Don't Let Reporters Catch the Smoldering Crisis You Missed

I read too many examples of boards of directors, managers, communicators, auditors, and government failing to recognize smoldering crises until they burst into flames. I wrote recently here about the Bluegrass Airport in Lexington, where extravagant personal purchases were made on airport credit cards. The abuse might still be ongoing if a reporter for the Lexington Herald-Leader hadn't noticed something suspicious. Where was the board? Where were the auditors?

Now this shameful story from Louisville. State Auditor Crit Luallen released an audit last week of the Metro Department of Housing and Family Services and found gross mismanagement of city programs and millions of local and federal dollars used to fund them. It makes 43 findings and 58 recommendations to strengthen financial controls based on examination of fiscal year 2008 (http://www.louisvillecitizen.com/government.htm). This time, it was a Courier-Journal investigation that raised questions about thousands of dollars in assistance given to the mother of the department’s former director, Kimberly Bunton. Some of the money was taken from a children’s welfare fund. Bunton resigned last August. The article led to the audit.

Mayor Jerry Abramson, as usual, had all the right things to say. In a release, he said the agency already "has changed the department’s leadership; retrained, reassigned and replaced employees; strengthened procedures and polices to meet federal and state requirements; improved monitoring; and moved to protect federal funds from recapture. 'I was extremely disappointed by the extent of the problems we found,' Abramson said. “But I am very pleased with the progress our new team has made in the past six months. And I am committed to keep working until we make it right.'

But where was the mayor, metro council, and the city's auditors while the inappropriate activities were taking place? How can reporters uncover problems that we miss; problems we get paid to monitor and prevent but are right under our collective noses?

Just a small sampling of audit findings, according to The Courier-Journal:

• $363,000 lost because of mismanagement: a $104,000 reimbursement for a summer food program that was rejected by the Kentucky Department of Education, and a total of $259,000 overspent through an accounting error that had to be covered from the city's general fund.
• $348,000 in federal funds for a shelter program that were not spent because the department failed to bill allowable administrative costs to the grant. The city's general fund covered those costs.
• $369,600 in federal funds given to nonprofit agencies without proper oversight.
• A backlog of 400 homes in need of repair because federal money to pay for the projects was mismanaged.
• The use of grant money by Bunton for reducing poverty and revitalizing low-income communities to pay her personal cell-phone bill and bar association dues.
• Reliance by the city on a referral agency to place people on the verge of homelessness in apartments as part of its Tenant Based Rental Assistance program. The head of that agency referred clients -- some of whom had children -- to live in an apartment building that he owned and that also housed dozens of convicted sex offenders.
• Forcing employees to move furniture and perform other jobs not related to their official duties on nights and weekends without being paid, and using an employee under Bunton to move personal property from her office to her new home. (See http://www.courier-journal.com/apps/pbcs.dll/article?AID=2009902180380 for more.)

No red flags here, right? This wasn't nickle-and-dime stuff. This is a government agency that's supposed to be transparent in how it spends local, state, and federal tax dollars.

Don't let this happen to you and your organization. Make sure you have good auditors. Trust your instincts if you smell a rat. Don't take people's word that everything is fine when it doesn't look that way. Many white-collar criminals are a lot smarter than I am. I couldn't figure out such clever ways of cooking books or misusing company credit cards or spending budgeted funds for my own gain. But as communicators, we need to be smart enough to question the unusual. We have to be as smart and curious as reporters. (Stop snickering. That wasn't meant to be funny. I was once a smart and curious reporter. Really.)

Editorial on Peanut Corp. Nails It

I offer this postmortem on the late Peanut Corporation of America, the company that, apparently knowingly, sent salmonella-laced peanut butter into the food chain. The result was nine deaths, 637 illnesses, the closure of all three PCA plants, a bankruptcy filing, and criminal charges against the owner. A Wall Street Journal editorial last week reprinted in papers across the country (http://www.courier-journal.com/article/20090219/OPINION01/902190346/1016/OPINION) claims the company and owner Stewart Parnell got what they deserved. "So much for cheating on product quality and getting away with it." I agree, but feel sorry for the hundreds of innocent employees thrown out of work.

