KEY LEADERS SHOWCASE

CRISIS MANAGEMENT SKILLS
DURING HURRICANE SANDY

By Richard E. Nicolazzo

          In normal times they may all have their critics, but the “gang of four” rose to the occasion during the Hurricane Sandy disaster by fine-tuning their crisis communication management skills.

          President Barack Obama, NYC Mayor Michael Bloomberg, NJ Governor Chris Christie, and NY Governor Andrew Cuomo appeared steady as a rock as they executed the contingency crisis communications playbook during what is being called the worst natural disaster to hit the Northeast in more than a century.

          Communications from the White House and New York and New Jersey officials, in particular, were timely, informative, instructive, simplified, and focused on the tasks at hand to protect and save lives and property. It was a far cry from the 2005 communications fiasco during Hurricane Katrina in New Orleans.

          Obama took charge well before the storm hit, going on national TV to pledge the government’s support and cooperation prior to, during, and after the hurricane. Putting the campaign aside, he looked impacted Americans straight in the eye and said “…you will get help.”

          Bloomberg, Christie and Cuomo, the men on the hot seat in their respective states, displayed similar resolve. They appeared organized, informed and determined as they appeared at multiple press conferences over a four-day period. No fluff. Just the facts, and lots of them.

          Prior to the storm, Christie emerged as the most prolific and forceful in articulating his message. In one press conference he said, “…People who ignore Hurricane Sandy warnings and evacuation orders are both ‘stupid and selfish ‘. We want to avoid significant loss of life, but we could have that if people don’t heed the warnings.”

          Bloomberg and Cuomo were equally in command. Two days before Sandy hit, Bloomberg said bluntly, “It’s a massive storm and the greatest danger posed is the coastal surge.”  “The worst is still coming,” Gov. Cuomo warned, hours before he ordered the closure of the Whitestone Bridge, the Throgs Neck Bridge, the Verrazano Narrows Bridge, the George Washington Bridge, the Henry Hudson Bridge, and the Cross Bay Veterans Memorial Bridge.

          All four paid close attention to the modern-day crisis management playbook: they got the facts, showed concern, maintained calm, executed clear communications goals and objectives, used communications protocols, repeated their key messages, addressed the issue directly and truthfully, made themselves available 24/7, and scaled their responses appropriately to reflect the gravity of the crisis.

Key Moment for President Obama

          The fact that Sandy struck just over a week before the Presidential election created an unintended platform for Obama to demonstrate his crisis communication management skills in a non-political arena. His first step was to suspend campaigning the day before the storm.

          Just 48 hours after the storm battered the coast, Obama was on the ground alongside the governor of New Jersey. Unlike some of his predecessors, the message the President brought to the people in the devastated seaside communities was particularly sharp.

          After being introduced by Gov. Christie, Obama said, “We’re not going to tolerate red tape. We’re not going to tolerate bureaucracy, and I’ve instituted a 15-minute rule, essentially, on my staff. You return everybody’s phone calls within 15 minutes.” Powerful words that generated a sound bite captured instantly by news media across the country.

          This time, unlike Katrina, FEMA had 2,000 people on the ground just two days after the hurricane hit. Having the “troops in the field” helped legitimize the President’s message. In reality, getting aid to people typically takes longer than expected, but no one can assert that Obama did not take charge on the communications front.

Social Media Shines

          While there were some social media abuses, such as the fake photo of hurricane storm clouds surrounding the Statue of Liberty, for the most part city and government officials embraced the medium to a larger degree than ever before.

          Social media communications from Gov. Cuomo make the point. He sent 700 Twitter messages during the two days following the storm, featuring everything from photos of the actual storm surge damage to upgrades on the restoration of power and phone lines. In just five days, Cuomo’s followers increased from 20,000 to 50,000.

          Hurricane Sandy proves that social media now has to be part of any contingency crisis plan. Just a few years ago, it might have been considered a luxury item. Today, tools like Twitter and Facebook give officials in charge the ability to conduct press and constituent briefings 24/7.

          While no one can be certain, it’s likely the timing of Sandy will have an impact on the Obama-Romney battle. The fact that the President (in real-time with real-world challenges) is demonstrating leadership can only redound to his benefit. It’s no coincidence that he’s being seen on TV wearing a “commander-in-chief” leather jacket.

          The bottom line may be that the President had a very narrow lead before the storm, a lead that Sandy itself will almost certainly buttress. The old adage still applies: timing in life is everything!

          One of the lessons learned from Sandy is that having a pro-active disaster and crisis communications plan in place can play a pivotal role in saving lives. The loss of even one life is too many, but a sharp contrast can be drawn in the case of disorganized communications surrounding Hurricane Katrina in which at least 1,800 died. The death toll for Sandy now stands at 92.

          In the end, however, nothing can really stop Mother Nature when she unleashes her wrath. Experts estimate the losses from the storm will approach $50 billion – about $30 billion in property damage, the rest in lost economic activity.

          Sandy is a storm that will be likely be talked about for the next century.

        

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GOOGLE ERROR A BIG TIME PR

NIGHTMARE FOR R.R. DONNELLEY

By Richard E. Nicolazzo

       Talk about a major PR headache.

 

       Imagine what it must have been like in the corporate communications department at R.R. Donnelley & Sons when the Chicago-based company mistakenly filed Google’s quarterly earnings report three hours ahead of time.

       Wherever he was at the time, you can bet CEO Thomas J. Quinlan III got on the horn and said something like “…We did what? You’ve got to be kidding.”

    
       Unfortunately for R.R. Donnelley, it was no joke. Nor will it be a laughing matter for the unfortunate souls at the company who are likely to get their walking papers.
     
       When the initial story hit the AP wire, Google’s stock had already fallen 9 percent before trading was halted to give investors a chance to digest what would turn out to be a disappointing earnings report. At one point, R.R. Donnelley’s stock even dropped 5 percent, but bounced back later in the day.
     
       While R.R. Donnelley has some major, internal soul searching to do with regard to its operations, the company deserves some initial credit for taking responsibility. The first statement from Google read: “Earlier this morning, the financial printer informed us that they had filed our draft 8K earnings statement without authorization.”
     
