Communicating (or not) big profits in recession

“The Joy of Sachs” article from Paul Krugman in yesterday’s New York Times drives home the unpleasant truth: “Goldman is very good at what it does. Unfortunately, what it does is bad for America.” Goldman Sachs has been in the crosshairs of many journalists and commentators since announcing its unbelievable second-quarter earnings of $2.7 billion, up 36 percent from the first quarter.

It may not be easy to work for Corporate Communications at Goldman Sachs these days, having to position such profit and “the biggest bonus payouts in the firm’s 140-year history after a spectacular first half of the year…” (Guardian) With more than 33 million Americans on food stamps, up 1.2 million in just two months, no spin is going to ameliorate the impact of staggering profit and enormous bonuses.

Back in December 2006, Goldman Sachs’ CEO, Lloyd Blankfein, sent the following message to everyone in the bank when the bonuses were coming through, according to the London Times: “Don’t be ‘irrational or arrogant’, he warned.”  We don’t know if Mr. Blankfein left a voice mail for his employees last week. According to Bloomberg, the only indication about how the company intends to conduct itself came from its CFO. “Our model really never changed,” Goldman Sachs Chief Financial Officer David Viniar said in an interview. “We’ve said very consistently that our business model remained the same.” And here’s the rub: if the business model has remained the same, and your profits are up, you’d better pay attention with what you do with money.

There were serious warning signs about the public’s perceptions about corporations months ago. When Richard Edelman presented his Edelman Trust Barometer 2009 – Paradise Lost at the Davos Forum back in late January, he said this: “Trust in business has collapsed in the United States, with American attitudes toward the private sector now comparable to France and Germany, which are historically the lowest among all nations surveyed.”

The Edelman report suggests how corporations should conduct themselves in these demanding times: “We have moved from a shareholder to a stakeholder world and to meet its challenges, business must change its approach to policy and communications. You have heard my appeal to the corporate sector for Public Engagement. At Edelman we’ve witnessed its effectiveness through private sector diplomacy, in which business works in cooperation with NGOs and government to address major global issues; through mutual responsibility, a combination of cause-related marketing and corporate social responsibility; through shared sacrifice in the face of the global recession, not just in equitable compensation, but also in supply chain management; and continuous conversation with stakeholders, one characterized by agility, timeliness, and contribution—not control.”  Back in January, Mr. Edelman was “optimistic that business has the ability to adapt to this new environment.”  I don’t know how Mr. Edelman feels today, but sadly, the situation got worse.

You know it’s getting unpleasant when the Wall Street Journal writes an editorial that openly chastises Goldman Sachs: “We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business. Ideally we would shed those implicit guarantees altogether, along with the very notion of too big to fail.”  Diane Frances, a journalist at the Financial Post, a conservative Canadian daily, takes it even further in her blog: “This week the headline should have read: ‘Goldman Sacks America’s Taxpayers’ instead of Goldman Sachs posts a US$3.88-billion quarterly profit.”

So how do you successfully communicate big profits during a deep recession? Forget it. There is no way to spin this one.

Corporate communications is due for a reset

No company has ever gone under because of bad corporate communications. For those who think differently, please read a recent book by Jim Collins, How the Mighty Fall.  I challenge you to find one instance where corporate communications caused a business to fail, and I doubt that it will ever happen in the future either.

But the function may be fatal for senior executives. And that’s true now more than ever before. In most cases, corporate communications has been treated by organizations as a nice-to-have department, rather than a must-have, strategic part of the business. I believe three factors are going to change this view, and transform the modus operandi of corporate communications.

1.) The economic cost of the recession – The crisis is not a typical downturn to be followed by a quick recovery, as we saw with recessions from the last few decades.  This is serious.  Third-quarter results may finally bring home what the recession is all about.  Communicating how the crisis is shaping your corporation’s business strategy is no longer an exclusive purview of investor relations or your yearly social responsibility report. And don’t assume that senior executives are unaware of the problem facing their communications in the next few years.  As one CEO told me last week, “we have to do better to understand and communicate what our business objectives are in this economic crisis and how we are relevant to our society.”

2.) The social cost of the recession – It absolutely behooves me how little attention we are paying to the consequence of millions and millions of unemployed.  We read every day about the great depression and stimulus packages introduced by FDR.  What we have missed in these history lessons is how radicalized social and political opinions became back then, once the unemployment rolls hit 20 percent and more.  We may not be at the 25-percent mark but, in real numbers, there are more unemployed people in the US today than at the height of the great depression.  In 1932, there were 12.83 million unemployed. According to Bureau of Labor Statistics’ June 2009 report “the number of unemployed persons (14.7 million) and the unemployment rate (9.5 percent) were little changed in June.”

3.) The impact of technology fueled by a phenomenal growth of social media – This is not your father’s PR anymore.  Worry less about information you send out and pay a lot more attention to what comes back.  Formulate your strategy and engage your critics in a meaningful dialogue.  Here’s an example on how not to do it on the age of social media: Goldman Sachs’ response, quoted in the New York Times, to Matt Taibbi’s article The Great American Bubble Machine, published in the Rolling Stone magazine.  “[Taibbi's] story is an hysterical compilation of conspiracy theories. Notable ones missing are Goldman Sachs as the third shooter [in John F. Kennedy's assassination] and faking the first lunar landing.”  Not a likely winner in starting a meaningful dialogue.

