Business Forum: Lipstick won't help this pig

Valerie Gunderson Published Jul 22, 2002 "Let's put some lipstick on this pig." In a new TV ad designed to promote Charles Schwab's independent financial advisers through a technique of stark contrast, an overly candid investment manager utters this line while urging a roomful of brokers to sell an under-performing stock. "Just don't mention the fundamentals," he says. "They stink." While the ad is meant to play on the fears of wary, post-Enron investors, the vision of a cosmetically enhanced pig -- or bear, as the case might be -- is the perfect metaphor for the public's current crisis of confidence in publicly held companies. At one point, earlier in the economic cycle, there was no pig at all. Rather, there was an enchanting corporate date who looked lovely in the darkened boardroom and the drunken haze of investment profits. But somebody turned the lights on, and no amount of lipstick will fix what is wrong. It is time to take a hard look at what lies beneath. Low opinions When asked in a recent CNN poll whether investing in the stock market was a good or bad idea, 51 percent of respondents said it was a bad idea. That's up from only 28 percent in 1998. If business leaders are hoping this is just a blip on the radar screen, they should look again. A New York Times poll showed that eight out of 10 surveyed felt the collapse of Enron was an important national issue. National issues are topics such as education, crime and taxes, and they do not just go away. Of course, not all companies have engaged in Enron-like practices. But most Americans still are painting the issue with a broad brush. According to a June Bloomberg News poll, 69 percent said that most companies lie to or mislead investors and that Enron was not an isolated incident.

Former Medtronic Inc. CEO Bill George recently summed up the damage: "The free market is based on trust. Without trust, people will put their money in a mattress." So what can publicly traded corporations and the investment and accounting industries do? There is a tired, old-but-true maxim in the world of public relations that seems applicable: A massive, negative event is a steamroller; if you don't get on board and start driving it, you will be flattened by the media, by public opinion and by politicians eager to make a campaign issue out of turning you into a pancake. The good news is that this event still is "driveable" -- if business leaders take a tough look in the mirror and if they have the appetite for leading the inevitable reform, rather than blocking it. Witness the recent about-face by the Business Roundtable on the issue of stockholder approval of stock-option plans. The organization had opposed a move to require shareholder approval of all option plans until it became clear that Congress and President Bush were planning to make shareholder approval a cornerstone of their reform plans. Entirely within reason To the average investor, many of the corporate governance reforms that have been bandied about in recent days are completely reasonable, if not modest. While very few people could draw a schematic of off-balance-sheet mechanics or provide a technical definition of the newfound euphemism "aggressive accounting," they understand basic financial principles that corporate executives seem to have forgotten. Conflict of interest, pay that is linked to performance and not using the company as a personal bank are just a few salient examples. The idea that cozy enclaves of families and business partners serve on boards of directors or that CEOs can cash out fortunes while they run a company into the ground isn't just bad business -it's truly stupefying to millions of Americans. This is the reality that business must confront. Companies will be unable to right the listing ship of confidence by dealing only with the regulatory end of the equation. It will be imperative that they address the many facets of their damaged public perceptions as well. For instance, anyone who has been within earshot of a corporate water cooler in the past two months can tell you that employees are looking for assurance that they are not working for the next Enron, Anderson, Tyco or Worldcom. Given the weekly onslaught of scandals, employees deserve to be kept abreast of a company's plans to avoid similar fates in a thoughtful, timely and honest way. The same goes for shareholders, who are likewise gathered around their water coolers but mulling over whether it might be a good time to pull out of stocks and try gold again.

And last but not least, the public is due some form of communication. Companies that already are implementing some of the recommended reforms would do well to get that message out quickly. Coke made headlines last week, for example, when it announced plans to count stock-option grants as employee compensation -- a major accounting change that reformers have urged for years. Organizations that have decided to move ahead on other proposed improvements have an opportunity to disabuse the investor-consumer of the notion that most companies are being dishonest with them. This is not to suggest an infusion of sickly sweet image ads. A superficial campaign that simply repackages a company's persona will be viewed with the skepticism we reserve for livestock wearing make-up. It might make things worse. On the other hand, an honest, credible effort to address the public's concerns will bolster confidence. While there is no doubt that confidence has taken a beating, the damage is not yet permanent. However, if companies refuse to address deteriorating corporate credibility, a new perception will be cast. What will Americans think about how all business operates? One has only to watch the Charles Schwab ad to see. Company executives should ask themselves whether this impression is one they can afford over the long-term.