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

Limbaugh Survives: Brand Permanently Stained

By Richard E. Nicolazzo

One week after conservative talk show host Rush Limbaugh called a Georgetown University law student a “slut” and “prostitute,” the brand damage continues to mount; unfortunately, it’s highly unlikely Limbaugh will lose his show.

Twice since his remarks, Limbaugh apologized to Sandra Fluke, the student who advocated before a congressional committee for insurance coverage that would cover contraceptives for college students. Some have questioned the sincerity of his somewhat sullen apology.

Not backing down, Limbaugh said on the air, “All of this is trumped up for political purposes, pure and simple…everybody knows what I do here. Everybody knows how I do it.”

The flap, which underscores the divisiveness in America today, reached a pinnacle when President Obama weighed in at a press conference. Obama, who has two daughters, was calculated in his response, saying, “The remarks (by Limbaugh) don’t have any place in the public discourse.”

Others, like some of the late night comics, were not so kind. Jon Stewart cracked on Comedy Central, “So it’s Rush Limbaugh.  Is it particularly vile Rush Limbaugh? Of course. That’s like saying, ‘Ehh, this is a particularly pungent bucket of raw sewage mixed with rotting cow guts and typhoid.’ "

Short-term, the fallout has likely damaged his show. Limbaugh has an audience of 15 million listeners and is syndicated on 600 radio stations. While only two stations have cancelled his show, as of this writing more than 30 corporate sponsors have pulled their advertising. Predictably, Limbaugh said, “They (the sponsors) decided they don’t want you or your business anymore. So be it.”

Limbaugh, who built his success on controversy, has been embroiled in nastiness before, but the Fluke comments have raised the noise to a new decibel level. He’s also been severely impacted by social media, the ubiquitous communications phenomenon, which gives anyone on the Internet a conduit to pressure advertisers. Typically, most advertisers will take the safe route and temporarily pull their ads. However, history has proven they come back.

Look at Don Imus, one of the inventors of shock jock radio. Back in 2007, Imus made racially disparaging remarks about the Rutgers University women’s basketball team, but he survived the fallout and, some believe, revived his career.

In my view, Limbaugh is too big a money maker for too many stations to be booted off the air. However, one can certainly argue he crossed a line that put a black mark on his reputation. Most Americans, even the ultra-conservatives who religiously follow Limbaugh, can identify with the young college student caught in the crossfire.

Limbaugh’s radio syndicator, Premiere Radio Networks, stepped up and defended their big money maker, but took no responsibility for his comments. Premiere is a unit of Clear Channel Media and Entertainment, a multi-billion juggernaut that uses sharp elbows to get its way.

Limbaugh could also be vulnerable when Mike Huckabee, the former Arkansas governor and Republican presidential candidate, hits the airwaves in April with his show in the same time slot. The competition may force Limbaugh to “clean up his act.”

Limbaugh is a polarizing figure.  Ironically, in the end, the people who love him will continue to tune in and listen for his next outrageous utterance. The people who hate him will just hate him more.

One thing seems certain: When Limbaugh signs off, in whatever form that takes, he will be remembered as an angry, vile, and offensive yakker.

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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

Overseas Factory Abuses are a PR Nightmare for U.S. Companies

By Richard E. Nicolazzo

Hasn’t the time finally come for U.S. corporations to clean up their acts when it comes to overseas supply chain abuses?

A long-simmering problem, the issue bubbled up recently with the announcement by Apple that an outside organization has begun to audit working conditions at the plants where the bulk of iPhones, iPads, and other Apple products are built.

The news comes on the heels of stories in the New York Times and a 60 Minutes piece that sharply criticized the “notorious” Foxconn City plant in Shenzhen, China, which human rights advocates claim has 230,000 employees subjected to long hours, coerced overtime, and other deplorable working conditions. Not surprisingly, Foxconn disputes the allegations.

