When RUMORS Thrive Your Deal’s in Trouble: Damage control techniques to seize the communications high ground

Despite the tremendous financial and competitive upside a merger can offer, it often takes place amid a planned or anticipated crisis. The transaction environment is fraught with enough tension and even chaos to truly show a company at its best or worst. If the supercharged climate is not properly defused, it starts the deal on a sour note, which sometimes is never corrected, consigning it to the extensive list – up to two-thirds according to experts – of deals that destroy or don’t add value to the combined company. Creating the right environment requires effective communications to fight the rumor mills that often begin grinding in the wake of a deal announcement and prevent damage to the partner firms’ reputations. Many victims of successful deals, in fact, cite poor communications as a factor in the failure. This article examines the helix of rumor mills that normally accompanies deals and analyzes their impact on corporate reputation and, ultimately, merger outcome. It also provides a proven communications blueprint for mitigating rumor mills, reinforcing reputation, and activating a damage control protocol during the merger process. We focus on events surrounding the announcement of the deal and the period before closing, the time frame that sets the tone for the transaction. Indeed, well-executed communications in the earliest stages create a positive framework and generate goodwill to be leveraged throughout the process. Conversely, failure to create this communications infrastructure and control messaging and positioning from the outset can lead to a never-ending game of “catch-up,” in which the tone of the news and the perception of the transaction are continually set by others. Gossip to Gospel – Rumor Mills During the Merger Process To “skip the dip” in share price, productivity and customer retention during a merger transaction requires maintaining the trust and commitment of a company’s complete universe of stakeholders – employees, vendors, customers, partners, and communities. According to McKinsey & Co., managing the “human side of change” is the real key to maximizing the value of the deal. The frequent failure to do so may explain why 50% of all deals ultimately destroy shareholder wealth. Yet acknowledging and addressing the people factor, specifically the driving need for consistent, timely information among all stakeholders, is often not a top priority. The bulk of resources is typically directed toward achieving operational synergies and efficiencies between the merged organizations. It is in this climate of silence and misinformation that the traditional archenemy of merger success – the multi-headed rumor mill beast – thrives and gains momentum. Employees, the media, the industry, and the general public function as gossip tributaries either running in multiple directions or converging into a river of speculation whose possible overflow can wreak havoc on both a corporate reputation and merger outcome. To fully understand how rumor mills initiate, snowball, and eventually threaten corporate reputation, let’s consider the following hypothetical case. Joe, an employee of Smallercorp, wakes up every morning and turns on the news. One morning, he hears that Smallercorp is planning to merge with Megacorp. Before Joe finishes his coffee, he has listened to every talking head on Wall Street speculate about job reductions, culture shock, and management changes at Smallercorp. The only opinion glaringly absent from the panoply of quotemeisters belongs to the CEO of Smallercorp. Joe arrives at work and immediately spends the first hour of his day anxiously discussing the shocking news with co-workers. With each retelling, the facts change and the hysteria grows, while across scores of desks, e-mails and calls from clients and customers go unanswered. Joe returns to his desk only to spend the next hour of prime work time fielding phone calls from friends, family, and neighbors, many of whom also happen to be customers of and investors in Smallercorp. He reconvenes with colleagues at lunch for more “data exchange,” likely gleaned from various news sources, and spends the remainder of the afternoon updating his resume and contacting headhunters. Multiply that by 2,000, the number of Smallercorp employees, and factor in their individual extended network of influence to understand the range of the news and reactions. Meanwhile, in a TV studio across town, the CEO of a key competitor is throwing around words like antitrust and proclaiming the merger a death knell to competitive pricing, while his assorted underlings reiterate the same messages to their contacts across the industry. The Yahoo! Finance board and various trade-related online communities light up like Times Square on New Year’s Eve with fervent discussion of the transaction. Fast-forward a week. Though Joe and his colleagues have received a brief e-mail informing them of the merger, its message is now irrelevant because everyone but the company’s management already had the upper hand in shaping the perceptions of the merger among Smallercorp employees, customers, investors, and the media. Employees are likely too focused on finding another job or dealing with stress to care. Productivity ebbs, performance drops, and service slumps. Customers are complaining and researching possible alternatives vendors and the company’s share value is eroding. The financial and trade analyst communities are expressing doubts about the viability of the merger while local politicians at Smallercorp’s bases of operation are convening meetings to prepare the potential fallout of facility closings on their constituents. The building blocks of the corporate reputation that Smallercorp worked so diligently to assemble are starting to shift and tremble