The editorial describes the impact on other peanut butter manufacturers: "The industry as a whole has seen peanut butter sales fall 25 percent while companies have scrambled to distance themselves from the taint by focusing on their brand's reputation for safety. J.M. Smucker Company, which makes Jif peanut butter, took out an ad campaign last week telling consumers that its product was unaffected by the bad peanuts."

This case illustrates why you need to have a crisis plan and become familiar with it through regular table-top exercises. Too many in business arrogantly feel like, "No crisis is ever going to happen on my watch!" Hogwash. Smucker and Jif did nothing wrong. But they are in a crisis at a time when no one can afford even a short-lived 25% drop in sales. Crises strike even the most diligent and cautious among us. Never think your organization is beyond a crisis.

As a footnote, the WSJ editorial makes a good point about regulation. A bill sponsored by Representative Rosa DeLauro would take food safety away from the Food and Drug Administration "to create another, presumably more activist agency. Other proposals would aim to trace food on every step of its journey of growing, sorting, processing, distributing and mixing on the way to grocery stores and pantries." We can't afford that. Such oversight would raise the price of food beyond the means of many in this country. Salmonella outbreaks like this one are rare. The editorial claims there are 40,000 reported cases in the U.S. each year, but almost all of them are from mishandled food in the kitchen at home. Many times, a publicized crisis like this is met with someone claiming we need to tighten regulations and add more bureaucrats to oversee them. May cooler heads prevail. And may PCA rest in peace and may Mr. Parnell rest in a cell for a long time.

Three Lessons Learned From Louisville High School Tragedy

A fact of life is that our memory changes with time. For example, my mother will talk about things that happened years ago, and I'm thinking, "That's not how it happened. I don't remember it that way at all." We're both probably a little right and a little wrong. I read an article once about a professor who had a person walk into his class, perform several activities, then leave. He asked his students to write down what the person looked like and what he did. Every paper was wildly different, just moments after they witnessed this event.

Stick with me, I'm going come back to the memory point. I promise I won't forget. Jefferson County Public Schools (Louisville, Kentucky) Superintendent Sheldon Berman spoke up this week about the death of Max Gilpin during football practice at Pleasure Ridge Park (PRP) High School on August 20. I blogged on this tragedy on January 23 after coach Jason Stinson was charged with reckless homicide in the 15-year-old student's death. The case has implications for coaches all over the country. Gilpin died three days after collapsing on the practice field. His temperature rose to 107 degrees. The cause of death was listed as septic shock resulting from multiple organ failure brought on by heat stroke. The issue looked to be a quiet tragedy until witnesses watching a soccer match on an adjoining field reported the following week that they heard coaches denying kids water and telling them they had to run until one of them quit the team. (See Sports Illustrated story at http://sportsillustrated.cnn.com/2009/highschool/01/24/death.charges.ap/index.html)

According to The Courier-Journal Friday, Berman, in his hour-long news conference, said "witness accounts accusing PRP’s head coach, Jason Stinson, and his assistants of denying players water and running them excessively on a day when the heat index reached 94 are contradicted by interviews that a district investigator conducted with students and coaches who were at the field that day." http://www.courier-journal.com/apps/pbcs.dll/article?AID=2009302200008

The problem is that those interviews were conducted long after Gilpin died. Our memory changes with time. It wasn't until two days after Gilpin died and five days after his collapse that Berman decided to launch "a full investigation, headed by Stan Mullen, the district's director of security. Once that decision was made, Berman said, PRP Principal David Johnson was told the investigation would now be handled by the district. 'He conducted an initial investigation in this. We took over,' Berman said." But he waited until after the funeral to begin the investigation "so that we don't completely upset people." The police also decided to investigate. With the district shadowing police, they began interviewing PRP's football players on August 29 -- nine days after the player collapsed. The police on September 4 ordered the district not to participate in the interviews, so the district had to conduct its own interviews after the police were finished. "From Sept. 12 to 24, the district interviewed 91 football players. On Sept. 24-25, it interviewed coaches and other witnesses," according to the news article.

