Our Blog: The Podium

A Halloween Lesson with Apologies to Charles M. Schulz

By David Calusdian, Executive Vice President & Partner

Year in and year out, Linus sits in the neighborhood pumpkin patch trying to impress Charlie Brown’s little sister Sally with a personal introduction to The Great Pumpkin. She forgoes trick or treating to wait for the Great Pumpkin as he “flies through the air and brings toys to all the children of the world.” But every year, The Great Pumpkin disappoints, and as Linus puts it, there’s “nothing compared to the fury of a woman who has been cheated out of tricks or treats.” Now there’s a holiday icon in desperate need of reputation management. Here are three tips to reestablishing a positive personal brand whether you are a fictional cartoon character, disgraced athlete or corporate executive.

1) Determine Your Desired Brand Identity

Before you begin the reputation rebuilding process, decide what you want the essence of your new personal brand to be. Philanthropist? Industry expert? Respected business Leader? After you’ve determined your desired personal brand, develop a strategy to take action and then communicate to your key audiences. For example, in the years after Jimmy Carter’s failed presidential re-election bid, he re-branded himself as a humanitarian very successfully through his work with Habitat for Humanity. As for The Great Pumpkin, I’d recommend taking the same approach as Santa Claus and the Easter Bunny and finally make good on his toy delivering promise.

By David Calusdian, Executive Vice President & Partner

The firing of Red Sox manager Terry Francona offers a few valuable lessons in crisis communications, especially those relating to the unexpected departure of an executive. For those of you outside of Red Sox Nation, let me offer a little background: the only living manager of Boston’s professional baseball team to win a world series (twice!) is now unemployed after missing the playoffs following a disastrous September collapse. To be technical, Francona wasn’t fired; the team declined to pick up the option on his 2012 contract. While the debate over letting Francona go is an ideal subject for a sports-focused blog, the way the decision was communicated offers two valuable lessons to anyone in crisis communications.

1) Take a Deep Breath: When a decision is made suddenly to release a senior executive, care should be taken to think through the communications timeline. The Red Sox put Francona in front of the microphones the day after the final game of the season for no reason other than to discuss the final calamitous loss. If ownership had even an inkling that the team would be sending Francona on his way, why put him in front of reporters to awkwardly answer questions about his future? To make matters worse, the very next day Francona held a press conference to announce his departure, which was then followed by another media gathering by the Sox brass to discuss the action. Why two additional separate press conferences? The Sox would have been better served to have one well rehearsed press conference (including Francona and the Sox higher-ups) to address the disastrous end of the season and announce that the time was right for a managerial change. In any crisis situation, take a deep breath, think a few steps ahead and plan all messaging and timing of external communications accordingly.

“Lie to Me.” The name of the prime time drama on Fox is a challenge. “Go ahead. I dare you to try to pull one over on me.” The show’s protagonist, played by Tim Roth, is an expert in detecting deception and is hired by corporations, government agencies and private citizens to analyze body language.

We’ve all heard about how valuable body language is in interpersonal communication, but is Lie to Me more fiction than fact? Not even close. The investment community is now using real-life consulting firms like the one in Lie to Me to analyze the truthfulness of corporate executives.

In his 2010 book Broker, Trader, Lawyer Spy, POLITICO White House Reporter Eamon Javers recounts stories of former CIA agents working with major hedge funds and bulge bracket investment banks. Boston-based Business Intelligence Advisors (BIA) is one firm mentioned by name in Javers’ book. BIA, which consults solely for the financial services industry, including institutional investors and venture capitalists, is comprised of former intelligence community agents.

When it comes to corporate governance, board members and shareholder activists are usually on opposite ends of the spectrum. But at separate conferences in New York and Boston this month, the two camps expressed a surprisingly similar view about the most effective way to deal with the anticipated increase in shareholder activism in 2011: better communication.

According to a study by law firm Schulte Roth & Zabel (SRZ), 76% of activists surveyed identified “dialogue/negotiations with management” as the most effective activist strategy to achieve desired results. None of the other proposed strategies – shareholder resolutions, publicity campaigns, proxy contests or litigation – received more than 16% of the vote.

Results of the study were highlighted at SRZ’s Shareholder Activism Conference in New York, which I attended as part of an invited group comprised mainly of hedge fund and private equity fund managers.

Hello again. We took a bit of a hiatus from blogging this summer, but we are now back to share a Halloween story sure to scare you straight!