while the probability that the merger will provide a respectable return on investment diminishes. While this situation is hypothetical, it is very realistic. In deal after deal, experience has proven that the internal constituency is frequently the primary and arguably the most dangerous source of “credible misinformation” and potential impediment to merger success. The extreme vulnerability and anxiety that employees naturally feel during consolidations coupled with near limitless access to and influence over a company’s key stakeholder groups – the organization’s face to the world – comprise a recipe for disaster. However, the employee is just one possible hurdle on the road to merger success. As business transactions and transgressions increasingly have become the focus of nightly broadcasts and newspaper headlines, the media, in its fervent zeal to get the scoop, will seek out any seemingly credible source. With the media as a conduit, the merger debate enters the public arena where speculation abounds regarding how the deal may impact jobs, the economy, the companies involved, and the provision of services and products. Factor in threatened competitors, concerned customers, antsy investors, and the armchair analysts among the public at large and it becomes increasingly clearer why the atmosphere becomes toxic enough to damage corporate reputations and get the merger off to a rocky start that the partners may not be able to reverse. If the companies at the crux of the merger pre-empt conjecture among key audiences with accurate, timely messages, gossip will be replaced by gospel. This will help the surviving company safeguard its greatest yet most fragile intangible asset – its reputation. Interplay Between Reputation and Rumor Mills Defining Corporate Reputation Corporate reputation derives from the sum of perceptions that a company’s stakeholders hold in regard to its performance and activities in three core areas: * Vision and values – A compilation of strategy, integrity, innovation, and consistency * Culture, character, and commodities – The totality of products and services, workplace, financials, management team, and partners * Community and thought leadership – A combination of philanthropy, social responsibility, and industry/category Continuous proven leadership in these arenas encourages trust, which in turn becomes a driver for positive word of mouth and goodwill for the company – the true currency of corporate reputation. In recent years, many companies have accepted corporate reputation as critical to achieving business goals and staying competitive. The proliferation of metrics that benchmark and monitor corporate reputation further underscore its importance in the marketplace. Numerous studies have shown that reputation plays a significant role in driving share value, influencing consumer decisions, commanding premium pricing, and attracting and retaining talent. Conversely, companies as large and prominent as Arthur Andersen, accused of allowing suspect accounting practices at Enron Corp., and Bridgestone Firestone Inc., producer of allegedly defective tires, learned hard lessons about how quickly a damaged reputation can harm employee and customer loyalty and threaten a company’s financial well-being. In the tumultuous environment following the Enron, WorldCom Inc., Tyco International Ltd., and other scandals, public confidence in business is low while scrutiny is high. There are new standards for accountability that preclude companies from simply riding out a crisis on the virtue of a beloved, ubiquitous brand, a charismatic CEO, or a history of strong financial performance. Arguably, however, the most valuable benefit of a solid corporate reputation emerges in the context of a crisis; the ability to shelter senior management and guard against a storm of scrutiny. As a merger can very easily transform into a crisis, corporate reputation becomes a vital and necessary tool to mitigate the potential short- and long-term implications for sales, operations, executive reputations, brand perception, and share price. Reputation and the Rumor Mill Rumor mills are anathema to corporate reputation for one simple reason: they threaten trust, the glue that binds together a delicate web of stakeholder perceptions. Once the trust among its key constituencies begins to unravel, a company is no longer insulated from the domino effect of damage that can ensue in a crisis, including: * Diminished productivity due to loss of good employees and low morale and dampened enthusiasm among those that remain; * Widespread negative word of mouth stemming from public criticism of the company from all camps; * Reduced focus on customer service that leads to customer desertion; * Erosion of brand loyalty and increased difficulty in selling products; and * Reduced value for shareholders Mitigating Rumor Mills and Preserving Reputations While a good reputation is the first line of defense in a crisis, it should not be thought of as static or indestructible. Rather, to function effectively and, more importantly, remain intact during challenging times, corporate reputation must be proactively and consistently reinforced through both words and deeds. With respect to M&A, there is a clear path to controlling dangerous rumor mills, safeguarding reputation, and increasing the chances for a positive transaction outcome. The first step is making communications a mission-critical part of the merger planning and implementation process. An effective communications strategy means involving communications professionals in the earliest stages of decisionmaking and allotting the resources necessary to execute a comprehensive campaign. Too often, qualified communicators are enlisted only after a backlash is in full force and leaks and rumor mills are rampant. While the corporate lawyer or financial adviser are focused on legal and