value is our sounding post where we hope to exchange ideas and commentary on why all of this matters. We believe our point-of-view about events and communications helps our clients matter more in an era of unprecedented global connection.
 

Rating S&P’s Words
April 24, 2013

As practitioners of crisis communications, we regularly work closely with legal counsel to make sure that the communications strategy is closely aligned with the legal strategy.  Our objective is to help protect brands and while the lawyers look toward winning in the court of law, we public relations practitioners aim for success in the court of public opinion.  Words matter for each of us in arguing our case and we seek to be in sync in legal filings and corporate messaging.  Yet, there are some times when friction can emerge between the road the lawyers are taking and what we believe may be best for our client’s reputation.

That rub is now being played out in fabulous fashion in a civil fraud lawsuit filed by the United States Department of Justice against Standard & Poors Ratings Service regarding S&P’s ratings and the 2008 financial meltdown.  As The Wall Street Journalreporter Jeannette Newman points out in her excellent April 23 story on the case, S&P has long focused on the words “independent” and “objective” in selling itself as the grand arbiter of the quality and safety of corporate debt and a host of financial instruments.  “Independent” and “objective” went hand in hand with “Standard” and “Poors” in how the Company described itself to investors and sold its expertise for very big bucks to its clients.  The words are ubiquitous in the materials produced by S&P’s marketing and public relations teams and frequently repeated by company executives.

But facing the DOJ in court, S&P’s lawyers are now saying those words are just “puffery” and were never meant to be taken at face value.  The company’s legal team, which includes First Amendment super-lawyer Floyd Abrams, cites recent Federal court rulings that call into question whether S&P’s watch words can really be depended on.  Or as Ms. Newman recounts, the lawyers’ point is that “S&P’s ratings were objective, independent and uninfluenced by conflicts of interest. That, however, is beside the point.”

Whether this legal strategy will win in the court of law is yet to be seen but it looks like a very shaky argument in the court of public opinion.  Ms. Newman’s quote in the story from Duke Law professor Samuel Buell sums up the issue quite well. He states that “Even if it’s a viable legal argument, it’s a pretty unattractive argument for S&P to be putting forward since they’re basically in the business of charging clients for their reputation.  What they’re saying here is, ‘When we’re talking to investors about our own reputation, we’re engaging in meaningless puffery.’”

Now I do not know how and if S&P’s communicators were involved in litigation support, but this is a pretty big hole for the company to dig itself out of reputation-wise, especially when it is the subject of a front page WSJ article.  Lawyers have their job to do and public relations professionals have their job to do.  In the realm of litigation support, we must not be shy to argue our case to executives/boards and make sure they know all the potential ramifications of the legal strategy and words counsel are using.  What may win the day in court could lose in the court of public opinion and impact business and the bottom line.  That is why, particularly in the digital age when legal documents are more accessible than ever, it is important to review court filings from a brand and reputation perspective and provide communications counsel to executives/boards.  At the end of the day, it is up to them to decide which way to go when lawyer words and brand messages conflict but a seat at the table when those decisions are made is crucial.  Time will tell if S&P made the right decision.

Rich Tauberman is Executive Vice President of MWW and a leader of the firm’s Corporate and Financial Communications practices.  He directs some of MWW’s top professional services and financial services accounts.  Rich’s background includes managing communications activities for law firms, accounting firms, banks, brokerages, asset managers, insurance companies and healthcare organizations.  He possesses an expertise in crisis/issues management, litigation support and investor relations.

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“Stupidest” and “Most Embarrassing” – Phrases You Wouldn’t Expect to See in an Annual Letter
April 10, 2013

That is until JP Morgan published Jamie Dimon’s annual letter to shareholders today. It’s a good read, all 29 pages of it, but what immediately caught my attention was Dimon’s blistering quote, “The London Whale was the stupidest and most embarrassing situation I have ever been a part of.” He followed that up with, “We had a gap in our fortress wall. For a company that prides itself on risk management, this was a real kick in the teeth.”

Dimon’s reputation, as well as the bank’s, has certainly taken numerous hits since news of the London Whale incident first broke. But the stock has made a roaring comeback since its bottom last summer. Of course, operating results have a little something to do with that run, but you have to give Dimon credit where credit is due in the repair of both his and the company’s reputation, which has certainly contributed to the stock’s performance as well.

This refreshingly frank annual letter commentary is quintessential Jamie Dimon. We applaud him and his IR team for owning up to the gravity of the issues they have faced, to mend the relationship with their shareholders and rebuild JP Morgan’s credibility.

Stacy Feit is a Senior Vice President at Financial Relations Board with over 10 years of investor relations and Wall Street experience.  She provides strategic financial communications counsel and helps clients increase their visibility within the financial community.  She has guided numerous clients through major milestones, including IPOs, spin-offs, acquisitions and restructurings.

