Dick Martin Blogs

How to wreck a reputation

The Federal Communications Commission said it plans to fine AT&T $100 million for capping the speed on data plans it advertised as "unlimited." 

I have no insight into how AT&T is managed these days, But when I ran public relations for the company, we had constant battles with line management about the announcement of price increases and other customer-affecting moves.

We in public relations wanted to issue a news release explaining any increase; line management thought it was sufficient to mention it in mice-type legal ads. 

Luckily, for most of my tenure at AT&T, there was another player in this mix -- the company's CEO, who could see further than the next quarter's earnings report.  Unfortunately, times -- and CEOs -- change. One incident late in my career points this up.

AT&T's most profitable business -- consumer long distance service -- was in steep decline, thanks to increases in wireless usage, the dot.com bust, and a major competitor cooking its books to price below cost. The guys running the business were under incredible pressure.

So I was surprised when they reported a profit spike in one of their monthly reports halfway through the year, especially since it seemed to stem from a significant increase in operator-assisted calls.  I asked what accounted for it and was told they had started charging an extra $10 if customers asked an operator to complete a call. 

I said I was amazed that, in this day and age, so many people needed an operator to help to make a long distance call.  Well, sometimes people's calls don't go through because they misdial to a non-existent number, I was told.  If they call the operator for help, she connects the call but adds $9.99 to whatever the final bill is. (In those days, nearly all operators were women.)

“But surely she tells the customer there’s an extra fee involved,” I said.  The guy at the overhead projector grew Little Orphan Annie eyes.  “Well, yes,” he said.  “But she doesn’t say how much unless asked.” 

Our new CEO -- brought in from outside the industry -- sat quietly through the ensuing argument until someone mentioned that the revenue from the extra charge was baked into the unit’s profit forecast.  “In that case,” he said, “change the policy on January 1.  Next subject.”  

Fifteen years and three CEOs later, the subject is data throttling, and the object under discussion is a $100 million fine.  That's a lot of money, even for AT&T. But even if the company successfully challenges the fine, it will pale in comparison to the billions it saved by slowing down data usage on its "unlimited" plans. So in dollars and cents terms, this is probably a no-brainer for today's modern manager.

But in the long-run, it could be a disaster for the company's reputation. 

 

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AT&T hit with $100M fine for its 'unlimited' data plans

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.

 

 

Madison and AT&T's Blind Spot

In today's New York Times' "Sunday Review,"Jeffrey Rosen shines light into a gap in the Bill of Rights on issues of privacy.

Taking a cue from recent court decisions citing James Madison on the issue, he points out that the author of the Federalist Papers had a blind spot when it came to assessing threats to liberty. He was far more concerned about government abuses than anything private actors could do.

Considering that, in those days, the printing press hadn't changed very much in the three centuries since Gutenberg invented it, that's not too surprising. But today's situation is different in kind not just quality.

"Now that Google and AT&T can track us more closely than any N.S.A. agent," Rosen writes, "it appears that the Madisonian Constitution may be inadequate to defend our privacy and dignity in the 21st century." Indeed, based on my own experience at AT&T in the very earliest days of the Internet, he's right. 

Back then, the company hadn't yet anticipated the Internet's full impact on itself, not to mention society. But the executives responsible for gaining a beachhead on the shores of the world wide web immediately understood the value of all the customer information that would be flowing through our servers, e.g., what web sites they visited, what seaches they conducted, what products they bought, etc.

However they had a problem -- the privacy policies the company had developed for the telephone business put all of that data off limits for any purpose other than billing and service. Under a strict reading, it couldn't be used to target advertising to customers. And under any reading, it couldn't be sold to other companies.

A committee of senior executives was convened to address the issue. I recommended that we maintain the same strict privacy standards unless customers to "opt in" to their use for other purposes.

It wasn't a popular position and the company eventually decided customers would have to "opt out" if they wanted to limit the use of the data we accumulated about their Internet usage. 