       In the period that followed, R.R. Donnelley said very little, leaving one to wonder just how something so egregious could happen. Hours after the flare-up, the company finally released a statement that was less than forthcoming. It read: “We are fully engaged in an investigation to determine how this event took place and are pursuing our first obligation – which is to serve our valued customers.”
   
       To make matters worse, the press release sent to the SEC was a draft, saying “PENDING LARRY QUOTE,” which presumably referred to Google CEO Larry Page. In a move that had to be embarrassing to all parties, the Wall Street Journal posted a screenshot of the release.
  
       Not much came from Google, other than Page saying on the earnings conference call “…I’m sorry for the scramble earlier today.” Page had his own problems explaining why profit slid 20 percent from a year earlier.

Communications Fiasco

      In my 35-plus years in the PR business, I can’t remember this ever happening. Google should have never allowed the release to go to a third-party vendor until all quotes and content were “FINAL.”

      In my view, there is no excuse for this on a couple of fronts. First, Google’s PR or IR departments were careless. I wouldn’t be surprised if the SEC did an investigation to find out how a draft was transmitted. Who at Google sent a document that wasn’t final and who at R.R. Donnelley transmitted it to the Edgar system?

      Second, R.R. Donnelley should be fired by Google for a mistake of this magnitude. For this segment of their business, distributing a final version of an earnings press release is the most important thing they do. To some extent, we all live in fear of mistakenly pushing the “send” button too soon, but you don’t get a second chance on something like this.

      During my career, I’ve issued hundreds of press releases in the queue the day of (and even day before) distribution, but only after final copy was agreed upon and markets were closed. Despite being multi-billion companies, Google and R.R. Donnelley made amateurish blunders.

       At this point, it’s unclear if R.R. Donnelley has any liability in the matter. Despite a missing a quote from the CEO, the numbers in the press release were accurate. Google can thank its finance chief that “draft numbers” weren’t sent as well.

     
       James Plumb, a longtime electronic filing agent in Massachusetts, told the New York Times, he knew of one case in which an agent had to pay for its error. “Could you get sued? Sure,” he said. “The way I look at it, yes, if I make a mistake, I’m responsible.”

      For R.R. Donnelley, the mistake was not likely a material event and thus did not require a formal press release. Filing documents on the electronic system called Edgar is only a fraction of Donnelley’s massive printing business – providing about $225 million in revenue out of $10.5 billion. Its main business is printing catalogs, mailers, textbooks and magazines.

      Still, R.R. Donnelley could have been more apologetic and posted a brief press release on its website.

      Given the size and importance of Google to the stock market, R.R. Donnelley may suffer some reputational damage. To protect its market share, the company should (at a minimum) send a letter to every customer that uses its filing service.

      The letter should explain (to the extent possible) what happened, why it happened, and what steps are being taken to ensure that it never happens again. The company may also need to reassure customers involved in other parts of its business. Every R.R. Donnelley customer – whether it’s someone printing a catalog, filing an IPO, or releasing earnings – is entitled to basic security and protection of their data and intellectual property.

       Also, if he hasn’t already done so, the CEO of R.R. Donnelley should call Larry Page and apologize. It may seem trivial, but in the grand scheme of things Page will always remember the call.

      In our crazed communications society, everything has become almost too easy. As one wag said recently, “…technology is great: it allows everyone to make big mistakes faster!”

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Obama: great orator, poor
strategic communications manager

By Richard E. Nicolazzo
www.nicolazzo.com

       In a recent fiery campaign stump speech, Vice President Joe Biden delivered a crisp, easy-to-grab sound bite when he said, “Osama bin Laden is dead, and General Motors is alive.”

       Why didn’t President Obama think of that?

 
       With the Presidential election in the home stretch, it’s time to look back and grade the nation’s chief executive on his communications performance.
    
       After capturing more than 64 million popular votes and thrashing John McCain 365-162 on the 2008 electoral scorecard, Obama assumed what is arguably the toughest job on the planet.
     
       The new President, without executive branch experience, had to manage two wars, protect the country from terrorists, stabilize a shaky financial system on the verge of collapse, rebuild a sagging economy and deal with the ever-explosive Middle East.
     
       In short, he entered the world of governing and “managing expectations” by making commitments, chief among them, to rebuild the economy and create jobs.
     
       With the major issues in the U.S. (and the world) so complex, contentious and seemingly unsolvable, in my view, a successful presidency comes down to not only what was accomplished but how those achievements have been communicated to the American public.
      
       President Obama’s failure to communicate may lie in his deep-rooted belief that if you sit with rational people and make compelling arguments, something will be accomplished. The problem is, politics is not a rational discussion.
      
       Things got off to a good start four years ago. Just 24 days after his inauguration, the President’s $800 million stimulus package passed Congress. Remember the “rebuilding America” signs across the country? Somehow, that accomplishment was lost in the “noise of the campaign.”
      
       Using every ounce of political clout and goodwill possible, what is commonly called Obama-Care was passed by Congress. Presidential insiders advised Obama to settle for a “skinny” alternative that would have eased in change. Instead, the President insisted on the whole package.
      
       The result is legislation that polarized the American public (despite a Supreme Court victory) and muddied the waters. If you asked average Americans to explain how the new health care plan will affect them, my guess is nine of 10 couldn’t do it. The communications challenge of such a massive new law has overwhelmed the White House.
      
Vanishing Press Conferences

       In terms of direct outreach to Americans, Obama maintains his weekly video address which emanates every Saturday morning from the White House website. But let’s face it, this is static means of communications that excites no one. Do you ever hear anyone talking about these addresses when you head back to work on Mondays?

 

       Given his remarkable oratory skills, I’m surprised Obama has followed in the footsteps of his predecessor George W. Bush and de-emphasized the press conference. People still refer to JFK’s press encounters in the 1960s as a masterful way to communicate messages. The nation also warmed to President Roosevelt’s fireside chats, and past presidents like Ronald Reagan and Bill Clinton knew how to communicate and connect with Americans by developing platforms, symbols and messages that resonated with the public.

 
      This year, the President has held only one fully-interactive, multi-issue press conference. As a candidate four years ago, Obama, then a senator, mused aloud about holding a news conference every month. In reality, at one point he went 308 days between press corps encounters, even exceeding President George W. Bush’s longest gap of 204 days.