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Markets Are Closed but the Beat Still Goes On For Many Including Our Favorite Fruit
October 31, 2012

U.S. markets were closed again today as Hurricane Sandy continued to wreak havoc on the Eastern Seaboard.  This is the first time inclement weather has closed markets for consecutive days since 1888 when a blizzard shut the NYSE for two days.  With third quarter earnings season in full swing, many management teams and IR departments have been debating whether to postpone earnings announcements and conference calls or move forward anyway despite the frozen markets.  While over 50 opted to postpone, a number of companies, including big names like Burger King Worldwide and Valero Energy, moved forward as planned, neither of which was to mask weak results.  In the meantime, our friends in Cupertino chose to announce a major management shakeup yesterday.  As one of the most actively traded stocks, making an announcement of this magnitude during this virtually unprecedented market closure smells of a classic attempt to bury the news.  We’ll have to wait until tomorrow to see if the strategy pays off…just about everyone’s eyes will be on Apple at the open.

Stacy Feit is a Senior Vice President at Financial Relations Board with over 10 years of investor relations and Wall Street experience.  She provides strategic financial communications counsel and helps clients increase their visibility within the financial community.  She has guided numerous clients through major milestones, including IPOs, spin-offs, acquisitions and restructurings.

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ECB Unveils New Government Bond-Buying Program – Sparks Capital Markets Rally
September 6, 2012

Today, the European Central Bank (ECB) announced an open-ended sovereign bond purchasing program to keep borrowing costs down for Spain, Italy and other struggling countries. This comes nearly three years after Europe started experiencing a credit crisis that many feared would signal the end of the euro zone. Many are saying that this program has the potential to be a real game changer as reported in today’s Wall Street Journal.

The mechanics of the new program, called Outright Monetary Transactions, are as follows: the ECB will buy unlimited, existing government bonds in the secondary market only, so long as the euro zone government complies with an economic reform program approved by the euro zone. The ECB, in turn, will offset those purchases by taking an equal amount of money out of circulation in a process known as sterilization, keeping its mandate to maintain stable prices.

Although many of the details of today’s announcement were widely anticipated, the news has also sparked a substantial trading rally in U.S. markets, with the Dow Jones Industrial Average up to 13,277.22, +229.74 or 1.76% as of 1:45 p.m. ET in today’s trading. The S&P 500 was up to 1,430.82, an increase of +27.39 or 1.95%.

What does this mean for U.S. investors? Only time will really tell. In the past year alone, we have seen many dips and dives around any news concerning the economic climate in Europe. However, from our team’s perspective, it’s clear that we are living in a truly interconnected world. Most agree that earnings in the U.S. are slumping in no small part due to global economic weakness. Whether or not today’s news will have a material impact on the near-term performance of U.S. companies, it’s clear from today’s market performance that U.S. investors have taken this opportunity to move off the sidelines. Whether short-lived or not, it’s clear that all financial communications should at least take into account what’s happening on a global stage. For many companies, it also begs the question whether or not their investor communications strategies are prepared to do this.

Scott Eckstein is a Director of Account Services at Financial Relations Board and brings over 15 years of experience in financial communications both in agency and corporate roles. Scott has worked with a number of companies developing integrated communications programs as well as developing targeted institutional and retail branding campaigns. He has also provided advisory services for a variety of small- to large-cap companies.

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Nasdaq Not Liked After Facebook IPO
May 22, 2012

An IPO is an important event to build a company’s brand and reputation, but it can also be a critical event to burnish the reputation of the listing exchange. Hence, there is an ever-increasing battle between the NYSE and Nasdaq for IPOs and a full scale war for the large, high-profile IPOs. Facebook, the IPO of the decade (or century if you like), generated breathless 24/7 media coverage (including breaking news fashion reviews) from start to finish. For Nasdaq, it was a fabulous listing win, seemingly solidifying its place as the destination for hot and tech-oriented companies to go public.

Unfortunately, for many in the financial markets, the story has now pivoted from talk of Facebook billionaires, underwriter support and a lackluster close to the significant glitches Nasdaq encountered in handling the first day of trading. Nasdaq head Robert Greifeld, who even jettisoned a suit for Facebook wear for the IPO festivities at the Company’s HQ, tried valiantly to put the issue in perspective, stating that the day was “quite successful but clearly we’re not happy with our performance,” and that there was not an impact on share prices.

Nasdaq has been scrambling to reassure investors and Wall Street pros that all is well and that they should not be concerned, with Greifeld out front with the media and this morning offering a play-by-play breakdown of what happened. As David Benoit of The Wall Street Journal calls out in his blog, Nasdaq is even affirmatively stating that there were no screw-ups with the Zynga IPO in its effort to try to restore trust.

This is certainly not the publicity Nasdaq wanted in regard to the Facebook IPO and it comes on the heels of BATS Global Markets fiasco with its own IPO (though there are now reports that BATS may even be looking toward Nasdaq for a do-over). What should have been a shining day for the exchange has now turned into a reputational nightmare amid questions about technology and Nasdaq procedures, as well as the obligatory regulatory/legislative inquiries. Investors are already voting with their feet, smacking Nasdaq shares down.