regulatory disclosure requirements, they are increasingly turning to outside communications experts who understand the dynamics of key stakeholders and what is needed to effectively position the transaction and the combined company. Experienced M&A communication specialists know the identities of the stakeholder groups and how to reach them with clear messages on how the merger will work for them. A caveat for truly adding value, however, is that communications pros have full buy-in from senior executives, including a commitment to accessibility and transparency. The second key move is tailoring a multi-platform external communication strategy with a defined set of goals and messages that clearly emphasizes the business proposition behind the transaction. Ideally, communications positioning for the merger should dovetail with business objectives, underscoring the need for early and ongoing interface between a company’s financial, legal, and communications advisers. While there are several key elements to a successful merger communications program, one of the most important aspects is a detailed media plan. As the universal channel for all stakeholder groups, the media could be a merger’s best friend or worst enemy – a force for equalizing the message to all constituents or alternatively heaping fuel on the fire of negative speculation. Understanding how the media function is vital to crafting a strategy. Like many entities, the media operate as a pack. A few “alpha” reporters or outlets (CNBC, CNN, The Wall Street Journal, the New York Times) set the direction for content and tone of news coverage across the country. In a merger scenario, where senior management’s time may be limited, it is most effective to focus on a “lead steer” in the mainstream media as well as the trade organs that cover the company’s specific business sector, ensure that they hear the news first, and provide them with ample access to executives throughout the announcement phase. Another important consideration is determining which media – e.g., newspapers, TV, e-mails, newsletters, Internet or intranets – are most useful in reaching various audiences and accounting for the nuances of the company’s particular industry. For example, in the banking sector, the key issue for external audiences is impact on services and relationships, while in health care, important questions revolve around costs, physician networks, and breadth of coverage. Identifying and addressing core issues directly and quickly with clients, investors, vendors, and community officials should assuage concerns and make stakeholders less susceptible to external influences, incorrect punditry, and competitive nay-saying. Third, because of the importance of employees, there must be an equally aggressive emphasis on internal communications. “High-frequency” communications are the key to successfully disarming an active employee rumor mill. This includes sharing information as soon as possible regarding what the merger means and, perhaps more importantly, what it does not mean, while reinforcing messages through numerous channels on an ongoing basis. In addition to managing negative consequences, internal communications serves to rally vital employee support for the new entity and to ensure consistency in voice and vision among all audiences. Even the most strategic and substantive communications program will not resonate or achieve its desired results if employees and management are not preaching from the same pulpit. In the notoriously poorly orchestrated merger of Chrysler Corp. and Daimler-Benz AG in 1998, the media reported high-level defections not long after the deal announcement as employees were asked simply to remain confident in the management and the company without much substantive information to back up the “request.” Open lines of sincere, forthright communication directly from the top engender trust and serve as the antidote to rumor mills and the essence of corporate reputation. Moreover, a clearly outlined vision of benefits associated with the merger fosters a sense of organizational unity and helps employees vest in the future of the new company. The concept of “teambuilding” within a merger context is particularly crucial, because the media can promote a sense of divisiveness by harping on the often sizeable individual compensation packages of top executives while offering sometimes ill-advised assumptions about company-wide job security. Finally, the only way to truly assess the efficacy of and make necessary adjustments to a communications program is through benchmarking and measurement. A company should regularly monitor media coverage, investor attitudes, customer opinions, and employee feedback and fine-tune the messages whenever it appears the desired messages are not going through. Damage Control And the Road To Recovery Since the best laid plans can go astray, even the most thorough communications program may not be able to stave off backlash from regulators, industry outcry, and employee dissatisfaction. Therefore, a merger strategy must include reactive contingency plans and damage control protocols to address extreme skepticism and scrutiny and protect executive and brand reputations. The following principles of issues management are designed to restore trust and minimize damage to reputation: Leveraging the media – In an era when news travels fast, the media represent a powerful force to get company positioning and messaging across quickly. There are several possible ways to use the media, including news conferences, one-on-one interviews, op-ed articles, and press statements. The most effective setting is one that allows a CEO to demonstrate sincerity and face tough questions. As the primary goal of damage control strategies is rebuilding trust and credibility among internal and external stakeholders, the willingness to communicate openly and