      Many experts believe the dwindling frequency of these East Room events stems from the fragmentation of prime time TV and the prominence of other social media outlets such as Twitter and Facebook. Still, if done properly, a White House press conference is the most accessible and powerful venue for Americans to not only learn the views of their leader but observe, understand and analyze the thinking.

      In reality, millions of Americans running around with iPhones, iPads, Blackberrys and other electronic devices have greater access than ever to see their President in action. Why not give them the opportunity?

Economic Realities

       At the convention and on the campaign trail Obama has continued to emphasize that he’s fulfilled his core promises: pulling the country back from the economic abyss, getting the troops out of Iraq and setting a plan to withdraw from Afghanistan, rescuing the auto industry, killing the world’s top terrorist, imposing Wall Street regulations, signing a nuclear treaty with Russia, and cutting taxes for the middle class.

 
      What’s been much harder is communicating a vision on the economy that makes Americans believe that unemployment rates over 8% are declining. This is where rhetoric collides with reality. The President can’t change the numbers, so trying to communicate good news juxtaposed against government statistics becomes the ultimate communications challenge. This is an area where Obama has likely overpromised, falling into the trap of many past presidents.
 
      Numbers released on Sept. 7 by the U.S. Bureau of Labor Statistics indicate the economy remains stuck in low gear, producing fewer jobs and stagnant paychecks. Although the actual unemployment rate fell to 8.1% from 8.3%, some 12 million Americans are still looking for work and thousands have given up.

      With unemployment stuck above the 8% mark and his approval rating below 50%, Obama is clearly in the political fight of his life. Consequently, as a communicator, he has lost some of the eloquence of his earlier campaign and turned this race into a series of cheap verbal attacks about his opponent. This might make great headlines, but does not allow Americans to understand the importance of the substantive issues we face. 

      While Obama’s convention speech was eloquent and forceful, it lacked the punch of 2008. Saying he was “mindful of his own failings,” the President stuck to the long-term approach in a time when every American wants the economic pain to stop now.

 
      “I won’t pretend the path I’m offering is quick or easy…You didn’t elect me to tell you what you wanted to hear. You elected me to tell you the truth. And the truth is, it will take more than a few years for us to solve our challenges.”
 
      If that’s the case, why didn’t he say that a long time ago?
  
              Admittedly, presidents always have a difficult agenda. As President Eisenhower said to JFK the day before Kennedy was inaugurated, “You’ll find that no easy problems ever come to the President of the United States. If they are easy to solve, somebody else has solved them.”
 
      Nevertheless, in my view, Obama’s failure to consistently communicate his key messages on important policy issues such as the economic recovery and jobs may ultimately cost him his job.
 
Joe M. Grillo, a partner at Nicolazzo & Associates, contributed to this blog.

      

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Romney Adrift in Communications Nightmare

By Richard Nicolazzo
www.nicolazzo.com

Watching Mitt Romney and his campaign staff attempt to manage strategic communications is painful.

The furor over when Romney exited as CEO of Bain Capital is the latest example of how fundamental mistakes in information management can derail a Presidential campaign.

As an observer who’s been involved in public relations, strategic communications and crisis management for nearly four decades, I feel like I’m watching a college baseball team play the New York Yankees.

It’s a sound bet that in 2008 when Obama won the White House, Romney knew he would be running again four years later. With that thought in mind, there is no excuse for not identifying and thoughtfully addressing possible land mines that could (and have) come back to haunt him.

For example, one has to wonder why a rock solid timeline wasn’t developed regarding Romney’s departure from Bain? In particular, why didn’t the campaign deal directly with publicly filed documents that listed Romney as chief executive and sole owner of Bain during a three-year gap of 1999 to 2002?

So far, there is no hard evidence that Romney was “actively” involved in the daily operation of Bain while he was running the Olympics. However, is there a smoking gun to come? If emails between Romney and Bain executives begin to surface, that could be another body blow. Though I’m not suggesting they exist, emails have caused major damage to candidates, business executives, Hollywood celebrities and government officials.

Regardless, during this three-year period he collected a $100,000 yearly salary. According to a report in Vanity Fair, Romney may have also benefited from more than 130 Bain funds organized in the Cayman Islands. A lack of clarity on these and other issues creates the perception that Romney has something to hide.

The issue of tax returns, which has been in the news for months, is another communications failure. Obama, the person Romney knew he would be facing, released seven years of tax returns. Thus far, Romney has only shared his 2010 tax return and promises to release 2011 when completed.

From a strategic communications standpoint, Romney’s tax returns should have been released long ago. He could have gathered some of the nation’s top financial and political reporters and briefed them in detail. Obviously, it would have created a major story, but largely taken the issue off the table for most of the campaign.

It’s now so bad that even Republicans like Texas Gov. Rick Perry, Alabama Gov. Robert Bentley and former Republican National Committee Chairman Haley Barbour have urged Romney to release the tax returns. The Democrats, led by Sen. John Kerry and others, are having a field day with this issue.

Explaining his refusal to release the forms on Fox News, Romney said “…the Obama people keep on wanting more and more and more – more things to pick through, more things for their opposition research to try and make a mountain out of and to distort and to be dishonest about.”

This view reinforces Romney’s mistakes. If his campaign strategists had released this information in the first place, this issue could have been dealt with months ago.

Why is tax transparency such a big issue? Lincoln Mitchell of Columbia University may have said it best in a Huffington Post blog: “The American people, particularly after 2008, are less enthralled by the magical powers, and more suspicious of the true methods of business success than they have been in decades. Romney would have made a good candidate in 1980, 1988 or even 2000, but today his wealth and strong ties to the financial world are, on balance, negatives.”

Tax or Penalty

The trap Romney fell into when the U.S. Supreme Court upheld “Obamacare” is yet another example of poor information management. Romney and his staff knew for months that the Court would be rendering a decision in June. “Communications 101” dictates playing out scenarios and having statements ready.

But what happened? Reacting to the decision during a CBS News interview, Romney said Obama’s individual mandate in the signature healthcare law is “a tax.” Two days earlier, appearing on MSNBC, Romney spokesman Eric Fehrnstrom said Romney did not agree with the court’s majority “tax” label, instead considering it a “penalty.”