The AT&T I worked for has since been absorbed by another company that assumed its name and, I fear, Madison's blind spot.  

 

 

A new Corporate Garbo

AT&T apparently has a new slogan. It doesn't appear at the end of its ads, but it's the gist of a recent letter my former AT&T colleague Jim Cicconi sent to Senator Dick Durbin.

To wit, "I want to be left alone." 

Durbin had asked AT&T if it agreed with “stand your ground” legislation a company-funded organization was recommending as a national model.

The organization in question is the  American Legislative Exchange Council (ALEC). 

ALEC is a nominally non-partisan organization that produces "model legislation" to promote "free markets" and "limited government" at the state level. About 200 of it's "model policies" become law every year. It is funded largely by companies that benefit from said "free markets" and limited "government," i.e., regulation.

Mr. Cicconi is the man with the company checkbook for ALEC's purposes. He also commands an army of state and federal lobbyists. When I worked with him, Cicconi had a war chest in excess of $60 million. It's probably more now, and he knows how to spend it to get what he wants. 

One way he spends it is on organizations like ALEC that give him a voice in the drafting of legislation.  One thing he wants is to be left alone as he goes about this task.

That was the point of the letter he sent to Senator Durbin. Cicconi said he considered the senator's question an attack on AT&T's rights to free speech. "Any response to your request," he wrote, "will be used by those interests whose purpose is to pressure corporations to de-fund organizations and political speech with which they disagree."

In other words, Cicconi suggested the real issue at stake is defending a company's right to free speech, not changes to self-defense laws that give people immunity for using deadly force.  

The Wall Street Journal, which ran extensive quotes from Cicconi's letter and praised him for refusing to be "blackmailed" or "bullied," wholeheartedly agreed.

As it happens, when the Trayvon Martin case stirred up public concern about stand your ground laws, AT&T quietly told ALEC to cool its jets or, as the Journal put it, to shut down "noneconomic advocacy" that "detracts from the group's core mission."

Frankly, that core mission deserves a long, hard look, especially since the Wall Street Journal and companies like AT&T seem so sensitive about it. 

Do we want anonymous corporations paying for "model laws" in such areas as civil justice, commerce, insurance, communications technology, education, energy, the environment, agriculture, health, human aervices, international relations and tax and fiscal policy?  

That's what ALEC -- which started life as the Conservative Caucus of State Legislators -- considers its core mission. According to Common Cause, 98% of ALEC's funding comes from the very corporations most affected by laws in those areas. And, according to an ALEC executive quoted in an NPR report, company lobbyists and lawyers work side by side with state legislators in crafting the "model laws." 

Companies certainly have the right to fund such activity. According to the Supreme Court, it's a matter of free speech.

And  Mr. Ciconni is probably right -- revealing AT&T's funding of such organizations might subject it to criticism or at least uncomfortable questions. But isn't that the price of free speech? 

The Wall Street Journal won't print op eds without identifying the economic entanglements of the people who write them. Is it too much to ask that state legislatures do the same for the so-called "model legislation" they're considering?

 

Purpose

"Profit without purpose is a recipe for disaster."

Those words come from Elizabeth Murdoch, daughter of the media baron and chair of News Corp.'s U.K. television production company, Shine. 

"It is increasingly apparent that the absence of purpose—or of a moral language—within government, media, or business, could become one of the most dangerous…goals for capitalism and for freedom," she said in delivering the annual James MacTaggart Memorial Lecture at the Edinburgh Television Festival.

The Murdochs know a thing or two about disasters. And whether or not she intended her remarks as a rebuke -- or an explanation -- for the company's phone hacking scandal, they are spot on.

My own company, AT&T, lost its way when it forgot its mission and focused on its stock price to the essential exclusion of almost everything else. The same can be said of countless other companies that have courted minor or existential disasters.

A company's success depends on a clear understanding of its purpose -- why it's in business beyond making money. 

