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PCC Roundtable Provides Insights into Managing
Reputations in a New Era of Corporate Governance
(Executive Roundtable, January, 2004)
By David Brimm
The Publicity Club of Chicago held
its first Executive Roundtable of the 2003-2004 season
on January 22, 2004 at the 410 Club. Organized by Tom
Mullaney and Bill Keegan, the session examined the
communications issues and challenges surrounding
corporate governance and offered timely thoughts and
insights from three leading experts in reputation
management and corporate governance.
From left: Bill Keegan, Al Golin,
Robert Burson, Kevin Cook (photo by Jonathan Lehrer)
PANELISTS
KEVIN COOK
–Executive Vice President and General Manager of
Edelman’s Reputation Management practice, based in
Chicago
ROBERT BURSON – Senior Associate
Regional Director for the Midwest Regional Office of the
U.S. Securities and Exchange Commission and chief
enforcement officer for the SEC in the Midwest
AL GOLIN- Founder of Golin/Harris
International and one of the industry’s leading
authorities on trust strategies for global companies.
His new book, "Trust or Consequences," examines what
makes an effective trust strategy and what determines
the impact of trust issues on stakeholders.
REMARKS
Bill Keegan opened the session by proposing that
managing reputations is more daunting than ever. Enron
was a major catalyst for impacting reputation management
forever. Then with the enactment of the Sarbanes-Oxley
Act that calls for company executives to personally
approve their company financials "the rules of the road
changed overnight."
The major fallout from Enron and other companies
engaged in fraudulent financial reporting was that
investors lost inherent trust in the companies in which
they invested. There is a "crisis in confidence" that
puts more pressure on PR/IR professionals.
Al Golin
Al Golin began the discussion by sharing statistics
from a recent Golin/Harris study that dealt with
reputation management. Data collected within the U.S.
from 700 business leaders found that 69% of
Americans don’t trust most businesses, and that the
businesses that have the least credibility are the power
and energy industries, where the Enron scandal has no
doubt shaken consumer confidence. Ironically, in Asia,
power and energy companies have the greatest
credibility.
In his book, Golin interviewed CEOs across the
county, and noted that the CEO (or in this case an
ex-CEO) who made the greatest impression was Ralph
Larson, former CEO of Johnson & Johnson. Larson related
that he told employees that the company’s trademarks
were not as important as their "trustmark" with
customers. That may explain why he estimated that he
spent 7% of his time involved in communications, not
operations. "He has his priorities right," remarked
Golin.
Golin believes that companies today aren’t less or
more ethical than companies years ago, but business is
more transparent today due to the regulatory controls
from bodies such as the SEC and increased media
scrutiny.
Robert Burson
The SEC’s Robert Burson, who is responsible for
investigating and prosecuting cases involving accounting
and financial fraud, international offering fraud,
insider trading and misconduct by broker-dealers,
investment advisors and investment companies, received
the SEC’s Distinguished Service Award for his
contributions to the enforcement program.
Burson (no relation to Harold Burson),
noted that the Chicago SEC office handles 600 cases a
year, about 10% of enforcement cases in the U.S.. He
reiterated that the SEC only prosecutes civil cases, not
criminal cases. Every case prosecuted must first be
approved by the Washington SEC office.
"There is a new climate of outrage
within the investor community," said Burson. Where once
only large entities were hurt by fraud, today millions
of Americans have their financial futures tied to the
stock market and the performance of the companies in
which they invest, so fraud affects them very
personally. As a result, the media are paying much
closer attention to irregularities within the investor
community.
To avoid getting into trouble with
the SEC, Burson offered the following advice:
- Don’t expect the environment to
change. The rise in corporate malfeasance is not a
"trend." The SEC and the law will vigorously prosecute
corporate fraud, and judges and juries will be much
tougher in dealing with those convicted.
- Be sure that companies you represent
regularly consult with legal counsel when making public
declarations. "Don’t ever lie."
- Be sure to look at the big picture
when dealing with the public. Never issue misleading
information. That includes information carried in press
releases or as part of public presentations.
- When you have a problem, you better
fix it quickly, before other parties, such as the SEC
and media, get interested. Where once you had weeks, you
now have only days.