Nasdaq has rightly tried to get in front of this story, issuing mea culpas (though hedging a bit on some) and pledging that its systems and processes are up to snuff. The integrity and smooth operation of financial exchanges are paramount to their reputations. Nasdaq has been damaged and this story will likely be linked to the share performance of Facebook for some time to come. It must stay out front and continue to be transparent and forthcoming about what happened, why it happened and how it is fixing things. Nasdaq could even take a page from JP Morgan and have a resignation/firing or two to show it means business. This could help it ensure that going forward the news is only focused on the listing companies.

Rich Tauberman is Executive Vice President of MWW and a leader of the firm’s Corporate and Financial Communications practices. He directs some of MWW’s top professional services and financial services accounts. Rich’s background includes managing communications activities for law firms, accounting firms, banks, brokerages, asset managers, insurance companies and healthcare organizations. He possesses an expertise in crisis/issues management, litigation support and investor relations.

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Green Mountain Coffee Finds its Reputation Roasted
May 16, 2012

Robert Stiller, founder of Green Mountain Coffee Roasters, suddenly found himself demoted from chairman of the board last week without pay.  This was after he sold approximately five million shares during the company’s blackout period, a transaction the board found to be inconsistent with internal trading practices.  Another board member was also asked to step down as lead director over his own stock sales.

Stiller found himself in a sticky situation after he had taken out significant loans using his GMCR stock as collateral.  Loans were reportedly made to purchase a 164-foot yacht and finance his Heritage Aviation business.  When the company’s share price tumbled sharply, following an earnings disappointment, he found himself without enough money in his account to cover his loans.  The bank made a margin call.  Stiller was then forced into an emergency stock sale.

While executives are prohibited from borrowing money from their company, they can borrow from banks or brokerage firms using their stock portfolios as collateral.  There is no requirement to disclose their margin borrowings as a matter of course.  Nor do they need to disclose these borrowings to the board.

This begs the question:  Should management or members of the board even be permitted to use their share holdings as collateral for personal investments?  This has yet to be answered.  However, in recent years, forced selling has affected other companies, tarnishing hard-won corporate reputations.

The chance of future margin calls in situations like the one faced by Green Mountain’s chairman is significant, with approximately 23% of the S&P 500’s corporate officers having pledged company stock.  With this in mind, shareholders should demand both transparency and full disclosure from corporate management and boards of directors on the extent of their margin positions.  At the same time, managements and boards would be well-served to consider policies that prohibit hedging against the company’s own corporate securities, before a similar reputation roast comes to bear.

Marilynn Meek is a VP at Financial Relations Board and brings over two decades of experience as an officer of Wall Street securities firms and IR agencies. She provides strategic communications programs that include IPOs, M&As, capital raising initiatives, shareholder and analyst communications, and financial crisis communications for micro-cap to Fortune 500 companies.

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Chesapeake Energy CEO Gets Fracked
May 3, 2012

In the annals of corporate perks, Chesapeake Energy made the Top 10 list by allowing co-founder and CEO Aubrey McClendon to buy into 2.5 percent of every well the oil and gas company drilled. Even better, Mr. McClendon paid for the very lucrative perk with personal loans he arranged with companies Chesapeake did business with such as Wells Fargo and Goldman Sachs, an innovative new spin on payola.

The story gets even better. At first, the Company, through its general counsel, said that the Chesapeake board “was fully aware” of the very comfy financing arrangements. But then with the glare of media lights and the scorn of shareholders upon them, the board walked it back and provided a public clarification that it was only “generally aware” of the deals that had Mr. McClendon use his stakes in the Chesapeake wells as collateral. Not sure how close “generally” is to “fully” but it looked to provide some cover.

The parsing of words did not do much to quell the shareholder outrage and today word comes that Chesapeake’s directors have forced Mr. McClendon to step down as Chairman. All this comes after shareholder outrage last year forced the board to rejig Mr. McClendon’s compensation to make it performance-based, a concept that seemingly took some time to reach the old-boy and one-girl board in Oklahoma.

Chesapeake, which calls itself “America’s Champion of Natural Gas” on its website homepage, touts “Bold Moves, Big Future” but unfortunately, Mr. McClendon’s bold moves for his personal gain combined with rock-bottom natural gas prices have smacked the Company’s stock price and made many question the oversight and independence of its board. The board of directors’ influence on a corporation’s reputation is probably greater now than it ever has been and missteps can counteract even the best corporate responsibility programs.

Directors need to be not only on top of all that goes on in the companies they serve but also the reputational impact of what they do and what they say. New regulations on things like “say on pay” (as Citigroup recently found out) are just part of the brighter spotlight and great scrutiny on boards. Communications expertise and issues/crisis management counsel must no longer stop at the executive suite. Smart boards, when faced with situations like Chesapeake, need to examine closely not only their words, but the optics, because it all plays out from share price to corporate standing to the bottom line.

Rich Tauberman is Executive Vice President of MWW and a leader of the firm’s Corporate and Financial Communications practices.  He directs some of MWW’s top professional services and financial services accounts.  Rich’s background includes managing communications activities for law firms, accounting firms, banks, brokerages, asset managers, insurance companies and healthcare organizations.  He possesses an expertise in crisis/issues management, litigation support and investor relations.

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