Dick Martin Blogs

The voice of the paparazzi

The paparzzi used to focus their lenses on the likes of Brad and Angelina for the vicarious thrill of the masses. But now they and their keyboatd wielding colleagues play a critical role in corporate governance and marketing.

Way back in 1970, economist Albert Hirschman suggested consumers and investors have only two choices when they believe a company is doing them wrong: they can "exit" (end the relationship) or they can "voice" (complain until the company changes).

As a practical matter, exit doesn't accomplish much any more. Organized product boycotts are rare. And when Hirschman wrote his paper, the turnover of an average managed mutual fund was 17% a year; by 2000, it was 91%, meaning funds sold nearly all of their holdings every year. Many funds, in fact, have turnover ratios of more than 100%, holding the typical company share for less than a year.

That leaves voice. Again, when Hirschman wrote his paper, voice belonged to a privileged few. One consumer's voice tended to get lost in the  clamor of the marketplace. Even if consumers or investors ganged up on a company, their voices could be drowned out by a barrage of advertising and misdirection.

Today, everyone is a publisher. Blogs and tweets have outsized influence. According to one survey, 90% of consumers say their purchasing decisions are influenced by online reviews.

And media of all sorts amplify the voice of governance experts who used to toil in obscurity. Just this week, the media reported Walmart's board was criticized by an institutional investor group for being too chummy with management. Last week, the media reported Chipotle's sharowners overwhelmingly voted against an executive compensation plan they considered overly generous.

None of these expressions of "voice" is binding. But when the mainstream media report them, they take on added urgency. Corporate America is not governed by the media, but it is highly influenced by it. When I attended AT&T board meetings, I was far more likely to hear "how will the Journal react to this," than "what will the SEC say."

And then this story on the front page of today's New York Times puts a human face on GM's ignition switch problems, turning the emotional level of the discussion way up. 

Law and finance professor Louis Lowenstein termed all this "the voice of the paparazzi," way back in 1999 before the Internet changed everything. Ironically, his son, Roger Lowenstein, is one of the most highly respected of those voices.

"The new voice in town is the raucous, incessant beat of the analysts and the media, and boards and CEOs now pay heed," he wrote. "With good numbers on which to base detailed, credible reports and stories, those oh so rude paparazzi have an impact that puts ministries of finance and cronyism to shame."

That new voice now has more power than Prof. Lowenstein could ever have imagined.

 

The week in corporate malfeasance

This has been a busy week in corporate malfeasance.

Credit Suisse pleaded guilty to criminal charges of aiding and abetting tax evasion in the U.S. and was slapped with a $2.6 billion fine.

General Motors announced its 30th recall bringing the total number of vehicles hauled back into dealerships to 15.5 million, a new record and the kind no company likes to register. 

Chipolte Grill suffered an ignominious vote of no confidence on executive compensation. Nearly three-quarters of shareowners voted nay, the largest percentage ever. 

Which company turns out to be the biggest loser depends on your point of reference, as well as on the actions each company takes from here on out.

If you're an investor who is only interested in the company stock price, you might consider Credit Suisse's travails much ado about nothing. Helping clients avoid taxes -- even when it amounts to tax evasion -- is not the kind of thing that makes customers hesitant to do business with a firm. It might have if Credit Suisse turned in the tax-evading clients, but the firm dummied up about that. And despite its guilty plea, the company retained its license to operate in the U.S., including as a Federal Reserve counterparty. Even that humungous fine looks like the cost of doing business. The company -- and investors -- essentially shrugged the whole thing off. 

General Motors isn't shrugging, but investors seem to be reserving judgment on the long-term customer impact of the recalls. They think if the company's new management can position these recalls as an effort to correct the mistakes of the past, GM may slide through. Americans love second chances. But that means the break with the Old GM has to be dramatic -- there has to be blood in the water. And customers will be looking for evidence that the company is dealing fairly with the families affected, no matter what the bankruptcy court says it's legal obligations are.  

Investors in Chipolte Grill, on the other hand, aren't going to let the issue of executive compensation go away. The shareowner vote is non-binding, but it's hard to see how the company's board can ignore it completely, despite the stock's stellar performance (which ironically contributed to the outsized pay packages to which executive comp is closely tied). In fact, the company has already signaled it got the message. Its board will probably make some changes along the lines of putting more restrictions on equity grants.

But there's an isssue lying in the weeds that could prove fatal -- inequality and declining economic mobility.  

Chipolte CEO compensation is 775 times the company's average worker. That's better than the 1,200 to 1 average in the fast-food industry as a whole. But it's substantially higher than the 200 to 1 average across all industry segments. 

CEO-to-worker salary ratios may have little to do with inequality or economic mobility. But they're fuel for the fire. And no company wants to get too close to that conflagration, much less tied to a post at its center. But that's exactly where Chipolte's core customers -- well educated, socially conscious foodies -- might be persuaded to put it. Chipolte has to get as creative on this issue as on the recipe for its sustainable, GMO-free organic burritos.

