Lee Duffey, Duffey Communications
The year 2002 could easily be remembered as the year of scandal for the energy trading industry, scandals that have left a perception that will forever alter the future of competition in energy trading.
Looking forward for the energy trading industry, 2003 should be the year of the corporate image makeover. In short, it’s now time to power up the corporate reputation.
Another issue facing energy traders will be restoring shareholder confidence on Main Street and Wall Street. The process could be a long one. In the case of Enron, individual investors have filed more than 60 lawsuits and state pension plans hoping to regain some of the billions of dollars they have lost due to the company’s diminished market value. In addition, a group of Enron and PGE employees have filed a class action lawsuit in Houston, based on the Employee Retirement Income Security Act (ERISA), for the losses they incurred by participating in Enron’s 401(k) corporate plan. Unfortunately, these employees will have to stand in line and take a number behind the more than 2,000 creditors that are suing the energy giant for non-payment-which leaves little doubt that Congress will use these lawsuits as a platform for reforming 401(k) laws during this election year.
In addition to financial accountability and shareholder perception, rebuilding corporate image will also need to be a major focus for companies that have been hit hard with scandal. These damaging effects include:
- Attracting employees: A poor corporate image can decrease a company’s ability to attract and retain the “best and brightest” employees. For current employees, it can hurt company morale and productivity. For prospective employees and recent college grads, a company that has been scandalized is not considered an attractive employment prospect.
- Financing: Companies that have a negative corporate image as the result of a “scandal” can find themselves suffering heavy financial losses due to the plummeting value of their company stocks (due to the loss of shareholder confidence). Some may also find it difficult to obtain the necessary financing needed to re-build the company.
- Partnership opportunities: A negative corporate image can also contribute to a company’s inability to attract partnership and investment opportunities with other companies. Enron’s former accounting firm, Arthur Andersen, is a perfect example. When crisis hit, it was alleged that Andersen tried unsuccessfully to merge with several other “Big 5” firms in an attempt to save their firm. Why were they unsuccessful? Speculation is that none of the other firms could afford to have their names associated with a company that was in the midst of scandal that resulted in a negative corporate image.
One can argue that these companies’ accounting practices didn’t fail; instead, their “business models” failed. Still, in spite of reformed laws, utilities and energy traders will still have the burden of proving to shareholders that their investments are safe. In short, corporate governance must begin in the boardroom.
The Rebuilding process
Rebuilding a company’s corporate image can play a major factor in restoring shareholder confidence and employee trust. The process should begin with a strategy that includes a comprehensive public relations plan, with an emphasis on crisis communication. Try this equation: A good PR strategy + communications plan = effective message management.
During a crisis situation, companies need to formulate a “response message” for employees, shareholders, the media, and other key groups. How that message is communicated is also very important. To ensure that the company message is communicated effectively, the following strategic steps should be followed:
- Investor relations: During a crisis situation, a company’s stock value normally decreases-resulting in the company being bombarded with phone calls from angry shareholders concerned about the safety of their investment. This is why it is imperative to have a competent and experienced investor relations team in place to respond to shareholders questions and concerns in a timely manner. Tip: It is also a good idea to post stock updates on the company website to keep employees and shareholders informed.
- Media Training: During a company crisis, company executives may face inquiries from the media. For some, this may be the first time they speak in front of the camera. Therefore, media training is very important to ensure that company executives respond to inquiries and communicate the company’s message in a clear, concise and confident manner. This is very important because their image (body language, posture, eye contact, etc.) has a direct reflection on the company. Tip: The key word here is preparation. “No comment” is not always the best policy, so do your homework and know how to respond to the questions you really do not want to answer.
- Community Outreach: In the process of re-building your company’s image, it is more important than ever to show that you are a good corporate citizen. This instills goodwill and trust which contributes to building a “good” image of the company. Tip: During the re-building process, it is important to remember that “community” consists of customers, employees and shareholders, so use this opportunity to re-introduce and promote your company’s true value proposition.
These are just some of the things a company can do when faced with a crisis situation. From a public relations perspective, the ideal scenario would be to have a plan in place before the crisis. Unfortunately, most companies are reactive instead of proactive when it comes to a crisis situation.
Duffey is the founder and president of Duffey Communications Inc. Since the early 1990s, Duffey Communications (www.duffey.com) has been developing marketing, public affairs and regulatory programs for the utilities industry.
