The chief executive’s communications can make or break a company
Standing before a room full of divided shareholders, jeering, striking employees and assembled media, your boss at a major airline complains that opponents have represented him as ‘Hitler and the devil,’ then adds, ‘It’s not nice. But do I lose any sleep over it? No.’
Or how about this one: in the wake of an oil rig explosion that kills 11 workers and inundates the southern coast of the US with a massive oil slick, your CEO tells a horde of aggressive reporters: ‘I just want my life back.’ A few days later, pictures surface of him relaxing on an expensive yacht.
They could be scenes from an IRO’s nightmare, or case studies of how not to do things. But over the course of summer 2010, the performance of British Airways’ CEO Willie Walsh at the company’s July annual meeting and the notorious missteps of ousted BP CEO Tony Hayward were just the most extreme manifestations of a challenge many IROs must grapple with every day: the unpopular CEO, whose communication skills could, let’s just say, use some work.
At least Mark Hurd went quietly. The former CEO of Hewlett-Packard wiped $10 bn off the company's stock price last week, when he resigned amid allegations of falsifying expense records and sexual harassment.
It’s not an easy problem to solve. ‘This is your boss,’ says Mary Beth Kissane, principal at Walek & Associates, who heads the firm’s IR, corporate transactions and financial services. ‘And that has always been an issue for IROs: having to speak truth to power.’
Increasingly, however, speaking that truth is more essential than ever. It’s not just that undisciplined communication can cause a media uproar and pull down the stock price in the most extreme instances; nowadays off-the-cuff comments to investors can result in material disclosures that can constitute securities law violations. ‘It used to be a squishy feel-good kind of skill,’ Kissane says. ‘With regulations, it’s now a compliance issue, a risk management issue and a reputational issue. If your boss makes a material disclosure, you could be on the hook for that.’
Fire the CEO, boost the stock
The personal ‘branding’ of a company’s CEO also has implications for a company’s long-term prospects. The public relations behemoth Burson-Marsteller polled 600 global executives and claims to have found that CEO reputation is worth ‘at least half a company’s reputation’. And that’s rising year on year.
Consider the case of Nokia, which saw its stock jump by as much as 5 percent after reports surfaced in July that the Finnish phone company was looking for a new chief executive to replace Olli-Pekka Kallasvuo. ‘My perception is that a lot of investor relations is about confidence,’ says Nick Jones, an analyst at Gartner who covers Nokia. ‘People will believe almost anything Apple CEO Steve Jobs say; he’s an outstanding communicator. It’s clear now that investors are not very happy with Olli and, one way or the other, the board should do something about it.’
To win back confidence, Jones says, Nokia needs a CEO who can effectively communicate that the company has ‘a clear route to solve the problems that are worrying investors,’ including how to gain ground in the smart phone market, and ‘that the CEO is on top of the problem.’
Ideally, of course, an effective IRO can step in and assist the CEO before any image problem reaches a level where the mere mention of his or her firing causes the stock to rise. For that to happen, IROs need the ability to establish open lines of communication with their superiors so they can step in or signal the executive if he or she is going off track, says Kissane, who describes such ability as ‘more an art than a science.’
In the case of possible material disclosures, ‘you have to be empathetic, and know in advance what may come up, so the CEO isn’t blindsided,’ advises Kissane. ‘If he or she is headed down a path where something may be disclosed that shouldn’t be, you need to let him or her know – and not inelegantly. You want to have that worked out in advance, so that you have a sign if you see him or her going down an inappropriate path.’
Handling a defiant CEO who is prone to blowing off steam and making statements that might alienate investors requires a similarly deft touch. Sometimes, says Rob Whetstone, managing director at PondelWilkinson, an IR consulting firm based in Los Angeles, ‘there’s a lot of diplomacy involved. They have big egos, so you have to approach them in a way that doesn’t demean them.’
Language lessons
Of course, in the age of the celebrity CEO, there’s no shortage of trainers, media handlers and image consultants available to help articulate the communication pitfalls and problems in a delicate manner, and then help executives who are uncomfortable, unpolished, unfriendly or just plain unskilled in front of a microphone.
Jason Schechter, chair of US corporate practice at Burson-Marsteller, says the first step in working with any CEO with communications problems is to make sure they understand the negative impact poor communication can have on a company’s stock price and the firm’s ability to achieve its goals. Then you can help them find the communications platform that will best suit their particular style.