Maybe the wrong Murdoch is in charge over at News Corp.

 

 

 

The deal's the thing

The lead story in the business section of the Sunday New York Times provides a little insight into the demise of the old, "new" AT&T, i.e., the 1996 - 2003 version I worked for.

The story concerns the demise of Dragon Systems, a voice technology company that merged with another high-tech flier in 1999 only to see its acquirer almost immediately file for bankruptcy. The owners of Dragon Systems -- who had been paid $580 million in then worthless stock -- lost everything.

Their investment bank for the deal was Goldman Sachs, which also happened to be AT&T's adviser on more than $100 billion of deals at around the same time. (Dragon asserts that their bankers were supervised by Gene Sykes, the same banker who was lead on AT&T's mergers and acquisitions, but Sykes denies it.)

In any case, the Dragon owners are suing Goldman for providing "unsupervised, inexperienced, incompetent and lazy investment bankers." 

Goldman's defense is equally succinct. “We gave them great advice. We guided them to a completed transaction.”

Apparently, getting the deal done is the goal. Never mind if it doesn't make any sense. 

What is PR again?

You know you have an identity crisis when neither your mother nor your trade association can describe what you do with any specificity.

I retired as executive vice president of public relations for AT&T in 2003. For the 32 years I was there, my dear mother knew I worked for “the phone company” but she could never seem to grasp just what I did, beyond a vague sense that I wasn’t connecting calls or installing phones.

More recently, the Public Relations Society of America (of which I have never been a member) launched a contest to “modernize” the definition of public relations. I’m not sure modernization – much less definition – by popular vote is wise, but I thought they would have to do better than the New York Times’ media columnist, David Carr, who characterized PR as so much “slop.”

The consensus of the 1,447 people who voted was that “Public relations is a strategic communication process that builds mutually beneficial relationships between organizations and their publics.”  That's a definition in search of a dictionary -- what is a "strategic communication process," and who are these "publics" (plural)? 

Still, it’s a marginal improvement over the previous definition that “Public relations helps an organization and its publics adapt mutually to each other.” Adapt mutually?

I personally prefer the definition my old boss, Marilyn Laurie, came up with when she first got the job as AT&T's head of PR: "The purpose of PR,” she told us, “is to bring the policies and practices of an institution into harmony with the needs and expectations of the public."

There's a faint resonance of her definition in the PRSA's obeisance to "mutuality." But I think her take on PR's purpose is more straightforward and puts the emphasis in the right place -- on affecting what an institution does, rather than on what it says.

Of course, since that is seldom what PR people do anymore, it probably isn't a realistic goal for the members of the PRSA.

 

Guns and venti shots

Starbucks is being prodded to take a stand on state laws allowing people to carry unconcealed guns.  

Opponents say the company's coffee houses should ban gun-toting customers, just as they ban those who aren't wearing shirts or shoes.

Proponents of the law say the company should keep its caffein-stained fingers off the second amendment. 

Both sides love the debate because it keeps the issue in the news. 

My own opinion was forged when AT&T got caught in the crossfire between the Religious Right and Planned Parenthood over abortion. I think Starbucks should avoid this issue like watery Nescafe. The company should say nothing beyond "our stores follow local laws." Otherwise, it risks being sucked into a debate it doesn't want to have. 

For example, the statement posted on its web site suggests that it hesitates to put its baristas in the position of asking gun-toting customers to take their sidearms elsewhere.  That suggests that there's some danger involved, which is exactly the position opponents of the laws have taken. Without meaning to, Starbucks appears to be taking sides.

When I was studying philosophy, I asked the metaphysics professor a question.  He stopped wandering around in front of the blackboard, looked me in the eye and said something like, "In 30 years of teaching, I've never heard such a provocative question."  So naturally, I elaborated.  "Oh, that's what you mean," he said.  "No that's stupid."

Sometimes less is more.