Lesson 1 from this sad story: When your organization is in crisis, don't wait to interview witnesses. Do it as soon as reasonably possible. We unconsciously change details with time, especially after a tragedy such as this where many of the witnesses are mourning and scared about their own vulnerability. I wouldn't be surprised if there were about 91 variations of what happened weeks after the fact. NASA knows that. Emergency procedures call for the control room to be locked down until everyone can be interviewed following a crisis such as the Challenger and Columbia explosions.

Lesson 2 has to do with recognizing a crisis. A second player collapsed the day Gilpin did. He recovered shortly. But it was clear two days later that Gilpin was in much more serious condition. Maybe it's Monday morning quarterbacking, but I think that's when Berman should have ordered a full investigation. But there were also some internal communications problems. "Craig Webb, PRP's athletic director, who was at the practice, didn't notify (Principal) Johnson until around noon Thursday, Aug. 21. Johnson... began an initial assessment of what took place, Berman said. Johnson notified Joe Burks, the assistant superintendent of high schools, who told Berman about the incident that afternoon. Berman said Burks instructed Jerry Wyman, the district's director of athletics, to go to PRP and 'assess the situation to see if the (Kentucky High School Athletic Association) rules and procedures were followed.' Wyman went to the school that day but couldn't meet with Stinson or Webb because they were at the hospital, so he went back the morning of Aug. 22, Berman said. 'Wyman was there to collect information. It was not an investigation, he was collecting documents,' Berman said.... Johnson had a three-hour discussion with Stinson at the hospital on the morning of Friday, Aug. 22, where the two went over details of the practice, including water breaks."

Todd Thompson, the lawyer for Gilpin’s mother in her civil suit against Coach Stinson, is quoted as saying, "I find it unconvincing that the principal did not even speak to the assistant coaches. And, if he did in fact have a three-hour conversation with Stinson, he did not tell us that under oath. I also find it troubling that the principal did not take any notes during this interview, or if he did take notes, he didn't keep them." Johnson, the principal, admitted to deleting e-mails from community members on the subject, describing them as mere "hate mail."

Lesson 3: Two days after Gilpin was hospitalized and one day before he was declared dead, the school district announced there were no policy violations. Based on Berman's comments this week, I don't think there was enough evidence to make such a declaration. Don't ever speculate. Be sure you have all the facts. It would have been better to have said, "We have found no policy violations so far, but the investigation is continuing." And then actually continue that investigation thoroughly instead of waiting a week, as cited in Lesson 2 above. In defense of Berman and the schools, I must point out that those soccer witnesses still hadn't come forward at that point. But a kid's life was hanging in the balance because of a school activity. They didn't recognize this as a crisis and I think they should have known better. The school and district were too slow to react.

I'm curious to know when Public Relations was brought into the discussions, because the district has an excellent professional who leads that function. I would be curious to hear her role and perspective on this crisis.

To repeat: Interview witnesses in the most timely fashion possible. Learn to recognize a crisis quicker. And don't speak unless you know all the facts.

A-Rod: A Victim of Bad Advice or Poor Listening Skills?

Alex Rodriguez is a role model in many ways -- not necessarily a good role model. But here is another extended metaphor we can use to learn from the juiced-up Yankees' star.

AP reports that A-Rod is now working with several PR and communications specialists. His previous PR man, Richard Rubenstein, son of George Steinbrenner's spokesman, confirmed he is still working with him, but declined to give any more details. He said he has worked with Rodriguez since April 2007. A-Rod reportedly hired Outside Eyes of Newport Beach to handle crisis communications. The agency declined to return numerous PRWeek phone calls or e-mails seeking comment.