Another example to prove my point is an interesting paper about the changing role of corporate communications, posted in the Economist’s Management section, called “Corporate affairs, speaking with an authentic voice.”  Written by A.T. Kearney, it explores the failure of corporate communications to align its objectives with business strategy and recommends a new reporting structure to improve its effectiveness.  I may not agree with all of its recommendations, but it’s right in its conclusions – we’re due for a reset in corporate communications.

Social media and blowing smoke at Starbucks

Adam Broitman’s piece in iMedia Connection – “Social media: whose job is it anyway? – asked six thought leaders to define social media.

Here are their responses:

1. Social Media is the creation, sharing, and commenting on digital content.

2. The sharing of information between people.

3. Any form of media that alows for immediate, public consumer response that’s incorporated into the content produced.

4. Social media is media in any form for any platform created by, for, and with consumers.

5. Social media is simply talking *with* — not at — your constituencies (customers, friends, partners, prospects, etc.) & engaging them online.

6. Tools and processes used to connect, share, and to organize and collaborate with others.

Twitter rules were followed, so each answer had to be 140 characters or less. If Twitter had more characters, perhaps they may have expanded their answers to include social activism, but answer #5 covers it best from my perspective, with one caveat: without the right message (content) and strategy, you’re not going get results with social media.

PR Week Breakfast Briefing had an interesting item about a social media campaign reported by Los Angeles Times this morning. Starbucks Chief Executive Howard Schultz was targeted as anti-union, with his company exploiting workers. The campaign – launched last week by Brave New Films of Culver City – has its own website, stopstarbucks.com, and a video called “What do Starbucks and Wal-Mart have in common?” The video should be watched by every corporate and executive communications department.
It starts with Mr. Schultz’s interview on 60 Minutes, which goes downhill for him in a blink of an eye, thanks to Scott Pelley, the 60 Minutes correspondent.
While the interview was generally favorable to Starbucks, Mr. Pelley zeroed in on a Starbucks’ message that had come back to haunt them:

“One of our colleagues coined a phrase a long time ago and said, ‘We’re not in the business of filling bellies.
We’re in the business of filling souls,’” says Schultz.

“Oh now, come on,” says Pelley. “No wait a minute. That’s too … this is a company. This is a corporation. Come on.”

“OK, it is a corporation,” Schultz acknowledges.

“You’re blowing smoke now,” Pelley replies.

Now, the Vatican may get away with saying it’s in the business of filling souls, with a little smoke as a part of the ritual, but Starbucks? Ten years ago, the interview would have been sitting in the archives. But thanks to new media, it became an opening line in the union organizing effort, exploited brilliantly by the smart people at Brave New Films. By using social media, including Twitter, to hijack Starbucks’ own campaign, the union-organizing effort may or may not succeed. But consider this: the video was watched by nearly 40,000 people and an online petition demanding that Schultz “quit following Wal-Mart’s anti-union example” was signed by 12,000 people. And the damage to Starbucks reputation? Now that’s something to think about before you write the next, hopefully not a nebulous, message for your CEO without a proof point.

RIP (news)papers… here comes new journalism

New York Times’ ad sales dived another 27 percent according to an AP story yesterday. If you’re in the business, and can take bad news well, there’s a website called Newspaper Death Watch. What called my attention to it was the site’s subhead: Chronicling the Decline of Newspapers and the Rebirth of Journalism. The latter is encouraging, coming after a long period of doubt about survival of the honourable profession as it bids good-bye to cellulose and ink, and embraces new digital online channels.

Many have argued that blogs and Google are the driving forces behind the demise of newspapers. They played an important role, because newspaper’s centuries-old business model just couldn’t cope with new technologies to deliver news.  Nothing can save newspapers as we know them today, including consolidation.  Finding partners or investors for ailing newspaper companies is next to impossible. “That’s like asking someone in another business if they want to get vaccinated with a live virus,” said Sam Zell, the owner of the Tribune Company, on Bloomberg Television.

Senator John Kerry announced recently that he would hold a hearing on the future of the U.S. newspaper industry after the New York Times Company threatened to shut down the Boston Globe. The hearing, labeled “A New Age for Newspapers: Diversity of Voices, Competition and the Internet,” should be a must-follow for anybody in the communication business.

In the mean time, out-of-work journalists have been testing the new frontier and finding hope. A few weeks ago a friend sent me a link to GlobalPost. Its mission is appealing: “GlobalPost is embarking on a bold journey to redefine international news for the digital age. To get there, we are relying on the enduring values of great journalism: integrity, accuracy, independence and powerful storytelling.” Its content is pretty impressive and I hope they make it. Newspaper Death Watch also mentions INDenver Times, another new startup. Taking over community markets may be the tipping point for electronic newspapers and, hopefully, it may happen sooner than most pundits predict.

Why should professionals in PR, whether you’re in corporate communications, executive communications or an agency care about journalism? Because we depend on healthy journalism, practiced with integrity, accuracy, independence and powerful storytelling as much or more than any other group in society.