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A quarterly publication of the National Capital Chapter of the Public Relations Society of America
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Fourth Quarter 2002. Campaigns and elections – lessons learned from successful and
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Scandal Sheet
Public relations do's and don'ts for the scandal-tainted
Catherine Valenti
The recent wave of financial scandals is making some of America's top executives look
pretty bad. But some of their public relations gaffes are making them look even
worse. Take Martha Stewart.
The domestic doyenne's image has been through the wringer amid revelations that she
sold shares of biotech company ImClone just one day before the Food and Drug
Administration rejected the company's cancer drug.
After a disastrous appearance on CBS' The Early Show where Stewart snipped that she
wanted to "focus on her salad" in response to host Jane Clayson's numerous questions
about her trading in ImClone shares, Stewart hired a public relations firm specializing in
crisis situations.
Whether that move helps Stewart's tattered image remains to be seen, but she's not the
only financial luminary in need of PR help. As the misdeeds of corporate executives pile
up - both inside and outside of the office - here is a practical list of do's and don'ts for
those facing the wrath of angry investors.
DON'T flaunt your wealth when you're suspected of being the mastermind of a huge
financial house of cards or while you're awaiting trial for tax evasion.
Former Tyco CEO L. Dennis Kozlowski, who is awaiting trial for tax evasion, is perhaps
the poster child for this rule. A front-page story in the New York Post entitled "No Shame"
told of Kozlowski's Fourth of July weekend, which was spent entertaining people in his
$12 million Nantucket mansion and $25 million antique yacht.
"Dennis Kozlowski is the Allen Iverson of CEOs," says Paul Holmes, president and CEO
of The Holmes Group, a New York-based public relations publishing and consulting
group. Iverson, the NBA star, recently held an all-night party at his Philadelphia mansion
as he was waiting to be arrested on assault charges.
"Clearly both of them feel that they are above the law," says Holmes.
Though not on the level of the Kozlowski blow-out, other executives are also not being
shy about whooping it up when the chips are down. Former ImClone CEO Sam Waksal
was recently spotted in a loud Hawaiian shirt at a trendy New York City eatery, greeting
passersby as his companions picked up the bill.
Meanwhile, Scott Sullivan, the former WorldCom chief financial officer who allegedly
masterminded the company's $3.8 billion accounting debacle, is in the process of
building a $15 million mansion in Boca Raton, Fla.
"Those types of activities are perceived very differently than they were when the
perception was that the economy was flourishing," says Peter Duda, an executive vice
president at public relations firm Weber Shandwick in New York. "At that time, it was
perceived as just reward for someone who helped a lot of individuals. In these times they
are perceived very differently."
DON'T cry poverty when it's simply not true.
This is the flipside of executives or their families flaunting their wealth.
When former Enron CEO Ken Lay's wife Linda appeared on national television saying
she and her family "lost everything" because of the company's downfall, the claim rung
hollow for people who really did lose their life savings. This is especially true in light of the
Lays' four multi-million dollar homes in Aspen, Colo., which they have since put on the
market, and the millions of dollars that Lay made from selling his Enron stock options
over the years.
"Her appearance clearly backfired on them and I don't think she elicited the sympathy
she expected to," says Duda. "For the average American, I don't think their quote-
unquote liquidity challenge resonated."
DO avoid your home if you don't want to be attacked by a mob of reporters.
Salomon Smith Barney telecommunications analyst Jack Grubman found this lesson out
the hard way. The analyst, who was one of WorldCom's biggest promoters up until the
day before the company announced its $3.8 billion earnings restatement, got a rude
awakening the morning after the company's revelation.
A CNBC reporter followed Grubman down the street asking him why he had downgraded
the company to an "underperform" rating from "neutral" two days earlier, and whether or
not he had an inkling of the company's accounting news. An obviously perturbed
Grubman told the reporter to stop harassing him as he followed the telecommunications
analyst down the street.
"You're supposed to be a person who recommends equities based on your expertise - so
tell us what happened," says Carol Ruth, CEO of the Ruth Group in New York City. "They
have a right to be pursued."
Martha Stewart's broker Peter Bacanovic is reportedly heeding this advice. A recent
article in New York magazine says the bon vivant broker is hiding out at a friend's and
has hardly set foot near his Upper East Side home, where Breakfast at Tiffany's was
filmed, to avoid a reported gaggle of photographers staked out near his house.
"In the court of public opinion right now, perhaps the best strategy is to lay low," says
Duda.
DO show up at church or a baseball game. This gives the image of being a family-
oriented, religious citizen.
"Church is like the first thing everyone is told to do. Go to church and play ball with your
kids," says Ruth.
Former Enron CFO Andrew Fastow has reportedly been easing the pain of his exile from
corporate life by coaching his son's little league team, according to a recent article that
ran in the New York Times. The Times also said Fastow jogs around the Rice University
campus, teaches Hebrew and attends services at a local synagogue.
Former WorldCom CEO Bernie Ebbers is also taking refuge in the house of God, and
even made a speech at the end of services at his Brookhaven, Miss.,-based church,
telling the congregation that, "no one will find me to have knowingly committed fraud."
The tricky thing about this strategy is that it doesn't always work, say PR specialists. A
jaded audience may become even more angered at seeing rogue executives spending
their free time kicking back with their families. For example, junk-bond king Michael
Milken paid for kids to go to baseball games while he was battling insider trading charges
in the late '80s, a move that many saw as calculated and heavy-handed.
"The potential for it to backfire is enormous," says Holmes.
DO take some responsibility for your actions.
This one is effective, but extremely hard to find examples of among the current crop of
executives who claim they weren't aware of their company's accounting shenanigans. PR
pros say a simple acknowledgment of a mistake can go a long way to restore at least
some of the public's trust.
"You have to take some sort of responsibility for what's going on, and I see very little of
that," says Holmes. "The blame shifting is incredible."
Bernie Ebbers, Kenneth Lay and Jeffrey Skilling are among the executives who have
claimed not to have been aware of financial wrongdoing at their companies.
"'I didn't know what was going on in my own company' is just as dumb a defense as a
CEO can make," says Holmes. "The folks who think he's a crook still think he's a crook.
Anyone else who thinks he's innocent is just going to think he's incompetent."
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Catherine Valenti is a writer-producer for ABCNews.com.