Unless you are one of the 33 Chilean miners that were trapped underground for the past two months, you have likely been watching the drama unfold on Capitol Hill as the Business Roundtable and the U.S. Chamber of Commerce challenged the legality of the SEC’s new proxy access rule 14a-11, which allows qualifying shareholders to nominate directors for election at shareholder meetings and requires the corporation to include those nominees in the standard proxy statement. The petitioners claim that the new rules are subjective and violate federal and state law and the United States Constitution, and that the SEC did not assess the effect of the rules on efficiency, competition and capital formation. As a result, implementation of the rule has been delayed pending a resolution of the Court of Appeals. So the new proxy access rules will most likely not be implemented until the 2012 proxy season, at the earliest. Upon hearing this news, public corporations across the nation let out a collective sigh of relief.

“But social media for investor relations won’t work for my company!”

The use of social media is radically changing the way our society communicates – and the investment community is no exception. But many investor relations officers still refuse to use social media as an IR tool. I’ve heard any number of reasons why “social media for IR won’t work for my company.” Our business model is primarily B2B. The retail shareholder base is small. Our market cap is less than $500 million. My corporate counsel tends to be conservative regarding disclosure. Notwithstanding the huge volume of research that supports the use of social media in IR, I think it would be easier to land a lunch with Warren Buffett than to convince the typical IRO to set up a Twitter account.

I recently spent a whirlwind of a week focused on social media in investor relations. The NIRI Westchester Connecticut chapter invited me to serve on a panel discussion entitled, “Investor Relations and Twitter – To Do or Not to Do?” with Darrell Heaps, president & CEO at Q4 Websystems (@darrellheaps), Dan Dykens, co-president at Meet the Street (@meetthestreet), and Doug Chia, senior counsel & assistant corporate secretary at Johnson & Johnson (@dougchia). I was pleased to see that more than half the room had at least been on Twitter. Two questions seemed to preoccupy the audience: “what should we know about using Twitter,” and “how can we use it as part of an effective IR strategy?”

The term “shareholder activism” can sometimes send a shiver down your spine and conjure up all kinds of unwelcome events – unhappy shareholders, proxy contests, shareholder proposals, 13D filings and withhold vote campaigns, to name just a few.

I recently moderated a NIRI Virtual Chapter webinar on “Shareholder Activism Trends.” The participants, consisting mainly of IROs at mid- and small-cap companies, were polled on several questions. The first question was, “Do you have a detailed plan in place for dealing with shareholder activism?” The majority answered “no.”

It may not be feasible to have a detailed plan for dealing with a threat that can take so many different forms. The lawmen and bandits who fought it out at the infamous O.K. Corral in 1881 had no idea how the showdown would play out – and neither will you if your company becomes an activist’s target. But that doesn’t mean you can’t be prepared. Here are four steps.

With proxy season on the horizon, a new SEC rule will be requiring companies to justify the structure of the board’s leadership. That could have some companies thinking about whether the roles of chairman and CEO should be separated – an issue that’s been hotly contested for years.

Proponents of taking an axe to the two positions contend that combining them puts too much power in the hands of one person and creates an inherent conflict of interest. Their preference is to seat an outside director as chairman to ensure the board stays truly independent from management. The CEO can then focus on running the business while the chairman is tasked with protecting the interests of shareholders, including evaluating management’s performance.

To whom is the corporation accountable? Before SOX, majority voting, proxy access and “say on pay,” director elections were democratic in name only, and the lines between board and management were blurry at best. Except for the occasional gadfly at an annual meeting, boards rarely communicated with shareholders directly.

Today, after nearly a decade of turmoil in the markets and changes in the regulatory environment, the insulated board is a thing of the past. Shareholders are coming to view directors as leaders whose perspectives may diverge from those of management, who are empowered to exercise independent judgment on matters of consequence, and who are accountable for corporate performance.

A small but growing number of boards, recognizing that investor expectations have changed, have made dialogue with shareholders a formal priority. They are experimenting with new approaches for nurturing this interaction and learning from the experience. Although systematic programs for board-shareholder communications are still atypical in Corporate America, it is not too early to make some observations about what the more successful efforts have in common.

Recently, Sharon Merrill Associates President Maureen Wolff and I spoke on “Navigating the New Proxy Access Rules” at the NYSE Euronext’s “Building Blocks for Successful Investor Relations” conference. The event attracted great attendance from CEOs, CFOs and investor relations officers – despite some obstacles getting downtown with the Yankees World Series victory parade taking place at the same time about a block away. Some things you just can’t plan for. As a life-long Red Sox devotee, it was rather painful to hear the million-plus Yankees fans lined up on Broadway cheering for A-Rod and company. Wait ‘till next year I guess.

When investor relations practitioners get together these days, we tend to discuss the same general questions, gripes and concerns: When will we see an upturn in the economy? Why can’t we have a better understanding of who owns our stock? Will the Yankees buy another championship next year? What effect are dark pools having? But one topic that should be getting significantly more attention in the IR world is the inevitable change in shareholder proxy access. If two proxy-related proposals from the SEC are implemented, the changes in proxy access will have a profound effect on the boardroom and board/shareholder communication. It’s time to get ready.