from whrrp I c;it
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n a 2005 McKinsey & Co. survey of
board members of public compa-
nies, the authors reported that
directors are "eager to shake off the
perception that they are defensive
and lethargic," particularly in the
wake of management scandals, poor
stock performance, lackluster sales
and underwhelming revenue growth.
The authors also reported that issues
of concern for board members were
expanding so much that they were no
longer focused predominantly on
short-term financial performance, but
also on the long-term health of the
company, its overall strategy and
leadership.
In fact, according to the survey, 70
percent of board members want to
know more about an institution's cus-
tomers, their likes and dislikes, brand
strength and customer satisfaction.
This compares to 31 percent who pri-
oritized financials and 28 percent who
prioritized operational performance.
The days of only homing in on
internal issues and successfully riding
out storms by utilizing a fortress-
mentality are over. However, it is a
combination of focus on both internal
and external issues that is of most
importance to directors. As such,
boards need a viewpoint and expert-
ise that is critical in today's media-sat-
A PUBLIC RELATIONS EXECUTIVE ARGUES THAT A MISSING INGREDIENT
FOR MANY BOARDS TODAY IS A SEASONED COMMUNICATIONS PERSON WHO
CAN ASSESS POTENTIAL CRISES AND FORM APPROPRIATE RESPONSES.
By Rick Keating
urated age the communications
professional.
Strategic and Competitive
Given what many corporations and
institutions face today, naming execu-
tives to boards who are skilled in
public and media relations as well
as broad strategic communications -
is not only a strategic measure, but
also a competitive move. A survey
released by public relations firm
Weber Shand wick this summer
reported that nearly 9 out of 10 of the
world's largest companies lacked
communications experts on inde-
pendent boards. But, those that did
delivered 6.6 percent per year above
stock market averages.
Coincidence? As a trustee and
board member at a number of institu-
tions, I think not. It is clear that the
corporation astute enough to realize
the need for and value of having a
communications voice on the board is
ahead of the curve. Such boards are
well-positioned internally to effective-
ly address and reconcile a myriad of
issues that can easily grow out of con-
trol and spill over into financial per-
formance and the very health of the
company.
The "public" has become far more
than a consumer: It is also investor,
investigator, activist, analyst and crit-
ic or proponent. Aiding these process-
es is a continually expanding number
of "media" sources, primarily on the
Internet, that enable or advocate the
public's deeper involvement in and
attention to what companies and their
boards are doing.
This is most glaring in investor
relations, which has been forced to
modify itself and become more public
relations-conscious in practice than
strictly financial in focus. That's
because a company's stock and image
can be easily and rapidly affected by
disgruntled small investors, blogging
rumors or rapidly spreading fabrica-
tions on message boards. The days of
analyst-entertaining, pumped-up r ad
shows and non-independent analyst
reports are waning, if they still exist.
The Sarbanes-Oxley Blues
If such threats are not a strong
enough impetus to re-examine a cor-
porate board's makeup to ensure it
includes professionals trained and
experienced in dealing with the pub-
lic, then consider the federal govern-
ment's mandate to "instill confi-
dence" with the public and investors:
The Sarbanes-Oxley Act. Born out of
scandal, relentless media commentary
and public outrage, Sarbanes-Oxley
is, in effect, regula tory legisla-
tion that exists to address and
comfort the public just as
much as to enforce good
bookkeeping. More than $6
billion will be spent by public
companies alone on compli-
ance with the Act this year,
with technology costs
accounting for nearly $2 bil- PREPAR ED T O A D DRESS THIS RELATION-
lion of that.
SHIP CAN RUN TO MILLIONS OF DOLLARS
With that measure of capi-
tal investment in technology
IN LOSSES, AS WELL AS THE PERMA ENT
alone, it would be difficult to
believe that the typical corpo-
rate board historically
comprised of lawyers,
bankers and chief executives
from other industries could
quickly and effectively relate
to a situation that challenges the
brand and to resolve the myriad of
complications arising from it. This
argues for having board members
who can speak authoritatively on
these issues.
Likewise, with what seems to be
daily announcements coming from the
Securities and Exchange Commission
(SEC) about another investigation
beginning or charges being filed as
well as financial pundits securing
hour-long shows where a stock can be
blacklisted, based on a 3D-second
piece of ad vice the connection
between financial performance and
public relations has never been clearer.
The cost of being unprepared to
address this relationship can run to
millions of dollars in losses, as well as
permanent scarring of a brand.
Krispy Kreme Doughnuts, Citi-
group, Merck & Co. and Wal-Mart
Stores all have had challenging sum-
mers publicly defending their brands
and reputations. All have felt a finan-
cial impact to some degree, and there
is considerable speculation as to how
these companies will perform going
forward. All may now realize that their
recent predicaments start and end -
and will be won or lost with the
public. The public will support the cor-
poration or leave it, based on the over-
all message that reaches them through
the layers of filters and gatekeepers.
Board members are eager for feed-
THE CONNECTION BETWEEN
FINANCIAL PERFORMANCE AND
PUBLIC RELATIONS HAS NEVER BEEN
CLEARER . THE COST OF NOT BEING
SCARRI G OF A BRAND.
- RICK KEATING
back from the public because they
understand its significance and how it
affects everything else. This does not
diminish the importance of other con-
cerns, but is an acknowledgement of
the consumer economy and how a
company's brand and image are more
fragile than ever.
From research and development,
marketing surveys and group studies
to advertisement creation and place-
ment, the public is always the focus.
The next logical step is to ensure that
experienced professionals, trained
and skilled to work with and under-
stand public sentiments, are present
at the highest levels so that focus is
never blurred, ignored or forgotten.
Immediate Insight and Feedback
With the fragility of the brand, the
need for constant reputation manage-
ment and brand equity growth, there
is no question that no matter the size
of the organization, having a profes-
sional communications executive on
the board gives immediate insight
and opinion on board-directed actions
that are unequivocally in keeping
with the speed of communications.
For smaller companies and not-for-
profits, the benefits include a built-in
counsel who takes a personal and
almost daily interest in guiding the
strategic communications, public rela-
tions and marketing. From first-hand
experience, this opens boards to the
realization that their board makeup
may be counterproductive to the
issues that they need to address.
It is as if they are on an island, cut
off from the reality of how they are
perceived in the marketplace. This
internalization has been built over
years, and points to the fact that they
have not kept pace with or addressed
the speed of brand evolution created
by the new media age.
For medium-sized and larger com-
panies, this communications board
seat is a critical voice of marketing
reason, brand equ ity development
and insight. This individual guides
the board and both instinctively and
analytically assesses the quality of the
marketing not to mention guiding
fellow board members on such key
issues as the impact of a blog, a small
bad story (or a large bad story) or an
anonymous Web site.
The argument is simple: Words
travel fast and far. Whether news or
sales are negative or positive, it is
good judgment when bui~d!ng a
board to understand the needs of
business today and to include media-
savvy, informed thinking and market-
ing expertise.
Ri ck Kea t ing is President and CEO of
Keating & Co., a strategic communica-
tions firm in Florham Park , N.J. He can be
contacted at rkeating@keatingco.com or
973 0400.5400 .
October 2005 www.fei.org 53