Of the three companies, unless some damaging new information surfaces, I'd worry most about Chiplote.

 

 

A model of resilience

Lessons from the saga of Jill Abramson's dismissal from the New York Times.

1. Perceived hypocrisy magnifies apparent misbehavior. Accusations that the New York Times was guilty of gender bias were particularly explosive given its status as the in-house paper of the liberal establishment. Rather than earning it the benefit of the doubt, the paper's liberal creds made it look even worse. Somewhat the same thing happened to AT&T during the infamous monkey cartoon scandal in the 1990s. 

2. High profile misbehavior -- real or imagined -- is particularly dangerous if it fits within a pre-existing narrative. Accusations that Abramson was not paid the same as her male predecessors for doing the same work illustrated the very real problem of gender bias in pay. Similarly, accusations that she was a tough manager caused many to ask if the same would have been said about a male executive editor. Gender bias is a real issue. Abramson's dismissal, justified or not, was the match that lit the bonfire.

3. The specific crowds out the generic. You'd think Abramson's dismissal would prompt a deep exploration of the gender bias that supposedly prompted it. But there has been little discussion of the societal causes of unequal compensation. And many have asked why women can't be as high-handed as men, rather than asking why high-handedness is acceptable in anyone of any gender.

4. Finally, in all of this, the better communicator has been Jill Abramson. She has said little about her dismissal publicly. Even her commencement address at Wake Forest University was a model of indirection. She put the focus where it belonged -- on the students and their parents -- but found a way to make her experience relevant to them. 

“I’m talking to anyone who’s been dumped, not gotten the job you really wanted, or received those horrible rejection letters from grad school,” she said. “You know the sting of losing or not getting something you really want. When that happens, show what you are made of.”  She not only encouraged them to show resilience, she modeled it.

 

Abramson in the ring

Jill Abramson reportedly will get into the ring to fight her firing through a commencement speech at Wake Forest University on Monday, May 19.Meanwhile, the New York Post is having a lot of fun poking its crosstown tabloid rival, including with an Instagram photo posted by Abramson's daughter.

And the brouhaha about her firing continued on the Sunday talk shows with all the wrong questions. There were two big issues: compensation and management style.

On compensation, Abramson's salary has been used as a symbol of the very real issue that the average woman makes significantly less than her male colleague doing the same work. But whether Abramson was one of those women is questionable.

When she started as editor, she made less than her predecessor. But he had been executive editor for eight years. When I was executive vice president of public relations at AT&T, I made significantly less than my predecessor (a woman) for more than two years. According to the data I've seen, Abramson caught up in far less time than I did.

The other big issue has to do with Abramson's "pushiness." I haven't heard anyone at the Times call her "pushy." The publisher did accuse her of “arbitrary decision-making, a failure to consult and bring colleagues with her, inadequate communication and the public mistreatment of colleagues.”

On the Sunday talk shows I heard today, this was reduced to a questions: why can't a woman be as high-handed and abusive as a man?  Wrong question.

I never worked for a paper remotely like the New York Times. But I have surervised creative people and the biggest lesson I learned along the way (belatedly to be sure) is that they do react well to high-handedness.

On the contrary, they like to be included in decisions that affect them. They prefer a collaborative environment to a culture of command and control. And they expect to be respected as professionals with equal dignity if not rank.

Apparently, the Times terminated Abramson for failing -- after some prodding -- to measure up to that standard. Because she didn't, she apparently lost the support of the people reporting to her. Under those circumstances, her boss was well within his rights to remove her. 

 

 

The PR of managing the plank they walk

Jill Abramson has been relieved of her responsibilities as executive editor of the New York Times after less than three years on the job.

I don't know Ms. Abramson. Still, I've been an admirer, and I thought many of the changes she brought to the New York Times were inspired.

If I were still working with Times' journalists on a daily basis, I might have been aware of rumored newsroom tensions. But as it was, I was surprised as anyone. I was especially surprised by the relative transparency with which her departure was announced. 

I say "relative transparency" because I'm comparing it to the usual practice in corporate America.

When I ran PR for AT&T, I handled the departures of a number of senior executives. In all but one case, they were removed for cause, either incompetence, insubordination, or the failure to produce the results they promised.There were also a couple of cases of misconduct. 

But in every case, we said they left "to pursue other opportunities," "to spend more time with their families," or "because they accomplished what they set out to do." 

I couldn't understand why we weren't more candid about the reasons behind the executive's departure. The lawyers explained they were afraid the company would be sued for disparagement. Other executives said it would embarrass the company to admit it had promoted someone so (pick one) incompetent, insubordinate, or venal. And, I suspect, the people who actually did the firing just wanted to turn the page.

