Strategic Communications is Always a Force in the "Art of the Deal"

 

          Despite market fluctuations, the pace of mergers and acquisitions has been frenetic in the U.S. for nearly two decades.

          Whether it’s private equity, financial services, the food industry, healthcare, industrials, telecommunications, oil and gas, utilities, high-tech, Internet, or social media, consolidation in most major market sectors continues at a torrid pace.

          For 2010, the last full year measured, Thomson Reuters reported a 14.2 percent gain in U.S. M&A activity for a dollar value of $822 billion. Recently, USA Today reported that U.S. activity is running at a $1.6 trillion pace this year. This is still below the peak of $2.6 trillion in 2007, but still qualifies as an active market.

          In my view, one of the biggest factors in the success of M&A deals is the execution of a strategic communications plan that describes and positions the transaction appropriately. Without this roadmap, it’s extremely difficult to articulate the deal to critical audiences -- employees, shareholders, the general public, and the diverse audiences associated with a corporate merger.  Therefore, it is critically important that the business rationale supporting the transaction be concise and cohesively communicated. 

          To strengthen a successful M&A deal, the parties involved need to make strategic communications a driving force. Senior managers, lawyers, investment bankers and consultants involved in deal-making should formulate a 10-step process to ensure the adoption of a strategic communications plan before the deal is announced.

Here’s a checklist:

          Step 1: Evaluate the corporate reputations.  Components include ethics, workplace environment, financial performance, leadership, management, social responsibility, customer focus, quality, reliability, and emotional appeal. Develop a matrix and rank each component on a scale of 1 to 10.

          Step 2: Investigate major issues/concerns. Conduct Internet searches going back five years and review news media coverage for major corporate events involving both parties. This ensures that when the transaction is communicated, senior management will be prepared to address any negative issues that surface.

          Step 3: Establish communications goals.  Define and establish the goals of your strategic communications efforts.  Determine what you are trying to accomplish and agree on the three or four most important communications goals in the process.  Without these agreed-upon goals, each entity may move in opposing directions, which will add confusion to the deal.

          Step 4: Define relevant audiences. During the early planning stages, it’s critical that every audience affected by the deal be defined. This list typically includes employees, Wall Street analysts, institutional investors, stockholders, customers, business partners, distributors, political leaders, regulators, and trade associations.

          Step 5: Establish positioning strategy. Any way you look at it, two different organizations are joining forces. Whether it’s a friendly merger or a hostile acquisition, the new entity will need to create a positioning strategy, clearly defining how the combined entity will be perceived by its audiences and how it will execute its business strategy and plan for growth.

          Step 6: Agree on messages. Building off the positioning strategy, agree on three to five key messages to be incorporated into all internal and external documents. If, for example, the merger of company X and company Y is going to create the largest player in its industry, you need to emphasize this in all communications. It sounds simple, but agreeing on key messages can be difficult.  If the M&A activity involves a hostile takeover, specific strategies should be developed to address potential issues in the public domain. 

          Step 7: Select and train spokespeople. This area often breaks down. Once the deal is done, too many people tend to communicate different and inconsistent messages. Today, audiences quickly assimilate information from multiple sources and form immediate opinions.  Keep the circle of spokespeople small, and make sure they stay “on message”.  Appoint and train specific individuals to disseminate messages internally and externally.

          Step 8: Utilize social media. It’s unrealistic to announce a deal today without using social media. Gone are the days when dealmakers could rely on the print and broadcast news media to announce M&A activity. At the time of an announcement, the organizations joining forces need to use (at a minimum) Facebook, Twitter, YouTube, and Linked-In. These are the modern channels that feed news to key audiences. In addition, a social media crisis communications plan needs to be developed if events don’t go as planned on the social media front.

          Step 9: Synchronize communications. Devise a detailed blueprint and timetable to implement your communications strategies. This requires well-defined plans with specific communications responsibilities assigned to the appropriate individuals. Both sides need agreed-upon documents to guide the process, such as key messages, talking points, and a Q&A. There must be a coordinated game plan in place to anticipate and answer every possible question. In today’s high-stakes communications environment, there is no margin for error.

          Step 10: Plan Immediate Measurement. Once deal communications are launched, the parties need to implement qualitative and quantitative measurement. New software tools can analyze news media coverage and social media channels. Research can also be conducted among employees to determine if the correct messages are being transmitted.  Don’t rely on anecdotal evidence.