Murphy was an optimist

 At some point, every brand discovers that the Murphy of "Murphy's Law" was a hopeless optimist. Just ask Tiger Woods or Akio Toyoda.  

How a brand deals with that law of the universe separates the amateurs from the professionals. No one knew that better than my friend and former boss, Marilyn Laurie, pictured at left when she received the Alexander Hamilton Medal from the Institute for Public Relations in 2006.

No one handled more crises than she in the decade she led AT&T public relations. And I probably learned more from her than anyone else I ever worked with or for. 

My first book, Tough Calls, reflected a lot of that (however haltingly). Unfortunately, I had to cut one of the chapters for space reasons and, on re-reading it recently, I realized that it has even more relevance today. 

Here's the quick takeaway:    

The first rule of crisis management is to avoid bringing one down on yourself by making sure someone with a broad stakeholder perspective participates in the planning of any significant initiative. 

If that ounce of prevention isn't enough, follow the second rule: accept responsibility.  That means tell the truth, tell it quickly, fix the problem, and demonstrate your sincerity by giving something back.

"Giving something back" was one of Marilyn's contributions to the accumulated wisdom of crisis management.  Messrs. Woods and Toyoda would be wise to consider what it means for them.

Download the Tough Calls "missing chapter" for all the details.

 

      

First Anniversary

This week's New Yorker celebrates President Obama's first anniversary in office with a Barry Britt cover that captures the situation nicely. 

Whether measured by the recent senate election or by the president's declining favorability ratings, it seems clear that Obama can no longer walk on water.

But "favorability" ratings can be dangerous when read in isolation, like the "net promoter" score that so many marketers use.

What really matters are the reasons behind the score.  For example, I tracked employee attitudes toward AT&T during the tumultuous period of 1995 to 2000. You may recall that this period included the three-way breakup of the company, reports of massive layoffs, resignation of a CEO-apparent, hiring and firing of a CEO unapparent, $100 billion acquisitions,and ultimate breakup of the company.  

 But through it all, when we asked employees whether or not they thought the company was going in the right direction (yellow line), the strongest correlation we could find was with the company's stock price (red line), as portrayed in the chart to the right. 

When we dug deeper, we discovered that was due to two things: 1. the actual stock price; we had given employees stock options and many had substantial shareholdings, and 2. what the media was saying about the company's stock; as its price went down, the media grew increasingly negative, putting additional pressure on the stock and raising even more questions in employees' minds.  What we should have done, of course, was to define progress on our strategy in terms other than the stock price from the very beginning.  

If we had started by acknowledging the scale of the transformation necessary for the company to succeed, made clear that it would take at least five years and billions in investment, and cut the dividend immediately rather than four years down the road, the stock price would have taken a hit.  But it probably wouldn't have gone down as much as it ultimately did.  And we could have given employees and share owners a set of realistic milestones to follow.

I was reminded of all this when I read John Judis in the New Republic.  He prepared the chart to the left that shows how closely the decline in Obama's approval rating (red line) tracks with the national unemployment rate (blue line).  

But he also notes that, "when Washington began debating the health care plan in earnest last fall, the president's level of disapproval began to exceed the rise in the unemployment rate."

Judis doesn't think that was a coincidence. "Obama invited a voter backlash," he writes, "by letting the burden of reducing health care costs appear to fall on senior citizens and middle class workers." I think he's right.

By setting broad policy goals but leaving the drafting of legislation to Congress, Obama allowed others to frame the argument for healthcare reform.  As a result, it became a debate over "death panels," "abortion rights," "Cadillac health insurance plans," and "a government takeover of healthcare."  All while the middle class was worrying about something else entirely -- jobs.

Obama needs to regain control of the discussion, focus it on the economy in a way that resonates with the middle class, and reflects real bipartisanship.

AT&T: the globe turns slowly

I don't normally post personal grievances, but I'm making a one-time exception for a recent experience that demonstrates why AT&T (my former employer) will probably not make it in the new world. 

