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.
Time for capitalism to get ethical…
Michael Lewis wrote a great piece in the August issue of the Vanity Fair. Entitled “The Man Who Crashed the World,” it’s about Joseph Cassano, former head of AIG’s Financial Products unit. I always admired Mr. Lewis’ writings for his no-nonsense approach to business, based on his first-hand experience on Wall Street, and his remarkable prescience about the financial industry train wreck to come described in his book Liar’s Poker published in 1989.
What grabbed my attention in the article about Mr. Cassano were his personal traits. He was described as “a guy with a crude feel for financial risk but a real talent for bullying people who doubted him. …Joe would bully people around. He’d humiliate them and then try to make it up to them by giving them huge amounts of money.” When Bernie Madoff was sentenced, “Judge Chin pointed out that no friends, family or other supporters had submitted any letters on Mr. Madoff’s behalf that attested to the strength of his character or good deeds he had done.”
Bullying, lack of character and good deeds seem to be the common denominators that fallen financial wizards have demonstrated in spades. What ever happened to the old values that characterized capitalism until the 1980s, when personal greed and profit became the norm rather than an exception?
Peter F. Drucker, one of the greatest business thinker whose “writings are landmark of the managerial profession,” according to Harvard Business Review, was no socialist. This is what he had to say about social responsibilities of every business: “The third task of management is managing the social impacts and the social responsibilities of every enterprise. None of our institutions exists by itself and is an end in itself. Every one is an organ of society. Business is no exception. Free enterprise cannot be justified as being good for business; it can be justified only as being good for society.” (The Essential Drucker, published by Collins Business Essential. Italics are mine.)
Drucker continues: “Asked what a business is, the typical businessman is likely to answer, ‘An organization to make a profit.’ The typical economist is likely to give the same answer. This answer is not only false, it is irrelevant.” Mr. Drucker’s thinking may come as a revelation to many fallen captains in the financial industry who think that ethics is a precocious Greek wine.
A real example of an ethical, socially responsible business is a story in Sunday’s New York Times about Trumpf, a family business employing some 8,000 people and based in Ditzingen, Germany. While the current economic crisis may force the owners to lay off employees by the end of the year, this business is run like nothing we’re used to in North America.
“About 15 years ago, Leibinger père put together his family’s principles in a written 20-page codex outlining rights and, above all, the responsibilities of Trumpf’s stewards. The imperative is to run the business in an ethical manner, to take care of employees and to earn a decent profit, which is largely reinvested in the company.” You can find the Company Principles section here.
Just compare that article to one in last week’s Financial Times, The town that Wal-Mart built. To the Wal-Mart town’s citizens, it’s all about size: the biggest this and the biggest that, topped by this quote from the journalist’s guide: “‘Look at the girls walking their little dogs,’ he says proudly as we cruise past leggy women in shorts. ‘You could be in New York.’” He’s right. You couldn’t be in Ditzingen.
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.
In Denial
Reading Frank Rich in the New York Times is my Sunday morning treat. His opinion piece last Sunday was about cultural patterns of denial, arguing that we fool ourselves into refusing to face reality unless we hear warning signs over and over to accept “the wolf is actually at the door.” These denials, of course, are not exclusive to the economy. Mr. Rich states “Denial won’t fix the economy anymore than it won the war in Iraq.”
I’m afraid that our PR industry is gripped by the same impulse of denial as people show about today’s economy. The industry had it so good for so long, it’s hard for practitioners to imagine what is going to happen to PR budgets if the current recession becomes depression. And that shouldn’t come as a surprise. Some people still fondly recall those unforgettable messages on tech PR agencies’ answering machines: “Please only leave a message if your current or planned budget is over $40,000 per month…” In the late 90s, the fattest tech agency cash cows were quickly eaten by huge communications conglomerates and expected to generate the same revenue and margins year in and year out. Actually, it was more like quarter after quarter, because now they had to meet Wall Street’s expectations in addition to satisfying clients. This new blend of the street’s needs and clients’ needs may turn out to be about as toxic as derivatives and other instruments of mass destruction were to the financial sector.
While the PR industry seemed to have survived the tech bubble, I’m not sure that its habits and expectations changed that much. Remember the key prerequisite needed to join a tech PR firm in the 90s? Enthusiasm. It sounds like a Reganesque requirement, but it all came from California where, to this day, its governor’s favored word is fantastic. The whole tech bubble era had a fantastic, out-of-the-world experience.
A lot is going to change if this economy gets worse. Today, survival is the common denominator behind every budget item review for every business. Yet, the Publicis Groupe stated that “despite the ‘many challenges’ ahead, it remains ‘confident’ because of its ‘solid’ balance sheet and ‘flexible organization’,” according to MarketingWeek. It reported a 1.1% drop in full-year net profit and predicted a “very difficult” 2009. I’m not picking on Publicis, as other media holding companies have issued similar warnings.
Perhaps what the PR industry needs is the equivalent of Dr. Roubini, also known as Dr. Doom. We need an ice-cold analysis of where our industry came from, where we are, and where we’re going. Right now, I’m afraid, we’re in a state of denial. Let me know your thoughts.
