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Word Up, Save Face

21st Apr 11

An organisation’s reputation is its most valuable asset and one of the few risks that cannot be effectively insured.

Risk management strategies, particularly how to respond to the media in a crisis, are now essential tools in a director’s kitbag.

Gerald Ratner

In 1991 Gerald Ratner was Chairman of the world’s biggest jewellery chain when a comment he made at a business dinner about the quality of his firm’s products sparked a media frenzy. Trying to recover from the gaffe he dug himself in deeper. When the dust settled, an estimated £500 million had been wiped from the company’s value and Ratner had left the business.

Ratner was giving a speech to the UK Institute of Directors when he famously said: “We even sell a pair of earrings for under £1, which is cheaper than a prawn sandwich from Marks & Spencer’s. But I have to say the earrings probably won’t last as long.”

Barclays Bank

That was in the heady 1990’s yet the corporate world still hasn’t learned the lesson about the impact of casual comments from the senior team. More recently in the UK Barclays Bank chief executive, Max Barrett, did a ‘Ratner’ when he admitted he did not borrow on his own bank’s credit cards because the interest rates were too high.

It’s still too soon to tell what impact Barrett’s comments have had on Barclaycard’s market share, but his personal reputation has taken a battering. Unlike their corporate peers, politicians have long been aware of the perils of the unguarded media comment. These days even highly experienced politicians undergo regular coaching and rehearse before giving interviews.

"No comment" no longer an option

While it may seem safer to try to stay out of the media spotlight all together, as Mark Latham recently demonstrated, avoiding the press or using “no comment” is no longer an option for political or corporate leaders in this age of accountability.

In January this year (2005), while politicians and opinion leaders around the world were expressing compassion over the Tsunami disaster, Latham was conspicuous by his absence. Ironically for a man with a reputation for colourful language and the gift for delivering powerful sound bites, his failure to front the media triggered a backlash that ultimately ended his political career.

In the two decades since Ratner’s comments, legislators are still struggling to define the ‘rules of engagement’ governing corporate disclosure and the media. This struggle has brought the often-neglected communication function into the board’s sights.

Media exposure

Australia’s Clerp 9 for example has provisions requiring a publicly listed company to respond to public or media speculation regarding the disclosure of price-sensitive information. In the US, the Sarbanes-Oxley legislation has triggered a raft of changes in corporate governance and risk management.

While the requirements of Clerp 9 can probably be met by issuing a carefully worded media release, a simple statement, no matter how well crafted, is unlikely to stop media speculation and the potential damage to corporate reputation.

The only defense is well trained and credible spokespeople who can face the media, deliver the facts and defend the corporate reputation. When the media does focus on a company, the board is no longer exempt.

While senior management used to bear the brunt of media scrutiny and accountability, the renewed focus on corporate governance and the role of directors has given boards unprecedented exposure to the harsh media spotlight.

One voice for the Company

And few are equipped to handle it without causing further damage to their personal and corporate reputations. James Hardie Industries’ chair, Meredith Hellicar, endured a gruelling, drawn out and highly critical few months in front of the media. And there is a lot more to come. Her strong performance did much to restore the Australian public’s perception of the credibility of the company’s compensation agreements.

After Hellicar’s ‘media roadshow’ on the new compensation package, investors responded by pushing the share price up to a 12 month high. Hellicar had been unexpectedly thrust into the role of media spokesperson after former chairman Alan McGregor stepped down in August. CEO Peter Macdonald had also resigned after a NSW government inquiry found the fund for asbestos victims had a $1.3 billion shortfall despite original claims that the scheme was fully funded.

With a new top team and little time for preparation, Hellicar had to hit the ground running. Her performance suggests a solid investment in equipping key players with skills and experience to front critical media interviews.

While Hardies’ handling of the asbestos crisis has been soundly criticised, there are valuable lessons to be learned about the board’s role in protecting corporate reputation. It was a powerful demonstration of the value of a competent, media-savvy chairman who can deliver well-rehearsed messages, and stick to those messages.

There was one voice for the company. If there was dissent or opposing views on the board they were not publicly heard, as Hellicar was the only spokesperson responding to media enquiries.

Chairman or CEO?

In the communications business, using the chairman to take on the role of media spokesperson is akin to attacking with your king in a chess match. It is a company’s last defense and should only be undertaken in the most desperate circumstances.

Even in a crisis the first choice is the CEO. Playing the chairman sends a very clear public message about just how seriously the matter is being taken. Of course, in James Hardies’ case there wasn’t a lot of choice since the CEO had resigned.

The case also highlights the need for all directors to be skilled in they way the media works and how to give media interviews. Not just in case they, like Hellicar, have to unexpectedly step up to the plate and field critical media interviews, but as a matter of pure corporate governance.

Crisis preparation and planning

Unless a director is familiar with how the media works, and how they report a crisis, how can he or she form a judgment about the company’s communication capabilities and emergency response plans?

Directors need to contribute to board room discussion and help the chairperson prepare for an interview with formidable journalists such as the 7.30 Report’s Kerry O’Brien.

Hellicar’s interview with O’Brien last year was a ’make or break event’ for Hardies’ reputation. Without experience working with the media and formal media skills training, the outcome may have been fatal for Hellicar and the company.

Media policy in a crisis

Before a crisis hits the company, the board needs to feel comfortable that there are plans and processes in place to handle it. Boards must also ensure their organisation has a clear and reliable media policy.

This policy should address how media enquiries will be handled, who should speak to the media and what training and development they have undertaken to hone their skills.

In most companies the CEO rather than the chairman is the media spokesperson, certainly for operational issues. While the chairman may speak to media, especially at the AGM, it’s critical that both CEO and chairman are seen to be singing from the same hymn sheet.

Media skills are essential when managing reputation risk

As was seen with James Hardie, it is critical to ensure the organization speak with one voice on key issues. This means that both senior management and the board need to know how to respond to media enquires and direct them appropriately.

Like any other risk, reputation risk is best managed by early identification and a consistent well planned response. Increasingly, directors are seeking formal media training as part of the board’s commitment to director education. Many boards are including media skills as part of the new director’s induction program.

ENDS

This article first appeared in Corporate Risk Magazine, February 2005.