This is another glaring example of poor communications strategy and planning.

Flip-Flopper Extraordinaire

Romney’s recent communications woes follow years of what can only be described as indecision and flip-flopping. By changing his position on a large number of issues, he’s been consistently inconsistent in his messaging.

Earlier this year, a writer for Business Insider’s Politix section wrote a story about a political playbook that was used by John McCain when the two battled in the 2008 primaries.

In 200 painstakingly researched pages, the briefing book came up with 14 clear cut cases of Romney flip-flops. The subjects included immigration, George W. Bush tax cuts, support for President Reagan, the National Rifle Association, gun ownership, global warming, the military’s “Don’t Ask Don’t Tell” policy, same sex marriage, stem cell research, favorite books, healthcare reform in Massachusetts, tax pledges, money in politics, and his stand on pro-choice.

That is a long list to overcome.

Still, new polling shows Romney’s inconsistent messaging may not be having a dramatic impact on voters. A just-released poll from Quinnipiac University had Romney and Obama tied at 44-44 percent. In June, the same poll showed Obama with a 47-42 percent lead over the Republican challenger. It will be interesting to see how future polls play out.

More Consistent Communication

Which brings us to this point: what can Romney do in the three-plus months before the election to reframe the debate and begin articulating his vision of how he would revive a moribund economy and put America “back to work again”.

First, he should release at least the last five or six years of tax returns (his father, George, set the gold standard by releasing 12 years of returns). It’s hard to imagine the issue will go away anytime soon. Surely, it will surface in future debates and along every stop on the campaign trail. How bad can these tax returns be?

According to reports in the Arizona Republican, John McCain received more than two decades of Romney’s returns as the former governor was undergoing the vetting process four years ago. Democrats have questioned whether McCain saw something untoward in those tax returns and decided to choose Sarah Palin. McCain flatly rejected the assertion.

More importantly, Romney and his staff must be coordinated when it comes to strategic communications and move from a defensive to an offensive strategy. It is time to stop responding and start initiating. Given the gaffes to date, there is likely no room for another major communications snafu or flip-flop.

How can they make sure it’s smooth sailing from here?

Romney and everyone in the campaign who has the authority to speak for the candidate must be on the same page in articulating their messages on a daily basis.

In the final analysis, the candidate that controls the communications agenda frames the debate. If Romney wants to be our next President, he must take control of the agenda and “manage” the debate.

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

Joe M. Grillo, Partner, contributed to this blog.

Message Inconsistency Paralyzes a Candidacy

By Richard Nicolazzo 


With less than four months to go before the Presidential election, the battle between Barack Obama and Mitt Romney is reaching a fever pitch.

Every word, sentence, statement, campaign stop, and live TV appearance has the potential to shape the outcome.

The speed at which candidates must act is increasing exponentially. Four years ago, new communications elements like Twitter, Facebook and YouTube, were accelerating. Today, they blaze across the political landscape like shooting stars.

There’s an old saying that the “fog of war” blurs actions and judgment in the heat of battle. In my view, that fog is playing out in the political arena and impacting communications in ways never contemplated.

What recently happened to Romney illustrates the point.

During a CBS News interview on July 4th, Romney said Obama’s individual mandate in his signature healthcare law is “a tax.” Two days earlier, appearing on MSNBC, Romney spokesman Eric Fehrnstrom said Romney did not agree with the court’s majority “tax” label, instead considering it a “penalty.”

Talk about being on a different page.

The Obama camp immediately seized this inconsistency in messaging and issued an  official statement: “Romney contradicted his own campaign, and himself. First, he threw his top aide under the bus…second, he contradicted himself by saying his own Massachusetts mandate wasn’t a tax – but Romney has called the individual mandate he implemented in his home state a tax many times before. Glad we cleared all that up.”

The mess created a perfect Obama campaign sound bite.

The issue of message inconsistency plays on both sides of the aisle. In June, President Obama said during a press conference that “the private sector is doing fine.” But his statement was made at a time when the economy was struggling to recover with unemployment above 8 percent.

Like what Romney had to do for Fehrnstrom, Obama’s senior campaign adviser David Axelrod went on Sunday morning talk shows and explain that the President really didn’t mean what he said, calling it an “out of context clause.”

The bottom line is these message patterns were flawed and both candidates paid for it. Unless there is a dramatic change in campaign management, we can expect more.

Message inconsistency does more than short-term harm. Within 48 hours of Romney’s last flip-flop, Rupert Murdoch came out swinging. He “seems to play everything safe,” said Murdoch, who has had his own problems in recent months but maintains a loyal conservative following.

In a Tweet, Murdoch told the world, “Tough O Chicago pros will be hard to beat unless he drops old friends from the team. Doubtful.” This was all followed by a blistering editorial in the Wall Street Journal (owned by Murdoch) that said the campaign looked “confused in addition to being politically dumb” and “is slowly squandering an historic opportunity.”

Other critics from Romney’s party jumped on the bandwagon. Writing in the conservative Weekly Standard, Editor William Kristol wrote, “Adopting a prevent defense when it’s only the second quarter and you’re not even ahead is dubious enough as a strategy.”

Erratic messaging is dividing a party that will need much more cohesiveness in messaging if Republicans want to defeat an incumbent President.

Same Page

Many political pundits argue that politics is a world unto itself, and the basic rules of strategic communications management and message development don’t apply.

I disagree.

No matter what type of pressure a candidate or an official spokesperson is under, in my opinion, there is no excuse for not having their key messages in synch. How difficult can it be for Romney and Fehrnstrom to be on the same page? Can they make the case they don’t have time to be in synch before conducting interviews with national news media outlets?

In today’s helter-skelter media landscape, the importance of clear and precise messages cannot be understated. When it comes to the Presidency, if the wrong message gets communicated at the wrong time, the results could be catastrophic.

It’s not just about a campaign manager’s appearances and messages, but how a potential leader of America communicates to key constituencies here and internationally.  In one sense, not only is the President the leader of the free world, but the nation’s “chief communications officer.”

