Being caught up in a civil war is a nightmare for anyone. But when that civil war is in your own boardroom, IROs are in a particularly tricky situation.
Although boardroom bust-ups have been happening since companies were first formed, the stresses and strains caused by a global demand for ever improving share price performance today produce more internal disputes among directors than in the past. The message from both sides of the Atlantic for those watching from the IR department is that there are few prizes for trying to be an IR hero.
Rolling heads
Take Europe first. To pick a few of the biggest recent headlines: the head of Germany’s BMW car company was axed; UK retailer Marks & Spencer’s board split over the choice of a new CEO; shareholders forced out the CEO of the Mirror Group of newspapers; and Barclays Bank’s CEO resigned suddenly after internal disagreements (only to be replaced by a new CEO who was obliged to give up the job on his first day owing to health problems).
In the US, it’s a similar story. Sunbeam Corporation’s ‘Chainsaw Al’ Dunlap was voted out. The founder of Seagate Technology, Alan Shugart – who helped produce the world’s first disk drive in 1956 – was fired at 67 because he would not retire. He was consoled by Michael Ovitz, the former Walt Disney president, himself the victim of a recent boardroom coup. Then there was Les Alberthal, who suddenly left Electronic Data Systems after 30 years’ service. And this April, Compaq’s CEO Eckhard Pfeiffer ‘retired’ following a surprise profits warning to a Wall Street already unhappy with recent developments at the company.
‘There are two messages from all this,’ says Kevin Cammack, an analyst with Merrill Lynch in London. ‘First, we are seeing a new thirst for shareholder value. Secondly, institutions are becoming far more proactive in pushing for executive changes. In London we have fund managers taking a far more aggressive approach; that just did not happen ten years ago.’
Whatever the reason for the new pressure on boardrooms from shareholders, IROs are clearly dumped right in the middle of the fray. They are caught between concerned shareholders on the one hand, and a board trying to resolve its most delicate divisions on the other.
‘In this situation you have to be very sensitive,’ says Jorg Peters, BMW’s investor relations manager. He handled the IR during the recent boardroom crisis at the German car manufacturer. ‘You must not comment, and stick to the original press release. You can only tell people that there will be time for questions later.’
But Peters admits the pressure on him was intense, particularly during an eight-hour board meeting when key shareholders kept phoning him for an update. ‘All I could say was Sorry, we will have to wait until a decision is made, and explain why I couldn’t say anything more. In this situation, the trust you have established with your shareholders is very important.’
Peters is convinced that ‘everybody understood’ why he kept his mouth shut, and recalls that as soon as an announcement was made after the meeting, interest immediately switched to the new chief executive. Then he was able to field questions again, and talk about the new ceo’s CV, experience and strategy.
Sticking to the release
Although an experienced professional, Peters found himself dealing with a situation that he had never faced before. ‘We are used to the attention at car launches. But this was the first time we had really spectacular international news about the group. It just does not happen very often,’ he says. ‘You have to be very self-disciplined and should never speculate on why board members make a decision.’
Jonathan Gillen, managing director of the London consultancy City Profile, agrees. ‘It is absolute death for an IRO to go too bold in a boardroom crisis. You have to strike a very delicate balance, and avoid angst at all cost.’ Gillen also reinforces the importance of the relationship of trust built up between IROs and fund managers. ‘It is hard. You have to present the company line as an in-house IRO. But shareholders need to trust you and feel that you are worth talking to, not just a company stooge.’
The sudden resignation of the formerly high-flying CEO of Barclays Bank is generally seen as a model example of how to handle a difficult IR situation. Barclays’ IR department won praise in the City for its handling of the internal crisis of the departure of Martin Taylor. Indeed, banking analysts note that the profile it managed to create for its planned appointment of a new American CEO, Michael O’Neill, was very positive for the Barclays’ share price and the general image of the company. It might have been stretching a point to say that the negative impact of a senior resignation had been turned into a success story. But analysts clearly felt that communication channels worked well on this occasion.
So what did Barclays do right? Obviously, the vacuum left at the top seemed at the time to have been quickly filled by an appropriate candidate. That this fact was communicated well to shareholders, analysts and the press was down to good IR, and capturing people’s imagination with a positive story. The new chief executive became the man of the moment, not the one who had disappointed shareholders.
When contacted in April, several months down the line, Barclays’ IR department was unwilling to comment on Taylor’s departure. The next day that reluctance became more understandable as O’Neill, Taylor’s replacement, resigned on his first day in the job. He had developed medical problems of a kind that were to prevent his actually taking up the post. Not many IROs have that much bad luck, tempting the most restrained among us to paraphrase Oscar Wilde about the carelessness of losing two chief executives (as opposed to the mere misfortune of losing one).
The important lesson that emerges from the BMW and Barclays case studies is that IR staff have to appreciate their limitations. The one thing they must avoid at all costs in boardroom battles is becoming drawn into the battle themselves. All they can do is filter comments back to the board, and keep shareholders at bay until a decision is made.
Untenable position
However, IR officers can lose out entirely when boardroom egos clash in public. In the UK Mirror Group’s civil war between the chairman and chief executive, the two sides had engaged public relations consultants and conducted their fight in the columns of newspapers. Under these circumstances the Mirror Group’s IR consultants handed in the towel, realizing that the investor relations position was untenable if senior executives insisted on acting in such a manner.