How bad is this place? The 60 Minutes story showed video of nets surrounding the building to prevent suicidal workers from plunging to their deaths from the roof. And it’s not just Foxconn. Quanta and Pegatron, two other plants that make products for Apple, are also under fire. These and other facilities build goods for almost every other major electronics company, including Dell, Hewlett-Packard, IBM, Lenovo, Motorola, Nokia, Sony, and Toshiba.

This particular problem is not new for Apple. Two years ago, 137 workers at an Apple supplier in eastern China were injured after they were ordered to use a poisonous chemical to clean iPhone screens. Last year, two explosions at iPad factories killed four and injured 77.

Apple’s move to get outside help verifies that public relations fallout from factory abuses is real and can damage highly-successful companies. Allowing these horrible working conditions goes far beyond the numbers.

Sure, with a current market value of more than $469 billion, Apple is the largest company in the world. But what good is that if the company is perceived as being complicit with operators of plants that are sending manufacturing back to the early days of the industrial revolution? It’s difficult to precisely measure how much this negative press might hurt Apple’s stock, but this week the shares dipped $10.

What is going on in China and other Far East countries is reminiscent of the textile industry in the U.S. during the early part of the 20th Century. After relentless pressure from human rights advocates and brave souls like Norma Rae, who defied Dickensian conditions in North Carolina factories, the industry cleaned itself up.

The sheer size of Apple and the pervasiveness of its products around the globe have magnified the issue to the point where something might actually get done to address the problem. Now there’s a new twist: After years of resisting, Apple has started to divulge information on its website and in regulatory filings that cite some of the abuses it has uncovered.

Problems for Decades

A number of high-profile U.S.-based companies have been criticized for decades for their overseas manufacturing processes. Giants like Nike, Reebok, the Gap, and Disney have all had flare-ups that sound a lot like what is happening to Apple. If current news reports are on target, and there’s reason to believe them, the Far East sweatshops have been paying lip service to the problem.

The decision by Apple could be just enough to kick off major changes in the manufacturing industry, since many companies use the same suppliers. There is also the halo effect because it’s Apple. Given its prowess, how can other companies afford not to follow the current king of all electronic gadgets?
Some have already jumped all over Apple because the Fair Labor Association (FLA), the group now inspecting the factories, is partly funded by American companies. Judy Gearhart, executive director of the International Labor Rights Forum, has been quoted as saying, “The FLA is part of a corporate social responsibility industry that’s totally compromised. The auditing has proven to be weak, and real solutions need a lot more than auditing. It takes empowering workers.”

Gearhart and other critics have a point. In my view, corporations should have these inspections conducted by totally independent organizations. Benchmarks are also required. Outside groups need to survey the plants, speak directly with employees on the line, understand current conditions, and return a year later to perform the same survey again. Otherwise, how can the public be assured that actual changes and improved working conditions have been implemented?

Profits aside, most people want to do business with companies whose supply chain employees are treated humanely. Let’s hope Apple’s new initiatives and efforts by other large multinationals make a meaningful difference in working conditions. Otherwise, companies run the risk that “corporate irresponsibility” will cost them billions in sales from consumers who’ve had enough of this despicable behavior.

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, director of client services at Nicolazzo & Associates, contributed to this blog.

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Carnival CEO Using Intriguing Strategy to Protect Brand in Costa Concordia Ship Crisis

By Richard E. Nicolazzo

Nearly three weeks after the $538 million, 950-foot cruise ship Costa Concordia struck rocks off the Italian coast, shock waves are still being felt in the executive suites at Carnival Corporation & plc in Miami, the publicly-traded company that owns Costa Crociere SpA, operator of the ship.

The accident, which came at the height of the booking season for winter cruises, put a spotlight on an industry giant that generates $16 billion in annual revenue and has a market capitalization of $18 billion.

Like any senior executive in a crisis, Carnival chairman and CEO Micky Arison had a critical decision to make when the accident occurred on the evening of January 13:  Should he act as spokesperson, or should communications be delegated to someone on the ground in Italy?