The same principles apply in the game of Presidential politics. That’s not to say that key messages can’t be expanded, tweaked, or even changed, but everybody on the team has to be – and stay -- on the same page.

Presumably, his top campaign communications strategists should have the experience and requisite skills to develop and agree on three to four overarching key messages that need to be consistently and continuously communicated to all audiences.

It remains to be seen if the Romney and Obama camps can achieve message consistency in articulating what they would do if elected. So far, the messaging has been inconsistent, shallow and a “game” of one-upmanship. They’re acting like two boys in the playground throwing stones at each other, and focusing only on sound bites.

Time for a substantive dialogue about national and international issues. No more stones and schoolyard games. After all, it is “only about our future.”


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


Joe M. Grillo, Partner, contributed to this blog.

DIMON PASSES CRISIS TEST WITH FLYING COLORS

By Richard E. Nicolazzo

The massive trading loss at JPMorgan Chase is a first-class business debacle, but it’s difficult to find fault with the way CEO Jamie Dimon has managed the initial communications challenge.

In April, Dimon dismissed rumors of trading problems as “a tempest in a teapot,” but things quickly turned ugly on May 11 when Dimon admitted on a hastily-arranged conference call that the firm had, in fact, lost $2 billion from a trading portfolio.

Taking cues from the modern-day crisis management playbook, Dimon stepped up and took responsibility. His first public comments, which made headlines around the world in a matter of minutes, were refreshingly blunt.

“The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought," Dimon told reporters. "There were many errors, sloppiness and bad judgment…We will admit it, we will learn from it, we will fix it, and we will move on.”

Not exactly the kind of comments you usually hear from CEOs under siege.
Dimon’s next move was a calculated risk, but seemed to play out fairly well. By agreeing to tape an interview that day with David Gregory that aired Sunday, May 13, on NBC’s “Meet the Press,” he used a relatively comfortable setting to “frame the story” and speak directly to the American public, unfiltered by the news media.

Gregory’s key question was simple: “How did this happen?”

Dimon’s answer: “We made a mistake. We got very defensive and people started justifying everything we did. You know, the benefit in life is to say, ‘Maybe you made a mistake, let’s dig deep.’ And the mistake had been brewing for a while, so it wasn’t just any one thing.”

The answer sounded a bit muddy, but clearly does not come across as the kind of corporate-speak we are used to hearing from Wall Street heavyweights.  By allowing a painful smile to play on his lips, he appealed to the very instinct that we can all relate to: Human beings make mistakes.

Story Stays Alive

Crisis experts often tell clients, “Let’s make this a one-day story.”  No such luck in this case, since JP Morgan’s annual shareholders’ meeting was scheduled to occur just four days after the startling announcement. That fact prompted two more days of stories speculating how Dimon would handle himself in front of the people who actually own the company.

Annual meetings typically open with management recapping a company’s financial and operational status.  Not this time. Appearing a bit subdued, Dimon again faced the music.

Wasting no time, he addressed the obvious elephant in the room, saying, “I want to start with what is probably on your mind.” He called the trading bet “poorly vetted and poorly executed,” adding that a change in management had taken place and the bank had appointed an executive to work full-time on investigating the lapse. He added, “The buck stops with me.”

In reality, with the vast majority of votes already counted, Dimon had little chance of losing his job. In fact, shareholders voted that he continue as chairman of the board and CEO.  Shareholders also approved his executive compensation package.

It’s interesting to note how JPMorgan Chase managed to achieve what were likely their goals in this crisis:

• The issue was framed based on facts.
• The bank moved aggressively to control the message before it controlled them.
• It ensured the distribution of timely and accurate information.
• In an extremely difficult situation, the CEO took center stage and worked diligently to maintain brand, management, and corporate reputation.
• The bank avoided “denial” and “secrecy.”
• Dimon was the only spokesperson to comment publicly; he also understood how to engage with high-level media.
• The CEO was forthcoming and attempted to answer all the tough questions on an analyst call, with national print/broadcast media outlets, and at the shareholders’ meeting.
• Remedial action was immediately addressed and executed.

There is still plenty of criticism being directed at the nation’s largest bank. This is as it should be. The loss of $2 billion is nothing to take lightly, and the SEC and FBI should investigate whether laws were broken.  Already, two shareholder lawsuits have been filed, claiming Dimon misrepresented risk to investors. 

However, the hysteria from regulators, politicians, and news commentators is somewhat over the top. After the losses, JPMorgan Chase still has $127 billion in equity and is highly profitable. Massive trading losses have unfortunately become a by-product of the complex system constructed by the financial services industry over the past decade.

In my view, most of the hue and cry is centered around the politics of regulators issuing their final interpretation of the so-called Volcker Rule, which makes it illegal for banks to take proprietary positions in certain securities.

Where this will end up is anyone’s guess. Clearly, when it comes to the actual trading blunder, there are many more questions that  need to be answered.

As a result of the fallout, Jamie Dimon may ultimately lose his seat on the board of the New York Fed and his star may not shine as brightly as it once did, but so far he comes across as a stand-up guy who can take the “heat in the kitchen.”

In the world of crisis management, it’s often not the crisis itself but how management handles the crisis that determines the outcome. 

In the case of JPMorgan Chase, so far Jamie Dimon gets Straight “A”s. 

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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, Partner, and Linda Harvey, Client Services Director at Nicolazzo & Associates, contributed to this blog.

BoA CEO HAS TOUGHEST COMMUNICATIONS CHALLENGE IN AMERICA

By Richard E. Nicolazzo

There are lots of major league communications challenges on the business landscape today, but it’s hard not to make the case that Bank of America CEO Brian Moynihan has the toughest communications job of them all.

Moynihan, now in his third year at the behemoth bank that everybody seems to love to hate, got another rude reception on May 9 in Charlotte when BoA held its annual shareholders’ meeting.

An estimated 500 investors, activists, and “Occupy Wall Street” protesters marched on the bank’s headquarters from three directions. While there was no serious violence, six were arrested in what could be described as a noticeably angry mob.

Inside, Moynihan was peppered with questions from shareholders who hold the bank responsible for everything from environmental pollution to the mortgage meltdown. One shareholder said, “Listen to what’s around you. This is America. Bank of America, take care of America.”