But I always considered it a missed opportunity. If people draw lessons from the people you promote, won't they draw even more powerful lessons from the people you fire? I saw it as a way to manifest the "Common Code" set of values that hung in every company conference room.

The Times publisher, Arthur Sulzberger, Jr., seems to have come to the same conclusion. And since his family owns the company, he can actually act on it. Ms. Abramson is a great journalist, but removing her was necessary to "improve management of the newsroom," he said.

By the standards of corporate America, that's as transparent as it gets. 

 

Preview of coming attractions

The image above is our future. It portrays the U.S. population in five-year age increments over the coming decades.

We go from a lumpy pyramid with lots of young people at the base and a few old codgers at the peak (as in 1950) to more of a rectangle with pretty even age distributions, except for a really large group of octogenarians-plus at the top (as in 2060).

I won't be around to see it, but what happens between now and then has implications for marketing, public relations, and politics that are worth considering.

• Daniel Moynihan attributed the turmoil of the 1960s to the large cohort of adolescents and 20 year-olds produced by the Baby Boom in that period. How will the huge cohort of Boomers entering their 50s over the next few years change our culture and politics?
• By 2060, there will be almost as many people over 85 as younger than 5. Will that create greater division or less? Our experience so far is that young and old don't purchase, vote, or think alike. Will that continue? 
• At the same time the population turns gray, it's also becoming multi-colored. By 2042, we will be a minority-majority population. That's already true in four states and in our 18 larhest metro areas. Do our communications reflect that yet?  

 For more questions (and a few answers), I recommend the Pew Research Center's latest report, Next America.

 

 

Media relations ethics

The New York Times' Public Editor doesn't have an explicit mandate to comment on ethics, except in the broadest sense.

But sometimes she does so by implication. And often the ethics in question are not those of the papers' reporters, but of the PR people they deal with.

Take today's column which questions the ethics of a source setting the ground rules under which it will give reporters access to news.

The particular news in question was not exactly earth-shaking or even market-moving: it concerned the federal Food and Drug Administration’s new guidelines for e-cigarettes. But the F.D.A. would only give reporters an advance outline of the new rules if they agreed not talk about them with industry or public health groups until they were released a day later.

It's not hard to understand the various parties' motivations here. The reporters wanted a day to prepare their initial news story so they could put it on their paper's web site as soon as the FDA issued their news release.

The FDA didn't want the initial news stories to include any potential criticism from those industry or public health groups.

Thus, the ground rules under which it gave some reporters early access to the guidelines. Reporters were happy; the FDA was happy. The only people not well served by this deal were the public they were both supposedly serving.

I won't speak to the ethics of journalists accepting such ground rules. People like the Times' Public Editor are in a far better position to do that. But I think PR people should re-consider the ethics of this practice.

It's one thing to hold a background briefing or to issue a news release on embargo. I did that often enough myself in my days at AT&T when the news was complicated and required careful study.

But it's another matter entirely to try to manipulate the very process by which a journalist covers and reports the news. The only possible justification for that is that a PR person's duty to a client surpasses any duty to the public.

The ethics codes of the various PR professional associations dance around this issue. It's time to measure our policies and practices against a clearer standard. Any PR person's first duty is to the public if only because that's our clients' first duty as well.

Any ground rule that ignores that fact slips from PR into propaganda.

 

 

Playing now: 1990s rerun

According to the Wall Street Journal, AT&T is thinking about buying DirecTV.

I''ve seen this movie before and it doesn't have a happy ending.

Back in the 1990s, AT&T actually bought a share of DirecTV. The idea back then, as now apparently, was to gain entry into the market for television entertainment.

It didn't work for a lot of reasons, including poor management execution. AT&T didn't know anything about selling satellite TV service and eventually sold back its share of the company.

I have a lot of respect for AT&T's current management, but buying DirecTV to get into the delivery of TV service flies in the face of market trends.

Sure it would make AT&T second only to a combined Comcast and Time Warner Cable in pay-TV.  But TV programming is moving away from linear cable and satellite delivery towards on-demand delivery over broadband Internet pipes.

That, in fact, is why Comcast is trying to buy Time Warner Cable. Not to gain access to Time Warner's cable TV customers, but to get control of its broadband Internet capabilities, which are much more valuable.

Should the merger go through, Comcast would control 30% of the pay TV market. That's a commanding position, but it pales in comparison to the 40% of the broadband market it would control. And that is where TV programming is headed.

Satellites simply aren't good vehicles for delivering interactive broadband services.

The only way this rumored deal can make sense is as a ploy to somehow put DirecTV's satellite competitor Dish TV into play.  Unlike DirecTV, Dish has a lot of wireless spectrum AT&T covets.

Otherwise, this is a deal that technology -- and customer demand -- has left behind.