Given the magnitude of the situation and potential brand damage, the stakes were exceedingly high.

Arison, who is known as a delegator in that all 10 Carnival-owned brands operate autonomously, stayed true to his management style when the role of spokesperson went to Pier Luigi Foschi, chairman and CEO of Costa Cruises, the operating company that runs the Costa Concordia.

Foschi, it turns out, was no shrinking violet when he threw Captain Francesco Schettino under the bus and blamed him for charting an unauthorized course right onto a rock ledge near the island of Giglio.
So far, 17 bodies have been recovered, with another 16 still missing and presumed dead. Due to dangerous conditions on the ship, the search for bodies was called off on January 31.

The essence of Arison’s communications strategy may lie in the complexity of Carnival itself. The company operates more than 100 ships, but they’re spread across 10 different cruise lines. Some of the other more well-known lines are Holland America, Princess Cruises, and Cunard. This is a huge business. The Wall Street Journal reported that as many as 200,000 guests and 70,000 employees travel aboard Carnival ships on any given day.

Arison’s personal fortune is also tied to the business. He owns nearly a third of outstanding shares and was recently ranked as the 75th richest American by Forbes, with $4.2 billion in assets.

With a worldwide customer base, the crisis communications challenge was to separate the Costa Concordia from direct association with other brands in the Carnival fleet.

In short, what would be the best strategy to avoid “contaminating” the Carnival brand with the unfolding disaster in Italy?  Carnival has 101 ships, but only 15 sail under the Costa brand, which was acquired 25 years ago and is headquartered in Italy.

In my view, Arison’s crisis management strategy is worth studying. During the first few days following the disaster, here’s what happened without Arison making one public appearance:

• January 14: Statement by Arison, “…this is a terrible tragedy and we are deeply saddened…we want to express our deep gratitude to the Italian Coast Guard and local authorities and community members who have gone to extraordinary lengths to assist in the evacuation of the ship and provide support for our guests and crew.”
• January 16: Company discloses financial consequences of accident, stating the impact on 2012 earnings for loss of use of the vessel is expected to be approximately $85-$95 million or $0.11-$0.12 per share, with additional expenses still not known.
• January 17: Another Arison statement offering “heartfelt condolences to all of those families affected by this tragedy.” Emphasizes that he and his senior management team “have been in continuous contact with the Costa executive team in Italy.”
• January 18: A third statement, “…I give my personal assurance that we will take care of each and every one of our guests, crew and their families affected by this tragic event.”
• January 19: In another key strategic action, the company announces that Carnival and its nine other leading cruise lines around the world will perform a comprehensive audit and review of all safety and emergency response procedures across all of the company’s enterprises. Captain James Hunn, a retired U.S. Navy Captain, will head the initiative.

These actions, in particular naming Captain Hunn, show a thoughtful, yet decisive, strategic approach to crisis management from behind the scenes.

Arison controls the message via company statements and press releases, but avoids the cameras and scrutiny by the press if he stands up in public. Having Foschi, the Italian-based executive, on the front lines also keeps the issue “European-centric.”

Images of Wreck are Relentless

The Costa Concordia crisis has another dimension that likely prompted Arison to remain low-key. With the ship being in such a precarious position (resting on a ledge with a 200-foot drop nearby) and leaking fluids, the broadcast and print images are relentless.

The salvage company estimates that it may take up to a month to remove 2,000 tons of fuel from the vessel’s below-deck tanks.

After that, there’s the issue of what to do with the ship. The New York Times recently reported that no object this size has ever been towed in the ocean. Many years ago, a car-carrying vessel ran aground and was cut in four pieces for scrap. That ship was only one-fourth the size of the Costa Concordia.

A recent Bloomberg news report indicated it may take up to 10 months to remove the ship. This means that the Costa Concordia, or parts of it, will still be visible when the summer tourism season comes around. This is not the sight the cruise line wants passengers to see as they approach Tuscany.