The CEO’s tepid response: “I listen carefully.”

According to news reports, instead of trying to show a more warm, “human touch”, Moynihan gave terse responses to most shareholder comments, which in some cases fueled more criticism. 

Here’s a sampling:

On foreclosures: “We continue to do everything we can.”  On modifying underwater mortgages: “We have looked at this a lot. If we’re not getting it right, we’re happy to take your feedback.” On trying to break away from Countrywide: “To divest something, you have to have a buyer.” On whether he cares about customers and communities: “I love my neighbor as myself.”

After saying he would stay all day to answer questions if necessary, the meeting apparently got a bit too heated and was adjourned before everyone had a chance to speak. As attendees filed out, a report in the Charlotte Observer said a group began chanting, “Bank of America, bad for America.”

Like it or not, in today’s business environment a chief executive officer like Moynihan also serves as the chief spokesperson on major matters affecting the bank, investors, customers and various constituent communities.   Bank of America’s image and reputation have been severely tarnished in recent years, with repeated attacks on its anti-consumer policies and practices.  Despite increasingly negative media coverage, highly-publicized public protests, movements to boycott the bank, and numerous lawsuits, Bank of America has done little to solve its longstanding and questionable procedures in its mortgage lending business.

Help for Homeowners

At times, Moynihan must be wondering if he’s living in a parallel universe.

Despite the outcry, shareholders elected all 12 of the company’s board of directors and 92% voted in favor of Moynihan’s $7 million pay package. Just two days before the meeting, BoA announced it started sending letters to some 200,000 homeowners in the U.S., offering to forgive a portion of the principal balance on their mortgages by an average of $150,000.

And less than a month earlier, first quarter financial results showed net income (profit) of $653 million, a strengthened balance sheet, an increase in commercial loans, 3% sequential growth from the last quarter, and near-record profits from the Merrill Lynch unit.

So what gives? Why is BoA one of the most disliked banks in America?  Why is Brian Moynihan viewed with such doubt and skepticism?  What can be done to change things?

Three theories: First, with 57 million consumer and small business accounts, 17,250 ATMs and 30 million active users, the bank is just too big, particularly in an unsteady economy. It follows that the bigger the bank, the more chance for disgruntled customers.  Complex internal policies and processes are necessary to manage an enterprise this large, which in some cases can have an adverse impact on communications strategies designed to address these issues.

Just last week, Sen. Sherrod Brown (D-Ohio) introduced the Safe, Accountable, Fair and Efficient Banking Act. His proposition is simple: Too-big-to-fail banks should be made smaller, and it has to be done without causing global panic. This idea has gained support since 2008 when the so-called Brown-Kaufman amendment got the backing of 33 senators but failed on the floor.

Second: The January 2008 acquisition of Countrywide Financial, which made BoA the nation’s biggest mortgage lender and loan servicer. At the time, Countrywide had $408 billion in mortgage originations and a servicing portfolio of about $1.5 trillion with 9 million loans.

The mortgage documentation mess at Countrywide, made worse by BoA’s questionable foreclosure practices, has created a hangover of discontent that has permeated the nation. With millions of mortgage customers impacted, it’s become impossible for BoA to fix every situation. It’s no secret that the bank’s mortgage servicing process is broken, with long delays and other obstacles facing homeowners.

Having joined four other large mortgage servicers in February to reach terms of a global settlement resolving federal and state investigations into certain origination and foreclosure practices, BoA could see some improvement in the months to come. It’s committed $18 billion in borrower assistance. This will, however, not be a quick fix on the PR front.

Even BoA’s Global Strategy and Marketing Officer, Anne M. Finucane, who is at the helm of hundreds of millions of dollars in advertisement and PR budgets, acknowledges the mortgage quagmire. In a lengthy New York Times piece in January 2012, Ms. Finucane said, “It’s vital to resolve the foreclosure crisis, an issue that angers millions of Americans.”

Third: For all his bona fides in the banking industry, Moynihan just may be unable to connect with people. A CEO’s connection to a company’s audiences, large and small, is fragile and often elusive. Clearly chief executives like the late Steve Jobs had it. So do Google’s Eric Schmidt, Southwest Airlines’ Gary Kelly and JPMorgan Chase’s James Dimon.

Although some circumstances may be beyond their control, CEOs also typically get blamed for poor stock performance. Since Moynihan took over at BoA, the stock has taken a beating, falling 58% in 2011 before bouncing back a bit this year. Analysts have been dissecting the stock issue for years, but a common theme seems to be there are questions about long-term survival and the bank’s ability to finally extricate itself from the mortgage morass.

A shareholder activist at the recent annual meeting may have put it best when he stood up and said the bank wouldn’t be there without the taxpayers who bailed it out after the 2008 financial crisis. “I want you to think about what it’s been like to hold this stock for 15 years,” said John Moore, the activist.

These factors and Americans’ deepening mistrust of financial institutions have created a toxic mix. In many ways, Finucane’s tag line “Bank of Opportunity” has fallen on deaf ears, despite slick TV ads permeating the airwaves.

On May 4, BoA announced it had picked WPP of Dublin, which operates in 107 countries, as its main advertising agency, handling overall branding, as well as advertising for its consumer banking, global banking and markets, and global commercial banking divisions.

The challenge is enormous. It will be interesting to see what new slogan appears in the weeks and months ahead. Despite some fresh blood in the creative process, I’m not convinced BoA’s PR will improve anytime soon unless all the operational problems are addressed and solved. At the end of the day “image and reality must be consistent.”

Until these policies and processes are fully addressed, BoA will likely continue to be viewed as “too big to fail…and too big to succeed.”

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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, Partner, and Linda Harvey, Client Services Director at Nicolazzo & Associates, contributed to this blog.

         

Liberty Mutual Takes Major Hit To Reputation

By Richard E. Nicolazzo

On April 11, 2012, the Boston Globe undoubtedly raised the blood pressure in the executive suites at Liberty Mutual when it ran a story on the “outrageous” compensation of longtime CEO and current board chairman Edmund “Ted” Kelly.

