Are banks “un-PR-able?” In the wake of Lehman, subprime, AIG, TARP, TBTF, feasting at the discount window, Libor and the London Whale (the list could go on and on), the answer is probably yes. The complexity of financial products and the scope of the large banks’ operations means that it is not a question of if another scandal will emerge, it’s a question of when. From standpoint of reputation, there is no way to effectively assess and mitigate the multiple risks inherent to global banks.
So what’s a PR guy at [insert name of global investment bank] to do?
Lucas van Praag, former head of corporate communications at Goldman Sachs recently spoke with PR Week about the options. He suggests says that banks need to fight off the instinct to withdraw into the bunker and just focus on corporate social responsibility initiatives. “CSR is important, but [banks] shouldn’t rely on it to repair reputation,” he tells PR Week. Explaining, Goldman’s sometimes confrontational media strategy, van Praag explained that the common link between the firm’s key audiences, including shareholders and regulators, was that “all got most of their information from the media,” meaning that a do-nothing approach was out of the question for Goldman. He goes on to say that “culture is driven from the very top. Banks need to take the initiative to reset the moral compass, and do it often.” The Financial Times echoes this in a recent column, but was more direct, saying it might be “necessary to retire this flawed generation of [bank] leaders.”
Clearly, not all banks have the stomach to spar with media like Goldman once did. In the November 16 issue of Levick Weekly, Candi Wolff, EVP Global Government Affairs at Citi, suggests that the image of banks it tied to the economy and because people believe that banks caused the recession, they will forgive and forget when things improve. “As the economy improves, I think you’ll see an automatic rise in confidence or at least support for banks,” she states. Citi appears to be keeping its head down and focusing on basics. A couple of years ago, it was among the first financial institutions to begin blogging in order to communicate directly with constituents, so it gets the CSR thing, but, for now, is content to play defense. Perhaps the new CEO will change that.
So who is right? I don’t think there is much choice to for banks to play defense and, frankly, pray. Van Praag calls for “structural, operational, and cultural change,” but other than what is mandated by Dodd-Frank and other regulation, change will be slow. Banks simply don’t know when and where the next crisis will hit. How can one realistically take on the skeptics in the media if one doesn’t know what self-inflicted problem is lurking around the corner?
Glencore’s pending IPO has generated much speculation about how the firm will stand up to the scrutiny of life as a public company. However, two more common names are also making headlines for their IR/PR and they demonstrate different approaches to managing reputation under the glare of the spotlight. First up, Google. Investors and analysts were miffed after CEO Larry Page spent only three minutes on the company’s recent earnings call and did not participate in Q&A. Unconventional, but remember that Google is the same company that did its IPO via dutch auction and deprived Wall Street banks of millions in guaranteed fees. Google has never given earnings guidance and its “Owner’s Manual for Google Shareholders” states that Google is “not a conventional company [and doesn’t] intend to become one.” The challenge of IR is getting Wall Street to buy into the long-term vision, especially in times, like now for GOOG, when the short-term expectations of investors are not being met. GOOG trades around $525, so most are trusting Page’s vision thing. But, Therese Poletti at MarketWatch wonders if the “company still merits its unconventional stance toward Wall Street.”
While Google seemingly thumbs its nose at the conventional way of doing things, Goldman Sachs is sitting on its thumbs and other fingers as it tries to convince the world that it is the kindler, gentler vampire squid. Andrew Sorkin of the New York Times is bewildered by Goldman’s continuing spin about their mortgage market investments and hedges during the housing meltdown. “Goldman Sachs did not take a large directional ‘bet’ against the U.S. housing market,” said Goldman last year. For some, that doesn’t square with the fact that it was $3.8 billion short the housing market and $3.3 billion long housing market in 2007. Sorkin says Goldman should stop tap dancing and “be proud of its prescient call about housing. It was better for its shareholders, and frankly better for the taxpayers, that the firm was smart enough to short the mortgage market.”
Goldman also downplays trading in its latest earnings news release. In fact the word “trading” does not appear in the news release and related materials for Goldman’s Q1 earnings announced on April 19. I repeat, no mention of trading. CNBC points out that last year, the announcement mentioned “trading” nine times and in 2006, “trading” popped up 11 times in one quarter. Truth is in Q1, Goldman’s equities and fixed income traders hauled in more than $2 billion in revenue. Not bad for the business no one wants to talk about.
As it deals with media and investors and uncomfortable truths, will Glencore emulate Goldman and play by the rules but try to keep the truth obscured by sleight of hand? Or will it follow Google and give a more decipherable, perhaps Swiss, hand gesture to those who want transparency about their business? Hang loose, we’ll find out soon enough.
While the juicier stories swirl around Berkshire Hathaway, Warren Buffett and their corporate governance standards, the story of GE and how much federal income tax the company pays or doesn’t pay catches my eye this week. In short, GE got into to a debate on Twitter with Business Insider about the veracity of a story claiming that GE pays no federal income tax that appeared in the New York Times on March 25. The fact that the story is still making headlines is an important point. (The fact that a corporate PR department took on a Twitter master like Business Insider on their own turf should just make us scratch our heads.) It turns out that GE pays little or no federal income tax. Not exactly a shocker. What is instructive is how this story played out and how it new media guaranteed that GE could not control, corral, and quash it.
Pre-Twitter and pre-blogs, corporate PR departments had the advantage when confronted with an inquiring reporter exploring an incriminating story. The advantage was two-fold: first it was hard to pierce the corporate veil, giving companies the information advantage; second, there were a limited number of investigative news organizations and, typically, a significant amount of smoke was required to overcome standard PR resistance to unwanted inquiries.
That has all changed. First, it is easier than ever to access information, especially regulatory and financial filings, so facts are at the fingertips of reporters who only need to work so hard as Google demands. Second, Internet media has given rise to a new segment of specialist journalism that can chase even the tiniest whisps of corporate smoke and justify stories on the basis of peeling back the onion by just one more layer and, in effect, passing the baton of the story on to another Internet publication. Columbia Journalism Review’s The Audit blog calls this phenomenon iterative journalism. Furthermore, in many cases, for Internet media, unlike traditional media, the cost of investigating allegations like GE’s tax position are low to none.
This spells the end of spin. How can you spin if you can’t control access to information and create the narrative from the facts you selectively make public? Nope. It’s over, Mr. Spin Master. Some crafty journalist will have to come up with a new name for what we do, because it’s not spinning any more.