The course Arison has taken is intriguing in today’s business landscape. The conventional crisis playbook would likely recommend that the CEO personally take control. In this instance, Arison has yet to make a public appearance and talk about the Costa Concordia. 

So far, there doesn’t seem to be much consumer outrage directed at Carnival. Costa Crociere agreed to pay 11,000 euros ($14,500) to every passenger who was on the ship, plus reimburse expenses, including the cost of the cruise. Wall Street has been a bit less relenting, with the stock now trading at just over $30 a share, well off its 52-week high of $47.

At the end of the day, Arison’s fiduciary responsibility is to all stakeholders, but especially shareholders. To get the stock climbing again, Arison may have to shift his strategy a bit and assume a more public posture on Wall Street and with the general public.

Time will tell if Arison’s strategy to stay out of the limelight worked.

Meanwhile, until the ship is salvaged and the agonizing images go away, Carnival has public relations issues that present new and ongoing challenges in the field of crisis management.

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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 C. Harvey, Client Services Director at Nicolazzo & Associates, contributed to this blog.


  
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Crisis Plans Incomplete Without A Social Media Component

By Richard E. Nicolazzo

Let’s be realistic: Crisis communications contingency planning is always a moving target.
The way we communicate has evolved for thousands of years and will continue to change. New forms of communications are unstoppable.

Social media has become a powerful influence in virtually every form and aspect of communications in today’s world.  In the early days of this new medium, public relations executives and crisis planners could adapt existing crisis contingency plans to address the basic needs of social media.

That day has passed. Social media’s enormous impact on our daily lives has transformed how we communicate. Need convincing? Consider these statistics:

• 800 million active Facebook users (one of every nine people on the planet)

• Over 500 million unique users who visit YouTube every month

• Over 200 million average tweets per day on Twitter

• More than 100 million LinkedIn users

• 62 million Google+ users (estimated to be 100 million by February 2012)

• 3,000 images uploaded to Flickr every minute

And, as social media rockets ahead, acceptance levels are exploding exponentially. When Facebook started, it took 852 days to reach 10 million users. For Twitter, it took 780 days. When Google+ launched in June 2011, it only took 16 days to reach 10 million users. More “net speed” records will be broken.

Social Media Crises on the Rise

Altimeter Group, a San Mateo, California, research-based advisory firm that helps companies manage disruptive technologies, recently reported a rise in social media crises. In a survey of 144 companies, it found that while most organizations are quick to deploy the latest social media technology, few have prepared for a major social media crisis and the potential long-term effects on their businesses.

When analyzing actual social media crises, Altimeter found that in more than three-fourths (76%) of the cases, reputational damage would have diminished or been averted had the companies invested in internal planning.

According to the same research, the top three reasons for the crises were:

1. Lack of internal social media education;

2. Absence of professional staff to monitor and manage social media issues; and

3. Lack of an emergency strategy and plan.

Without advance preparation, fallout from a social media crisis can be painful and swift. It’s easy to find a few good examples when looking back at 2011.

When Anthony Weiner tweeted a photo of his private parts to a Seattle woman, he first claimed his account was hacked. However, the unrelenting scrutiny of social media nailed him in a matter of days, forcing him to admit he was the one who sent the photo. A successful 12-year career in Congress was finished.

Gilbert Gottfried lost his job as the voice of the Aflac duck when he posted jokes about the Japanese tsunami on his Twitter account.

The Kenneth Cole brand took a reputational hit when it tried to ride the coattails of the Arab Spring uprising in Egypt. Cole decided to capitalize on the resulting press momentum with a thoughtless tweet that said, “Millions are in uproar in #Cairo. Rumor is they heard our new spring collection is now available online.”  Cole apologized in a hurry.