Seventeen days later, on April 28, when Kelly and current Liberty Mutual CEO David Long finally spoke with the Globe about the issue, the company had already endured a Globe news blitz that featured four, fact-filled highly-negative columns by Metro columnist Brian McGrory and three stinging news stories by reporter Todd Wallack.

Kelly told the Globe that his pay package of nearly $50 million a year was “an accounting issue”, adding, “It’s as if I got stock options over the years. If the company does well, the stock options do well.”  Long stated he was “not going to apologize” for Kelly’s pay and did not think Kelly had anything to apologize for either.  According to the Globe, Kelly further noted that the company was near bankruptcy when he first came on board in 1992 and it is now a Fortune 100 company with approximately $35 billion in sales.

After Kelly and Long spoke with the Globe, they probably thought the avalanche of negative news and editorial coverage had ended.  Then came further blasts from the Globe.  In a May 2 Metro column, McGrory continued to decry the “clueless, callous” behavior of Liberty Mutual’s top executives and directors, stating:  “Greed and arrogance are a toxic mix.”  In a May 4 Business story, Todd Wallack continued the onslaught, taking issue with the company’s version of its past financial woes.   

In my more than three decades of experience in this market, I cannot recall another instance when one columnist took so many shots at a top business leader. To Kelly and Liberty Mutual, it must feel like they’re standing on the ropes in a prize fight and taking blow after blow, practically defenseless.

Back Story

One has to ask:  How did this issue get so messy so fast?

While not privy to the strategy discussed in behind-the-scenes meetings, I believe things got off to a bad start from the beginning.

Through public filings, the mutually-owned company was required to report Kelly’s salary for years 2008-2010. However, when first asked, the company declined to disclose how much Kelly earned in 2011 when he retired as CEO, or how much he continues to be paid as board chairman.  In fact, this data was not included in its annual report filed with state regulators in March. While the company likely met reporting guidelines, it did not account for something equally important … its policyholders. 

Part of the disclosure problem was apparently Kelly’s own making. According to published news reports, Liberty Mutual created a holding company a decade ago, paving the way for the company to sell a minority stake in the subsidiaries to outside investors, without compensating policyholders. The change also made it difficult to track pay packages since its insurance units must file annual reports with Massachusetts regulators, but the holding company does not.

This was mistake number one - lack of transparency and poor corporate governance. Did Liberty Mutually actually believe no one would find out what these numbers were?

The issue was compounded when the company, through a spokesperson using classic “corporate-speak,” told the Globe that Kelly’s pay was based on an analysis by an executive compensation firm and included long-term incentive awards.

Just a day later, when approached at the company’s annual meeting, Kelly revealed he got $50 million in 2011. So what was the point of holding back this information in the earlier story?

Blood in the Water

The Globe sensed it really had an issue to run with, and McGrory penned the first of his six columns.  There’s not enough space to chronicle all the arrows shot at the company in these columns, but here’s one from McGrory’s April 13 piece: “…every Liberty Mutual policyholder, all those regular people making ends meet at kitchen tables, have paid for Kelly to take $200 million out of the company, their company, over the last four years…the whole thing is grotesque.”

Next came the revelations about the Liberty Mutual fleet of jets at Hanscom Field. Five powerful, long-range jets to ferry executives around the world. With reporters now having access to flight logs, it wasn’t difficult for the Globe to find flights that looked a little suspect in terms of the “business purposes” of these trips. When questioned by McGrory, another corporate-speak gaffe occurred when the vice president of public relations said, “Can I ask why you’re writing this?”

A few days later, as one could have predicted, came a Globe editorial calling for Massachusetts regulators to probe Kelly’s pay. The Globe didn’t hesitate to state that Kelly’s yearly pay was more than 100 times that of President Obama and more than the entire 100-member Senate. A subsequent news story found many critics who decried the executive pay package and policyholders who were equally upset. There was still more anger over $46 million in tax breaks the company was awarded for construction of a new tower in Boston’s Back Bay.

Further compounding the negativity was the lack of comment from the board of directors who signed off on Kelly’s  compensation.  Because  of the company’s  “information void”, the press, namely the Globe, continued to report on the story.

The most inexcusable behavior, though, was trying to make it sound like the company was near bankruptcy when Kelly took over. It appears that Liberty Mutual just didn’t check its facts. The company did cut jobs back in 1992 and suffered two bond rating downgrades, but it remained profitable. By searching earlier news coverage, the Globe found a quote from former CEO Gary Countryman, who said the company ended 1992 “stronger than ever financially” as profits rose by almost half to $217 million.

“Hide-and-Seek”

From a business perspective, in my view, Liberty Mutual let Kelly’s pay package get completely out of hand. Kelly is not an executive working at a private, family-owned company that can play by a different set of rules. He’s leading a Fortune 100 company that is “mutually-owned.”  There needed to be a greater sense that every dollar used for executive compensation and benefits, like jet trips to vacation homes, is coming out of the pockets of the policyholders who make payments every month.

This is clearly a board governance issue that needs to be corrected, and it puts into question the future compensation package and benefit formulas for the new CEO. It is unlikely policyholders will tolerate more $50 million-a-year salaries.

From a communications standpoint, the company seemed to have a fundamentally flawed strategy that resulted in a game of “hide-and-seek” with the press. It should have been clear from the beginning that the Globe was on to a hot story. When this happens in today’s environment of free-flowing, easily accessible information, there is literally no place to hide.

As soon as the first story broke, Liberty Mutual’s current CEO and Kelly should have met with Globe editors and reporters. The company should have gathered all the relevant information, presented it to the paper, outlined the rationale that supported Kelly’s compensation package, and fielded questions.  Although there was no guarantee that the stories would have ended, it’s reasonable to assume that the unrelenting negative media coverage would not have lasted more than three weeks.

In my view, Liberty Mutual’s senior management and its board of directors owed it to the “owners” of the company to be as transparent and accountable as possible. When it comes to excessive compensation, senior executives act like the company is being run for their benefit when, in fact, the opposite is true:  It is run for the policyholders/owners.  Maybe it’s time, in the case of mutually-owned companies, for these policyholders/owners to assert their rights. 

In today’s business environment, there is a major difference between good corporate citizenship and good corporate governance. To be at the top of the class, a company needs both.