‘The IR manager is a conduit of information into and out of a company, not a mover and a shaker,’ notes one IR veteran. ‘If the management pulls the rug from under the IRO’s feet, then it is undermining this position. Of course, in politics spin doctors have become almost as important as politicians, but they are still only really as strong as the people they work for. In a boardroom battle, the weakness of the IR position can become only too obvious. It’s a time to keep your head down, and be seen to be doing the right thing. Getting caught between executive egos is a bad idea, and disastrous for IR.’
If the Mirror Group’s IR crashed in the wake of competing egos, the same can probably be said for Marks & Spencer, the UK’s main street retailer whose board split over the appointment of a new chief executive. Its IR department still feels the matter is ‘far too sensitive’ to comment upon, but is proactively trying to rebuild the image of the group as a leading UK retailer with a coherent strategy.
Here again, the boardroom battle spilled over into the media with rival camps promoting different candidates, and the IR challenge is now to re-build lost credibility. In the US, a greater acceptance of the firing of senior executives probably makes handling such issues less of a hassle for IR departments. But highly embarrassing public disputes still occur.
Last summer the ousting of Alan Shugart from Seagate Technology caused a rumpus in California. At the age of 67, Shugart refused to resign as chief executive so the board fired him. He was indignant, and went straight to the press to complain.
Seagate’s investor relations director Nancy Hamm recalls: ‘We issued a press release and called up all the large institutions and shareholders to talk to them. We took a very proactive approach, coming up first with a long list of questions and answers, and agreed how to respond. It is most important to be upfront and honest in this situation, and I think this was appreciated by our shareholders.’
However, the row over the succession at Seagate did not impress some observers. Data Corporation analyst Dave Vallante comments: ‘I was pretty disgusted, frankly, with the press release that was issued where Seagate director Larry Perlman and president Stephen Luczo rambled on about how great Al was when they had just fired the guy.’
These remarks were echoed by analyst Jim Porter of Disk/Trend Incorporated, who says: ‘What should have been done was to have a black-tie dinner and a 21-gun salute, not a tacky press release saying the board had asked him to leave.’
What the Seagate example illustrates nicely is that IR departments cannot please all of the shareholders all of the time. In this instance, the fired chief executive had actually approved the press release and insisted on making it clear that he had not resigned. So the IR department just had to take the criticism on the chin, despite its innocent intentions and correct handling of the situation.
Wielding the axe
With profit growth slowing down, the pace of CEO ousters is speeding up. One week in April saw three high profile chops in the US: at Borders Group, Philip Pfeffer resigned after just five months at the book and music retailer; last year’s top draft pick from Disney, Richard Nanula, quit the president post at Starwood Hotels; and confirming the adage ‘the bigger they are…’, Compaq Computer Corp mourned a disappointing quarter by giving CEO Eckhard Pfeiffer and CFO Earl Mason the axe.
In Compaq’s case, the board desperately needed a scapegoat after its stock price fell more than 50 percent since January. They found him just nine days after the recent profit warning. Pfeiffer, they reasoned, had not only failed in the task of coming up with a plan to beat rival Dell Computer, he had also not given enough of a heads-up about sagging earnings.
Days later, Compaq’s chairman and co-founder, Benjamin Rosen, scrambled to reassure belligerent shareholders at the annual meeting. ‘We have a sound company and a sound strategy,’ he told the standing-room-only crowd in Houston, ‘but it’s also clear we have not executed it the way we should have.’
Pfeiffer, for his part, did not go entirely quietly. In an interview on CNN.fn, he said Compaq’s board did not comprehend the challenges of integrating Compaq’s acquisitions, Digital Equipment Corp and Tandem Computers. And while admitting he wasn’t totally surprised, he did not hide his disappointment at getting the boot from a company he led from $3 bn to $30 bn in revenues.
Chainsaw massacre
There is a limit to what IR professionals can do when executive egos compromise their role in conveying information to shareholders. Another recent example was the firing of ‘Chainsaw Al’ Dunlap from the Florida household appliance manufacturer Sunbeam Corporation over alleged accounting irregularities. Dunlap immediately went public to clear his name, and Sunbeam shares crashed from $53 to $10. Appearing on the CNN television program Moneyline with Lou Dobbs, Dunlap protested, ‘I am outraged that people say they can’t believe the numbers.’
‘Faced with such an aggressive response to dismissal, an IR manager can only tell shareholders what the company believes to be the true position, and gently point out that an SEC investigation is now under way,’ comments one experienced IR consultant. ‘It is not the job of an IRO to be too clever. Don’t overshoot your position and forget that, or you’ve really had it. Tell the shareholders the company position, and don’t comment. Shareholders will understand. The worst thing you can do is make promises that you cannot fulfil.’
It appears that IR professionals unlucky enough to find themselves standing on the edge of a corporate civil war should play safe, and keep their heads down. The time to come out fighting is when the battle is over, and reputations need rebuilding. Then the IRO can be invaluable in restoring a company’s public image and share price, though that depends on the new regime getting its act together quickly. Stay under cover until then.