First of all, at the Institute for Crisis Management, we instruct clients to have some sort of statement when the media call. If we are contacted by reporters, our statement may be, "Confidentiality agreements prevent me from talking about our clients." But not to return phone calls? Weak.

Second, A-Rod is either getting some poor advice from his hired crisis managers, or he isn't listening to wise counsel he is receiving. His poor showing at his news conference, as discussed below, and the poor reviews he is receiving across the internet and in comments left on this blog are proof of that. ICM has had clients who have decided to say thanks but no thanks to our advice. Fortunately, that doesn't happen often. When it does, the client regrets it 99% of the time. We would rather lose business than stick with a client who we know is about to commit public suicide. We don't want our name and reputation attached.

Outside Eyes has a tab on its web site about its crisis communications expertise. (California must be good for you because none of the consultants looks over 30!) "Outside Eyes’ strategists have managed communication in crises including wars, natural disasters, and indictments. We can protect you from making the most common mistakes." Nothing on the site suggests the firm will help organizations prevent crises in the first place. Not to toot ICM's collective horns, but we know prevention is the best crisis strategy. We teach clients how. Two-thirds of all crises are of the smoldering variety. All can be prevented if the organization makes a preemptive strike to eliminate the risks and minimize the outcomes. Crisis communications is our one and only specialty, and we do it very well.

A-Rod should have called us. George Vescey, in a New York Times article, summed up what I've been writing here and in previous posts regarding the original ESPN confessional this month with A-Rod. He made the same error in his press conference this week. "When the first quotes of his confession surfaced in midafternoon, it sounded as if Rodriguez really understood he had done something wrong. In the full interview, the more he talked, the more disassociated he sounded. He still doesn't get it."

Say Only What You Have to Say, Then Stop

There are some who feel I was too soft on Alex Rodriguez in my post below written last week. He cheated, he didn't admit to injecting until he was caught, and according to two comments on my blog, A-Rod lied in an interview with Katie Couric when he said he never took performance-enhancing drugs.

Okay, but he did show remorse and apologize, as a good crisis consultant would tell him or a business client to do. Yes, that's a good thing. But did he go too far with his apology yesterday? And could our organizations or clients we work with go too far in accepting fault for something that went wrong? Most definitely. Let's learn from A-Rod and his 38-minute monologue at Steinbrenner Field in Tampa.

A New York Times blogger, Richard Sandomir, did a good job of pointing that out on his post today (http://www.nytimes.com/2009/02/18/sports/baseball/18sandomir.html?_r=1). "His 38-second pause before he thanked his Yankees teammates felt scripted; his explanations about his use of boli were incomplete and contradictory, and he did not appear to comprehend that his responses, when taken as a whole, lacked authenticity," Sandomir wrote. "His guarded style argues against the full disclosure that would elevate his tarnished credibility. The Yankees’ rule against follow-up questions from reporters guaranteed that clarifying questions about his steroid use and 2003 drug test would not be asked."

Former Reds' infielder Barry Larkin got it right, too. "He kept using the excuse of naïveté and curiosity and being young, and I believe that to an extent. But that’s not answering the question.”

Sandomir added, "The repeated, robotic citation of his mid-20s stupidity kept diminishing him, making one wish that he existed only in pinstripes (and performed better in the postseason)."

“If you had cough syrup and it didn’t work, you’d throw it in the garbage can,” Mike Francesa of WFAN said. “But he kept shooting himself in the rear end for three years and didn’t know if it worked. What, are you kidding me?”

And from Larkin: "You’re a high-level athlete... you’re putting something in your body, you should know what it is."

Remember A-Rod and his credibility, or lack thereof. When you have to swallow painful medicine in front of your stakeholders or the media: Admit you made a mistake, say you're sorry, tell them it won't happen again, and then get off the stage. Don't say any more than you have to. You may not avoid all the negative repercussions, but you should come off at least looking better than A-Rod did.

See a 2:11 video of Rodriguez's statement at http://www.newsday.com/services/newspaper/printedition/wednesday/news/ny-spyanks186039554feb18,0,3489274.story.