          In conclusion, senior executives involved in M&A activity must understand that announcing the deal is the beginning of a long-term communications challenge. If a well-conceived and executed strategic communications plan is undervalued and underestimated by the parties involved, it will have a detrimental impact on a successful transaction announcement and subsequent communications initiatives.

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Richard E. Nicolazzo is management partner of Nicolazzo & Associates, a strategic communications and crisis management firm headquartered in Boston, Mass.

Joe M. Grillo, a partner at Nicolazzo & Associates, contributed to this blog.

Bartz Firing Mess Breaks New Ground for Crisis Pros

September 6, 2011 may go down in history as a day when the rules for crisis communications management changed forever.

In making one blunt statement, “I’ve just been fired,” former Yahoo CEO Carol A. Bartz has likely re-written the rules for successfully managing a change in corporate protocol and leadership.

In a move that should send shockwaves to anyone involved in crisis management and strategic communications, Ms. Bartz blasted an email to Yahoo’s 13,400 employees shortly after she got the axe.

As the story was reported, this bizarre episode began to unfold when Yahoo board chairman, Roy Bostock, called Ms. Bartz and told her she was fired while she was on vacation on the East Coast, flying from Maine to New York.

Yahoo, a company already under fire on Wall Street for losing its way in the Internet space and underperforming financially, made numerous serious missteps in this process.

First, even if the CEO expects it, being fired by telephone is poor policy. Likely, this is a case of an out-of-control board that does not respect its CEO and, concurrently, does not value effective communications management. I would be hard-pressed to believe that any senior communications executive would agree with Yahoo’s strategy.

Where were the company’s lawyers in all this?  It’s obvious that Ms. Bartz had a contract, and when contracts are going to be dissolved, skilled lawyers guide the process, non-disparagement clauses get written, and press releases approved by both sides are generated. There should be no substitute for this process.

It’s also astonishing that Ms. Bartz was allowed to send her email. Any company the size of Yahoo, even one that is dysfunctional, has an MIS director who can instantly delete anyone from the email system, thereby preventing widespread distribution of an email like the one that Ms. Bartz authored.

Not taking control of the technology before she was fired was a critical error. When it comes to controlling communications, no employee – from the custodian to the CEO - should have an opportunity to send emails from the corporate server after they have been terminated. Instant communications has changed the rules.

Clearly, Ms. Bartz had a rocky tenure at Yahoo. Didn’t anyone on the board consider that the reportedly high-strung CEO would do something dramatic?  

Reckless Action

Some have argued that Ms. Bartz is a pioneer in that she told the truth and didn’t fall in line with the “corporate-speak” that accompanies most CEO dismissals. Others have said her action provides increased transparency and insight into how corporate America’s upper echelons really operate. 

In a statement in The New York Times, Jeffrey Pfeffer, a Stanford professor in organizational behavior, says, “The truth helps you improve. When people lose their jobs and there’s no acknowledgement, the potential for learning is lost…Ms. Bartz’s comments also served her own cause. She’s acting as if this is not her fault. She’s controlling the message.”

Homa Bahrami, a senior lecturer at Berkeley, said in published reports, “I would say this is going to become much more of a trend…the chief executive picks up the phone and tells the investors exactly what happened.”

I believe this is academic nonsense.

It’s no secret that Ms. Bartz and the board did not see eye-to-eye during her nearly two years at the helm. In fact, in an interview with Fortune magazine, Ms. Bartz described Yahoo’s board members as “doofuses.”

That is no excuse for what I believe is reckless behavior. While her actions may seem in vogue and fit her shoot-from-the-hip style, they have further damaged Yahoo’s reputation and negatively impacted the stock. That translates into real value taken out of investors’ pockets.

It appears that Ms. Bartz never fully grasped that a publicly-traded company is owned by the “stockholders,” not the CEO or its senior management. What about her fiduciary responsibility to investors? That responsibility includes how and when she communicates, not just matters involving the balance sheet.

Want proof that Ms. Bartz’s actions were selfish and misguided?

Just three days after her email blast, Daniel Loeb, a prominent hedge fund manager, revealed that he had become one of the company’s largest shareholders and called for a major board shakeup. Reports have now surfaced that an investment bank was retained to brief the board on various scenarios that could break up the company or put it up for sale.