‘In my experience CEOs respond well to facts,’ Schechter says. ‘So the more you can show them that this ultimately supports their business objectives and strategies and is a platform that makes sense for them, the more responsive they will be.’
Burson-Marsteller often uses extensive media training to help CEOs overcome their communications limitations. Typically that consists of defining ‘the story a company wants to tell about itself’, and then testing it out in a range of simulated environments. Often, trainers will bring in cameras, lights and video equipment and simulate a media environment, annual meeting or earnings call with analysts.
‘We make sure the CEO is as comfortable as possible with that platform and is prepared to answer difficult questions,’ Schechter says. ‘We work on conceiving what the hardest questions might be, and how the CEO would answer those.’
Of course, some CEOs will never do well on television, and in such cases the best thing to do is admit the problem and seek alternative solutions. ‘The last thing you want to do is put a CEO on a platform where he or she is not comfortable and not going to perform well, because that’s going to backfire,’ Schechter says, citing the example of Tony Hayward.
After the extensive training, Burson examines which communication platforms work best for different CEOs. For one who is hopeless on camera, print interviews might be the best course for communications. For CEOs who stumble when delivering extemporaneous comments, clearly spelled out, well-practiced remarks for earnings calls can provide the solution.
Silence speaks volumes
In non-crisis situations, Schechter says, the problem is less about a CEO making a gaffe, and more about a CEO failing to communicate because of the fear of making mistakes. That can be equally damaging in IR terms. ‘Investors and analysts then have less information about how to value the company, so you see more inconsistent valuations on the IR side,’ he explains. ‘In the case of employees, they don’t see someone looking out for them, and regulators aren’t assured the firm is in compliance, so non-communication directly affects that company’s performance.’
Whetstone notes that media training and preparation can be especially effective for CEOs whose problems stem from their background. He says communications training has helped a number of CEOs at the helm of biotech companies, who know their field, boasting PhDs and other high-level scientific qualifications but ‘are caught in the weeds a bit. People who are really involved in science can get so excited talking about the minutiae of the mechanism of action of their molecule, they forget to talk about the bigger initiatives the company is working on. But you can work with them.’
It’s hard to prepare anyone, however, for the full onslaught of media scrutiny faced by the CEOs of public companies in the midst of a high-profile crisis. Such situations change the communication skills required at the top, and can reveal deficits previously unseen. Kissane notes that Hayward has a background as an engineer, which likely served him well when explaining routine operations to analysts and investors. She also singles out Goldman Sachs CEO and chairman Lloyd Blankfein as another CEO with a Wall Street background that worked well in normal times but not so well once the firm was accused of fraud and faced criticism from ordinary Americans.
‘Shareholders love Blankfein,’ Kissane notes. ‘But during his Charlie Rose interview he was incapable of articulating why what Goldman was doing was acceptable in a way that a lay person could understand. He was the perfect CEO for when the firm needed someone to speak to institutions but speaking to Main Street just doesn’t seem to be in this guy’s bandwidth.’
Keeping cool
In a crisis situation, Whetstone notes, even the most experienced and diplomatic IRO can’t always solve the problem. ‘For a public company, it’s certainly the IRO’s job to keep people on message as much as possible,’ he says. ‘But that’s hard when people are being badgered by the media, badgered by shareholders, badgered by employees. Unfortunately, you get to the point where you just want to blow off a little steam. You can’t do that.’
When this does happen, the only solution may be to replace the CEO with one better equipped to communicate under pressure. ‘It’s always easier to communicate when things are going well,’ says Philip Weiss, an analyst who covers BP for Argus Research. ‘And until the spill people thought things were going well. In this situation, any CEO probably would have been criticized.’
Still, Hayward’s performance left the company little choice but to replace him in his role, Weiss adds. In the crisis situation faced by Hayward, you could ‘have advisers or counselors to work with the person and help him, but there will always be times when they aren’t around.’ And placing a PR person upfront to handle questions can look even worse.
Weiss notes that in addition to changing its CEO, BP appears to have changed its IR strategy to emphasize better communication – a move he approves of. At the beginning of the spill, he says, when he called BP’s IR department, ‘I was a little disappointed. I would get a message saying, I’m not here, call this person. So I would call that person, but he wouldn’t be there either.’ More recently, however, things seem to have improved, ‘The other day, I had a question about something that wasn’t a rush,’ Weiss says. ‘But I got a call back in a few minutes and with more information than I had expected.’