And consider what happened to Chrysler when an employee from their new media agency dropped an F-bomb in a tweet from @ChryslerAutos. The auto company had just launched a Super Bowl ad and a new “Imported from Detroit” campaign. The fallout didn’t hurt sales, but was embarrassing for a brand on the rebound.

How a company or individual deals with a social media crisis is fundamentally an outgrowth of general crisis communications contingency planning. However, when one factors in the speed with which information is circulated, some processes and procedures must be rethought.  In my view, institutions and individuals should think about three levels of social media crises.

Level I, the least serious, might involve minor exposure from flare-ups, such as customer complaints, poor customer service, misguided tweets, or website malfunctions. These incidents can be managed by a direct social media response. For example, FedEx might deliver a package with contents damaged or destroyed. The recipient might tweet about the problem. If FedEx is properly monitoring social media feeds, it can quickly reply with an apology and commitment to solve the problem. This prevents other tweeters from piling on. Additionally, this can turn a potential pitfall into a positive event by delivering exemplary customer service.

Level II occurs when the initial problem crosses into mainstream media and impacts the individual or company’s reputation. An example of this is what happened when two rogue Domino’s Pizza employees posted a revolting YouTube video that went viral. The company was slow in responding and suffered major damage to its reputation. A post-incident study conducted by HCD Research revealed that 65% of respondents who would previously visit or order Domino’s were less likely to do so after viewing the offensive video.

In a Level III crisis, an enterprise loses business or the individual loses his/her job. In the case of an individual, what happened to Anthony Weiner is an excellent example. He’s gone and so are his hopes for future political office. A good corporate example is what happened to Netflix when it announced a plan to spin off its DVD-rental service into a new entity called Qwikster. Not only did Netflix mis-gauge customer attitude, but it failed to acquire the Qwikster Twitter account ahead of its announcement, confusing consumers that were looking for a venue for Qwikster. After a series of nasty tweets, the story hit every major TV, radio and newspaper outlet in the U.S. Netflix killed the new service, but not before losing some 800,000 subscribers. Their management’s reputation, stock price, and customer base all plunged.

10-Point Checklist

What can be done? Here’s a 10-point checklist to help senior management and communications executives prepare for the worst:

1. Obtain all the facts before responding and, in particular, before making any statement online or on a mobile device. An Internet posting cannot be retrieved.
2. Control the message before it controls you. Audit previously scheduled tweets or posts, and remove those that could be misinterpreted if they are published during a crisis.
3. Take whatever steps are appropriate to maintain the institution’s brand and the integrity of its management, board and products/services.
4. If there is a problem, acknowledge it and begin remedial action. Social media is unforgiving. The issue will not fade away.
5. Scale responses to appropriately reflect the importance of the problem and the audience of the questioner. Many bloggers and power users of Twitter or Facebook have small armies of followers that should be considered when responding.
6. Ensure that someone on the social media crisis communications team is available 24/7.
7. Calculate the appropriate degree of response and determine whether a high-level, medium-level or low-level response is in the institution’s best interest. Important responses should be posted or reposted at high-traffic times.
8. If the disruptive entity or perpetrator is known, communicate via the proper medium (i.e., don’t call a blogger; rather, leave a comment so other readers can understand your side of the story).
9. Avoid posting negative comments that could start a “flame war” by people who intentionally post inflammatory comments to generate a huge response from other commenters; this could lead you to say something harmful about your company or yourself.
10. If someone has a legitimate gripe, respond quickly and appropriately while respecting other person’s feelings.  Start with, “I understand and appreciate your thoughts on this matter”…”I hear what you are saying”.  If, for example, it’s a minor complaint posted to Twitter, ask for the complainer to send a “direct message” describing the problem, then escalate from there to email or phone contact if necessary.

The simple rule of thumb is:  Don’t underestimate the power of social media. At times, the social media crowd can influence public opinion just as effectively as mainstream media.

And remember: In most cases, it’s not the crisis itself that causes damage, but the response.

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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 at Nicolazzo & Associates, contributed to this blog.