As a result, the people on the board who are charged with trying to save the company are under even more intense scrutiny. How could anyone argue that this is helpful to shareholders?

Teaching Moments

This messy and unpleasant episode should put senior communications counselors on notice that the rules are changing when it comes executive departures. For the most part, CEO departures have been “sugar-coated” in how they are communicated. Either the CEO resigns, talks about spending more time with the family, or states that he/she is stepping aside to assure a smooth transition.

Email, the Internet, and social networking have their upsides. In fact, an entire new industry has been created to aid and expand the communications process. But there’s also a downside that should be addressed.

A company can inform and engage its employees through blast emails and social networking in an organized and controlled fashion, but that does not prevent a rogue employee, even a CEO, from turning the tables and embarrassing the board, thus causing concern in the marketplace and potential harm to the organization.

In-house public relations executives and outside counselors need to design and implement stronger contingency communications plans with their bosses and clients. When it comes to change in upper management, every possibility should be considered…including detaching the deposed executive from the corporate email system before it’s too late. No more courtesies to shoot off emails to former colleagues and wish them well.

In the end, part of being a CEO is knowing how to act professionally, both in good times and bad. It will be interesting to see where Ms. Bartz finds herself. I’m betting that no major corporation will want her as “captain” of their ship.

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Richard E. Nicolazzo is managing partner of Nicolazzo & Associates, a strategic communications and crisis management firm headquartered in Boston, Mass.

Joe M. Grillo, a partner at N&A, contributed to this blog.

Apple Stands Alone In PR Savvy

iPhone. iPad. iPod. iMac. iTunes.

Simple product names that have come to define the best technology company on the planet and embody the spirit of Steven P. Jobs, a man whose brilliant vision and personal touch with consumers has made him a living legend.

Most of the plaudits about Jobs focus on Apple - the value of the company’s stock, the insanely successful products, the constant innovation, the billions of dollars of cash in the bank, and the company’s ability to figure out where consumer markets are headed.  I believe the organization also stands alone in one other critical category: Strategic communications.

In my view, never in the history of American business has such a pivotal CEO faced a life-threatening illness that has been so linked to company valuation. For what seems like an eternity, Apple has been Steve Jobs, and Steve Jobs has been Apple.

On Wednesday, August 24, 2011, all that changed when Jobs told Apple’s board of directors he was stepping down as chief executive. Using one of the oldest forms of communications in today’s universe of tools, he sent a straightforward letter to the board with no news media interviews granted. This is controlled strategic communications at its best. The dispatch is carried universally with key messages imbedded throughout the text.

The actual 143 words in Jobs’ letter are worth noting:

“I have always said that if there ever came a day when I could no longer meet my duties and expectations as Apple’s CEO, I would be the first to let you know. Unfortunately, that day has come. I hereby resign as CEO of Apple. I would like to serve, if the Board sees fit, as Chairman of the Board, director and Apple employee. As far as my successor goes, I strongly recommend that we execute our succession plan and name Tim Cook as CEO of Apple. I believe Apple’s brightest and most innovative days are ahead of it. And I look forward to watching and contributing to its success in a new role. I have made some of the best friends in my life at Apple, and I thank you all for the many years of being able to work alongside you.”

Jobs’ style of tightly-managed communications is part of a pattern that has been criticized at times, but is still effective in protecting his privacy and not creating a media circus surrounding his health. Many will recall his first major announcement in early 2009, when he said his dramatic weight loss was caused by a hormone imbalance. Just a week later, he announced a medical leave of absence for several months. In June of that year, a Tennessee hospital confirmed that Jobs had received a liver transplant. Once again, these communications were all written statements, with no interviews either from Jobs or the company.

  

This pattern of communications continued in January of 2011, when Apple announced Jobs was taking a medical leave of absence…this time not specifying a reason or how long he would be away. Questions were raised about the severity of Jobs’ health issues and its potential impact on the company’s stock, product development and business operations, but the company did not miss a beat. Some may have been frustrated with the lack of specificity and transparency, but there were no Apple missteps in the process.

Apple and Jobs also deserve praise for the way the transition to a new CEO has been handled. John Dvorak, noted tech columnist for MarketWatch, likely has it right: Lots of companies in Silicon Valley would love to hire Tim Cook. Given that Jobs is considered to be critically ill, handing over the title to Cook had to be done sooner rather than later. If something happened to Jobs while Cook was “acting CEO,” the job may have been up for grabs. This approach is crisp, clean, and clear-cut. Cook is the new CEO and Jobs has the new title of “Chairman.”