I’m sure the negative coverage over the past 24 days does not reflect an accurate picture of Liberty Mutual. Certainly, there are thousands of hard-working employees around the world who have made the company a financial success. Liberty Mutual sponsors the Boston Pops July 4th concert each year and contributes more than its share to charities.  Recently, the company finished second among major auto insurers in the J.D. Power and Associates survey, up from 5th in 2001.

Nor should we diminish Kelly’s outstanding record of success in quadrupling annual revenues at Liberty Mutual since 1992, creating five times the equity, and expanding operations globally. 

Inevitably, this issue will fade.  However, Ted Kelly's legacy will be tarnished by focusing on his compensation.  Perhaps the ultimate consequence is that he will be remembered as a symbol of corporate greed and arrogance, eclipsing his remarkable business accomplishments and contributions as a leader in the Boston community and elsewhere.

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

Joe M. Grillo, Partner, and Linda Harvey, Client Services Director at Nicolazzo & Associates, contributed to this blog.

Smith Not Worthy of New York Times Op-Ed

By Richard E. Nicolazzo

Talk about being blindsided.

How convenient that Greg Smith, once an anonymous 33-year-old mid-level executive at Goldman Sachs, became prince of the business world when he resigned via a scathing op-ed in The New York Times.

So here is Smith, just one of 33,000 Goldman employees, getting in bed with the Times to orchestrate his bombshell resignation in the so-called “paper of record.”

One has to seriously ask what bona fides Smith, a derivative salesman toiling in the London office, has to get this kind of royal treatment.

By Goldman standards, he wasn’t highly paid (reports claim he made about $500K). He didn’t manage anyone, and had failed to become a managing director. Keep in mind there are about 12,000 executive directors and 2,500 managing directors at Goldman.

Yet someone at this level is allowed to pen a lengthy op-ed, printed right down the middle of the page with two ugly vulture graphics. Smith technically resigned in an email message to his bosses at 6:40 a.m. London time, but left out the fact that his venom-filled piece would be hitting the street 15 minutes later when the Times was published.

From my perspective, this is the ultimate cheap shot from a paper that clearly has its own agenda. With the viral nature of today’s news, Goldman was caught flat-footed as the country – and world – got to read Smith’s vitriol. One Goldman executive, speaking on the condition of anonymity, said the op-ed landed “like a bomb” inside the company.

Goldman has sophisticated public relations professionals and even a new communications chief, Jake Siewart, but how could any organization rapidly defend itself under these extraordinary circumstances?  The first statement issued by Goldman was weak, but probably developed under intense deadline pressure.

The Times knew the timing of Smith’s op-ed. If it was going this route, why didn’t it give Goldman the opportunity to write a rebuttal op-ed?

The paper ran Goldman’s statement a few hours after the paper was out as part of a follow-up online report. How professional… Goldman was left scrambling all day to make sure hundreds of other media outlets included the statement in their coverage. Talk about starting out behind the eight-ball.

What’s really troubling about how this has been managed by the Times is the context of the story. For at least the past four years, taking shots at Goldman has become a national sport.

In 2008, the company got billions in the so-called “backdoor bailout” that involved AIG. A few months later in Rolling Stone Magazine, a writer called Goldman a “great vampire squid wrapped around the face of humanity…”

Two years ago, the SEC accused the bank of creating a subprime mortgage product that was meant to fail. Goldman settled the claim for $550 million and agreed to change its business practices. Last April, a Congressional committee got into the act when it published a massive report criticizing Goldman’s investment banking business for misleading clients.

Goldman also took a hit when Occupy Wall Street protestors camped out in front of its Lower Manhattan headquarters. The company’s “selfish motivations” were also spotlighted in February by a judge commenting on Goldman playing both sides in Kinder Morgan’s acquisition of the El Paso Corporation.

Against this backdrop, how could Smith be granted the platform he captured from The New York Times? His commentary smacks of a “crybaby” mentality. If he was so upset with the culture at Goldman, why didn’t he leave years ago? Or, why doesn’t he give back the money he’s made?

Didn’t the Times realize that Goldman is already viewed by some as unscrupulous and Smith’s outrage comes across as a bit phony? Smith would have us believe he’s a brave soul. I’d say he’s a huckster. Did anyone notice how he managed to get his whole resume worked into the piece?

When approached by Smith, the Times should have turned the tip over to the paper’s business staff. Smith could have aired his complaints to a reporter, and the reporter could have called Goldman for comment.

That would be fair game. Smith gets to air his grievances, yet his claims are vetted by a journalist. Instead, Smith gets a free ride and advances his own agenda at great cost to Goldman. On the day the op-ed appeared, Goldman’s market cap declined by about $2 billion.

More Thoughtful Response from Goldman

Later in the day, Goldman executives Lloyd Blankfein and Gray Cohn wrote a more detailed and thoughtful response to employees. At one point they wrote “…Just two weeks ago, Goldman Sachs was named one of the best places to work in the United Kingdom, where this employee resides. The firm was the highest placed financial services company for the third consecutive year and was the only one in its peer group to make the top 25. We are far from perfect, but where the firm has seen a problem, we’ve responded to it seriously and substantively.”

Revelations about greed and arrogance on Wall Street are nothing new, and that’s the key point. One Goldman employee decides to quit his job, air his grievances in public, and it becomes the subject of a Times op-ed? Is this really the function of the op-ed pages at the Times?

In my view, the Times has set a bad precedent for the profession of journalism. Going forward, all sorts of disgruntled people will offer to take shots at their former employers, especially if media outlets give them the soapbox.
      
In the end, Smith’s “opinion piece” is not simply an opinion. It is a sneaky way to blast his now former employer on the way out the door and create advantages for himself. Smith may not get another job on Wall Street anytime soon, but in today’s media free-for-all he’ll get TV appearances, opportunities for more commentary, a chance to write a book, and maybe an offer for a low-budget made-for-TV movie.

All this enabled by none other than The New York Times, who in my view was sucked in, complicit, or both. I expected more from a paper that is trying to salvage what is left of real professional journalism.

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

Joe M. Grillo, partner, and Linda Harvey, director of client services at Nicolazzo & Associates, contributed to this blog