honestly is a vital first step. While certain levels of disclosure may be challenging for a number of reasons, such as regulatory restraint, silence in these situations is definitely not golden. In the absence of communication, every action or inaction is interpreted as a message and can raise more questions than it answers. Countering a negative with a positive – Generally speaking, it is strategically sound to proactively unveil customer-friendly business or social responsibility initiatives in tandem with the merger announcement. Positive news is a powerful tool to reinforce overall confidence in the company’s vision and minimize concerns associated with the merger. In a situation where a merger has some negative implications for certain constituents, activities that reinforce loyalty among supporters can refocus the debate and counterbalance criticism. Rallying influential advocates – Third-party endorsements from “lead steer” politicians, analysts, trade and consumer groups, and other key influences are effective vehicles for adding credibility to a transaction and validating management’s strategy. Outreach to these groups may involve a series of personal meetings or formal presentations as well as grassroots initiatives. Broad media coverage of key influence group support will trickle down to all stakeholders, potentially allaying some fears and casting the transaction in a more positive light. Ensuring a solid integration process – The best way to minimize damage to brand and executive reputation in the long term is through a thoughtful and systematic integration process. A merger is an ongoing series of interrelated events, each with the potential to become a landmine. In fact, many mergers, though well received at announcement, often fail two or three years down the road because of cultural and infrastructure obstacles. Implementing a successful integration that will ensure a consistent return on investment requires the focus and commitment of dedicated resources, cultural auditing, continued communications, and ongoing measurement and monitoring of results. Developing a contingency plan – If a merger is announced but not consummated, both companies must be prepared to discuss the strategies of the individual firms going forward and demonstrate how they will continue to successfully execute against their respective business plans. A merger is a defining moment in a company’s life cycle as well as a critical determinant of a CEO’s legacy. If not properly managed, it can have lasting consequences on organizational stability, corporate reputation, and financial well-being. In addition to ensuring the operational synergies and efficiencies between two organizations, managing the human dynamic is an equally important factor in shaping the transactional outcome. Information vacuums or silos create an environment for rumor mills to flourish. In turn, misinformation and speculation among a company’s key constituencies, first and foremost employees, impedes sales and productivity, tarnishes reputation, and threatens the viability of the combination. A comprehensive, proactive communications program that incorporates multi-channel outreach to both internal and external audiences is vital to controlling rumor mills, preserving corporate brand equity, and shaping perceptions of the deal. Critical to any effective merger communications initiative is readiness among senior management to be accessible to stakeholders and stress transparency in delivering messages and answering questions. Honesty and visibility foster trust and confidence. In addition to affirmative outreach, a merger communications plan must include damage-control mechanisms if hyperactive rumor mills start rolling or business issues erupt to create negative situations that threaten to scuttle the deal. Let’s revisit Joe from Smallercorp, but in a correct communications paradigm. While he still wakes to the inevitable morning media maelstrom, he also finds a voicemail from the CEO inviting him to a company meeting. Skeptical at first, he leaves the meeting feeling informed and much more comfortable. The CEO and the senior management team explain the company’s motives for the merger and what the next steps for the company are. At a smaller breakout session with his team and direct supervisor, Joe gets a clear list of deliverables and deadlines to fulfill as part of his role in the merger process. He feels empowered and works diligently on his projects through lunch, barely responding to inquisitive calls or entertaining the occasional colleague who drops by to chat about the morning meeting. Toward the end of the day, however, doubts about his bonus arise. He e-mails human resources through a dedicated address on the intranet and is comforted by a speedy response. That evening, faced with a multitude of questions and speculation from friends and family, Joe delivers the messages he heard that morning and shares the written communications materials distributed at the meeting. Both reinforce statements made by Smallercorp’s CEO on the evening news. A few weeks later, Joe is still working diligently at his desk, which is now adorned with a mouse pad depicting the logo and tagline of the merged company. Communications may not ensure that every merger scenario will proceed so positively, especially if massive lay-offs are anticipated. But the mythical Joe’s experience is a fair depiction, based on collective merger data and experience, of how cogent and consistent communications can help companies can get the deal going on the right foot by negating rumor mills and exercising more control over the transaction environment and public perceptions. Michael Kempner is founder, President, and CEO of MWW Group, a public and investor communications firm based in East Rutherford, N.J. Copyright 2005 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.majournal.com