Keeping it Simple

Internally, Apple, which has more than 46,000 employees, also kept it simple. In an email to all employees, Cook’s 225-word message was a blend of cheerleading and a tribute to Jobs. The entire email is instructive in its carefully crafted composition:

“I am looking forward to the amazing opportunity of serving as CEO of the most innovative company in the world. Joining Apple was the best decision I’ve ever made and it’s been the privilege of a lifetime to work for Apple and Steve for over 13 years. I share Steve’s optimism for Apple’s bright future. Steve has been an incredible leader and mentor to me, as well as to the entire executive team and our amazing employees. We are really looking forward to Steve’s ongoing guidance and inspiration as our chairman. I want you to be confident that Apple is not going to change. I cherish and celebrate Apple’s unique principles and values. Steve built a company and culture that is unlike any other in the world and we are going to stay true to that — it is in our DNA. We are going to continue to make the best products in the world that delight our customers and make our employees incredibly proud of what they do. I love Apple and I am looking forward to diving into my new role. All of the incredible support from the board, the executive team and many of you has been inspiring. I am confident our best years lie ahead of us and that together we will continue to make Apple the magical place that it is.”

The orchestration of Jobs’ announcement is a perfect example of how to execute crisis management and general strategic communications by:

·         Controlling the message

·         Ensuring accurate and timely material news to all audiences simultaneously

·         Maintaining brand, management, and corporate credibility

·         Minimizing any damage to reputations of individuals involved

·         Reducing the risk of future business problems

·         Focusing on the future

This may appear easy, but in practice things can rapidly get out of control. Just look at what happened to Hewlett-Packard when it announced (simultaneously) that it was exploring “strategic alternatives” and might sell its dominant personal computer business, it was scrapping its new, much ballyhooed TouchPad tablet computer, and it was acquiring a British software concern for more than $10 billion. The stock plunged 20%.

This communications fiasco came about a year after CEO Mark Hurd was forced to resign in the midst of allegations of sexual harassment and expense account irregularities. The one-year decline in H-P’s stock price is more than 45%, while S&P’s 500-stock index gained about 3% over the same period.

On September 16, 1997, when Jobs rejoined Apple, the stock price that day closed at $5.48. Recently, it was trading at about $390.

Last week, London book makers offered odds on where Apple stock will end the year now that Jobs has resigned as CEO. If you’re curious, the odds are 5-1 that the price will be $400 or more. My view is that even if something happens to Jobs, nothing drastic will happen to the stock. The company is like an aircraft carrier. Even major competitors like H-P surrender if a rival product to Apple doesn’t sell. Although it might be difficult to imagine, Jobs’ DNA may be so ingrained in Apple that the company could get even better!

Jobs or no Jobs, it’s hard to foresee anything stopping a company that seems to have the best of everything…including a strategic communications team that knows exactly what it’s doing.

Joe M. Grillo, a partner at Nicolazzo & Associates, also contributed to this blog.

Buffett Flunks Crisis Management 101

Candor is one thing, but appearing out of touch with the fact set is another.

How else to explain the reputational hit that Warren E. Buffett’s Berkshire Hathaway company has suffered in recent weeks?

Buffett, known as the “Oracle of Omaha” and one of the richest men on the planet, may be a brilliant investor, but when it comes to crisis management skills, he probably needs a serious refresher course.

By now, the story is well-documented. On March 30, David L. Sokol, 54, long considered a leading candidate to succeed Mr. Buffett, suddenly resigned from Berkshire Hathaway.

It seems that Mr. Sokol purchased thousands of shares in Lubrizol, a lubricant company, two months before Berkshire announced a $9 billion deal to acquire the outfit. As one might expect, when the Berkshire deal was announced, the shares shot up 27 percent over a two-week period. Mr. Sokol made a cool $3 million on paper.

Like most alleged insider cases, the circumstances of the stock purchases remain murky. If we’ve learned one thing from all the Wall Street shenanigans, it’s that it takes time and research to unravel the timeline and understand what really happened.

This emerging crisis should have immediately set off an alarm for Mr. Buffett to “hold his fire” when the news stories about the resignation began to break. In my view, that is crisis management 101.