Kevin Cook
Edelman’s Kevin Cook, who oversees the agency’s
reputation management practices group, which is billed
as one the country’s largest, provides counsel to a wide
range of corporate and Fortune 500 clients. Cook
suggested that when you talk about governance, you’re
really talking about trust and accountability, which is
ultimately tied to financial performance.
Cook credited Richard Breedan, former SEC chair and
an advisor to Edelman, with guiding his approach to
governance. "The focus should be on governance, not just
money," proposed Cook. He advised PR people to listen to
stakeholders and then deliver what you promise to these
stakeholders. "Look beyond the money."
Much of the responsibility for governance rests with
a company’s board of directors, which should be adopting
a policy of "constructive confrontation" to challenge
numbers and claims presented to the board. A board
should never be rubber-stamping issues raised by the
company. A good board is one that remains independent
from the executive suite, and has at least 50% of its
directors from outside of the company.
As a result of Sarbanes-Oxley and closer media
scrutiny of management, "senior managers are afraid to
be transparent, for fear of being in the spotlight,"
said Cook. This has chilling effect on CEOs, just when
they need to broaden their dialogue with stakeholders.
Senior executives need to asking: "What do stakeholders
want from us?" Cook added that stakeholders include
employees – "the first line of communication and trust
links.
Cook, quoting from a Wall Street Journal
survey of CEOs worldwide, reported that when CEOs rank
the 10 biggest threats to their business,
over-regulation ranks first. Reputational risk ranked 6th
and at a distant 10th, was corporate governance. Which,
should have been tied with over-regulation, suggested
Cook.
As governance and reputation management become more
pressing issues for business, PR must work more
meaningfully with finance and legal to ensure
credibility and reputation.
According to the Edelman Trust Barometer, 80% of
opinion leaders will more likely believe news about a
company if they see it in print or on-line. Which, Cook
suggests is a lesson that must be learned by both PR
people company executives alike: "Companies will be
visible to media, in both good times and bad." So it’s
up to PR people to ensure that this visibility sets a
positive tone for the company.
During a vigorous Q&A, several topics were discussed:
Are CEOs hogtied by regulations such as
Sarbanes-Oxley?
Burson does not agree that these regulations hogtie
CEOs. CEOs should not be able to deflect regulatory
sanctions by claiming that they didn’t really review all
of the numbers in the annual report. They have a
responsibility to their stakeholders to stand behind
their financial performance and return to investors.
What is the relationship between SEC and media?
Burson noted that five years ago, when reporters
learned that the SEC was indicting a company for
accounting irregularities, there wasn’t much interest.
With Enron and subsequent investigations, the
environment has changed. The SEC doesn’t usually comment
on investigations, but there are exceptions. Ironically,
like the companies they investigate, the SEC doesn’t
like to make news on a Friday because weekend coverage
limits visibility.
Martha Stewart
Burson ducked the question, and suggested that this
was just "another insider trading case." Yet, did admit
that the SEC has to demonstrate that no one is immune
from prosecution for wrongdoing.
Exposure for PR people releasing flawed financial
information
Golin proposed that it is the responsibility of
professional communicators to have confidence in the
financial news they are releasing to the media. If a
professional communicator is asked to compromise his or
ethics by releasing material they know to be untrue,
they need to resign the account.
Burson said that PR firms rarely are indicted for
releasing inaccurate news, unless the SEC can determine
that the PR firm had knowledge of the truth and released
the information.
If you missed this fourth in a series of PCC
Executive Roundtable Series, you’ve really missed an
exceptional opportunity to network with senior-level
practitioners and take part in discussions of important
communications issues affecting public relations
professionals from the corporate, agency and non-profit
sectors. Each Roundtable features leading experts
and authorities from across the country, who
participate in an interactive forum that provides
valuable information and insights that can be applied to
local, regional and national communications programs and
strategies.
Stay tuned for news about the next
Executive Roundtable, which will delve into the
vital area of PR Measurement.
SPECIAL THANKS TO PCC-MEMBER TOM MULLANEY FOR
COORDINATING THE SEMINAR.
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