(Disclosure: I still have options in the company -- some with a strike price of $105 -- but I sold all my stock some time ago.)

No, I'm not posting about AT&T's notorious problems with iPhone coverage.  More alarmingly, I'm talking about its own internal billing systems, which by my count it has been working on for three decades. 

Here's the story.  One of my daughters has insurance coverage through COBRA, which means I make a hefty $500+ payment every month to get her the same coverage I get as a retired employee. (She aged out at 23 even though she's still a full-time student, but that's another story.) 

This morning she tried to fill a prescription for antibiotics at the local CVS pharmacy and was told that her coverage had "expired." That occasioned a call to Dad and several subsequent calls to CVS and the AT&T benefit department. It seems that AT&T handles COBRA coverage on a month-to-month basis.  I get that. 

But here's where its billing systems come into play.  If I pay the bill on the first of the month, it takes AT&T seven to ten days after they get my check to notify CVS that the coverage is good for another month.  That means that my daughter can't get a prescription filled (under her insurance) until the second or third week of every month. 

That seems incredible for a company that thinks of itself as a leader in data-networking. How hard can it be tie these systems together? Fandango seems to have no problem knitting theater box offices to the web.  Domino's Pizza will let you design and order a pie over the Internet. But AT&T can't link its accounts receivable with one of its biggest suppliers in real time? 

Apparently, it will be easier for my daughter to make sure she doesn't get sick at the beginning of the month.

Macho PR

Every now and then, senior executives let their testosterone get the better of them. (Both men and women secrete testosterone by the way. Women are actually even more sensitive to it than men.)  

Anyway, when the testosterone flows, people do dumb things. Exhibit A is AT&T's suit against Verizon over the latter's claim that it has broader high-speed cellular coverage.  See the map to the left appears in the company's commercials, which one observer termed "a bitch slap" at AT&T. 

As a senior executive at the old, "new AT&T," I have been in many meetings where one business unit head or another got so exasperated with a competitor's actions (or advertising claims) that he or she pounded the table, fixed the General Counsel with an icy stare and shouted "let's sue the bastards!"  

In almost every case, the General Counsel let the senior team vent and then quietly did nothing.  In fact, at the height of the long distance wars, we set up a private arbitration process supervised by the Federal Trade Commission to resolve complaints about our respective advertising campaigns without going to court.  

One big lesson we learned in the telecom wars is that, when competitors throw mud at each other, customers give up on both of them.  We also learned that it seldom pays to draw attention to a competitor's claims (as AT&T's suit managed to do). They might as well have made million dollar deposits in Verizon's ad budget. 

Now Verizon has added a new lesson in its response to AT&T's suit -- match your competitor's phony outrage with a big dose of sarcasm and ridicule.  

Verizon's 53-page response to AT&T's suit begins "AT&T did not file this lawsuit because Verizon's 'There's A Map For That' advertisements are untrue; AT&T sued because Verizon's ads are true and the truth hurts." 

The rest of the filing is just as brutal and written in eminently quotable language. The jury may still be out on the comparable breadth of the two companies' networks, but Verizon is the clear winner in the PR battle. 

As Saul Alinsky noted in Rules for Radicals, more than thirty years ago, ridicule is one of the most potent weapons in responding to an attack. It's almost impossible to contradict and it infuriates your opponent, which gets that testosterone flowing all over again.  

Murphy Was An Optimist

At some point every PR manager discovers that Murphy's law has a corollary -- Murphy, it seems, was an optimist. The first rule of crisis management is to avoid crises in the first place. And the best way to do that is to make sure someone with a broad stakeholder perspective participates in the planning of any significant corporate initiative. If that ounce of prevention doesn’t work, follow the second rule: accept responsibility, which means tell the truth, tell it quickly, fix the problem and give something back.  Those are lessons I learned at AT&T. For a fuller story, here's a chapter that I had to cut from my book about my experiences at AT&T, Tough Calls.