Instead, what happened? In a statement the same day, Mr. Buffett said, “Neither Dave nor I feel his Lubrizol purchases were in any way unlawful. He has told me that they were not a factor in his decision to resign.” Mr. Buffett went on to say that Mr. Sokol’s “contributions have been extraordinary.”

For a man with such acclaimed business acumen and successful track record of strategic investment decisions, this unfortunate episode was an unfathomable rookie mistake for Mr. Buffett. How could someone with his stature simply accept Mr. Sokol’s word that there was no self-dealing involved? Did Mr. Buffett really think that Mr. Sokol would say he was guilty of insider trading?

If he was practicing disciplined crisis management, what Mr. Buffett should have said was: “Mr. Sokol has resigned from Berkshire Hathaway. We will immediately begin a comprehensive review of the circumstances surrounding his resignation, including recent stock trades, and report our findings to the public and authorities as soon as possible. We will also cooperate with any regulatory investigation that might ensue.”

Mr. Buffett has since explained himself, but I’m not buying it. In a business column on May 3 in The New York Times, Mr. Buffett was quoted as saying, “I felt that if I’m laying out a whole bunch of facts that are going to create lots of problems for him for years to come, that I also list his side of the equation in terms of what he’d done for Berkshire.”

The Times column also quoted Mario Gabelli, a nationally-acclaimed investor and major shareholder in Berkshire, as saying the Sokol episode was “irrelevant” and derided it as “a good story for the media.” Mr. Gabelli also said he, like Mr. Buffett, simply cares about the company’s cold, hard numbers.

While I agree that financials are always paramount, I disagree that this episode means nothing to the reputation of Mr. Buffett and his company. What Mr. Sokol did may not ultimately be proven to be “technically” wrong, but anyone with a sense of fair play realizes that it does not pass the smell test.

New Legs to the Story
Unfortunately for Berkshire, the Sokol mess erupted just a month before the annual meeting, a time when senior executives at any company are most exposed. Instead of quieting down, negative media coverage ticked up several notches, with both sides contradicting each other.

On April 27, a report issued by the audit committee of the Berkshire Board accused Mr. Sokol of misleading the company about his personal stake in Lubrizol. “His misleading incomplete disclosures to Berkshire Hathaway senior management violated the duty of candor he owed the company…Mr. Sokol may have failed his fiduciary duty under the law of Delaware.”

What a stark turnaround from Mr. Buffett’s initial comments.

Things got even uglier when Mr. Sokol’s lawyer, Barry W. Levine, got involved and disputed many major assertions in the audit report. “…Mr. Sokol had told Mr. Buffett ‘twice, not once’ about his ownership of Lubrizol shares before Mr. Buffett began discussions with the company.”

A more stunning revelation was the audit report stating that, “Mr. Buffett and the company did not have the full story in March.” This begs the question: Why would Mr. Buffett make the statements he made without knowing all the facts?

I believe Mr. Buffett’s apparent knee-jerk reaction to this issue and the subsequent fallout has tarnished his pristine reputation.

I continue to be shocked at the apparent lack of crisis management planning in some of the world’s largest companies. It wasn’t that long ago that Tony Hayward, the disgraced BP chief, said publicly, “The company’s contingency plans were inadequate and we were making it up day-to-day.”

Berkshire Hathaway, a company that generated nearly $18 billion in cash from operations last year and currently has more than $38 billion to spend on future acquisitions, erred badly in communicating its reaction to what has become a major scandal.

What happens next isn’t clear, but according to published reports, the Securities and Exchange Commission is already investigating Mr. Sokol’s trading. In fact, we now know that Mr. Buffett called the SEC himself and laid out the pattern of trading.

Berkshire Hathaway may face lawsuits from shareholders who want Mr. Sokol to forfeit his trading profits because of the negative publicity and damage to the company’s reputation. And the audit report said the company is considering whether to pursue “possible legal action against Mr. Sokol to recover any damage the company has sustained, or his trading profits.”

In the final analysis, the lack of a coherent and well-planned crisis communications strategy is what’s most surprising.

Mr. Buffett is fond of saying: “Lose money for my firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”

Still, even in his latest interview with the Times, Mr. Buffett has not publicly taken Mr. Sokol to the woodshed. It may be the only way to truly end this chapter and move on.

Betrayal cannot go unanswered.

Joe M. Grillo, partner at Nicolazzo & Associates, contributed to this blog.