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.