"Job Cuts" Subject Line Raises Question

There are laws against yelling "Fire!" in a public place. John Forsyth, chairman and CEO of Wellmark, a health insurance company, violated that law in a recent e-mail. The subject line was "Job Cuts."

But he wasn't writing about job cuts at Wellmark. He was writing about job cuts in general and to say none were planned at Wellmark. "I sent it out because the previous week there were something like 75,000 job cuts across the country, and people start to worry. And when you start to worry, you can't do your job as well as you normally would." He admitted he used the "Job Cuts" subject line to be "reasonably sure everyone would read it." (http://www.businessrecord.com/main.asp?SectionID=4&subsectionID=7&articleID=7619)

As a communicator, I find such an approach to be deceiving and unethical. What do you think?

Vic Morales, senior communications consultant at Wellmark, defended Forsyth and the e-mail in a Ragan Communications article. "When the e-mail finally came out, I didn't think much of it ... probably because I was busy and secondly, because I had seen the e-mail enough times as I played a small editor role. It was a great e-mail from our CEO. But it was the subject line that gave everyone a heart attack for at least the time it took you to click into the message.... He's a great communicator. One of those CEOs who just makes your job so easy. And this is one of those messages I'll never forget, because within two or three minutes, he ... well, gave everyone a heart attack, but then reassured everyone to keep up the good work, stay motivated and positive. And we did. And he received hundreds of e-mails thanking him for the e-mail."

Your thoughts, please.

PCA Now DOA

Peanut Corporation of America today declared bankruptcy (http://www.usatoday.com/money/industries/food/2009-02-13-peanut-corp-bankruptcy_N.htm?csp=34). That should come as little surprise, given the length of time this crisis has dragged on. The offending plant in Georgia was shut down some time ago, and a second plant in Texas closed this week pending the outcome of a state and FDA "investigation into the plant's procedures and records of food safety." I believe that leaves only the Virginia plant operating. Or has it been closed too?

I blogged early on last month that PCA was doing an exceptional job of communications. In spite of some missteps along the way, the Communications person still deserves some credit. The company was ready with a dark site (http://www.peanutcorp.com/), which it has kept updated for the media and others. There's been some question of items suddenly being pulled as events developed, but that's not likely the communicator's decision. Releases are well-written and say the right things: safety of consumers is most important, we regret that this happened, we are cooperating with all agencies, etc. The problem is that none of it rings true. We read about the deplorable conditions at the Blakely, Georgia, plant where the salmonella originated, yet the releases defend the cleanliness and refer to high ratings from inspectors. People are continuing to get sick eating the company's product. Who are you going to believe?

A statement on January 28 under the name of owner and president Stewart Parnell and family concluded, "We want our customers and consumers to know that we are continuing to work day and night with the FDA and other officials to determine the source of the problem and ensure that it never happens again." See what I mean? Sounds sincere. Too bad he wasn't interested in cooperating with the the House committee Wednesday. All we learned during the 10-minute mockery of a hearing was that Parnell pleaded the 5th Amendment to everything. He did answer one question. Asked whether it was his intention to cite constitutional protection in refusing to answer all the committee's questions, he said yes. Another Parnell communication: Last fall, he wrote an e-mail to the Blakely plant manager after being told the shipment had tested positive for salmonella and should be placed on hold. Parnell wrote, "We need to discuss this ... the time lapse, besides the cost is costing us huge $$$$$." I'm glad to know Parnell is working "day and night...to determine the source of the problem." Pass the peanut butter cookies, I feel safe now.

Criminal charges are being considered. Peter Hurley, a Portland, Oregon, police officer whose 3-year-old son was sickened by salmonella after eating peanut butter crackers, would encourage that. He said in a CNN web article (http://www.cnn.com/2009/POLITICS/02/11/congress.peanut.butter/index.html), "This was not an accident. It sickens me to no end that a company and its employees could knowingly allow tainted product to go out the door and into the nation's food supply. Does no one have a conscience anymore?" He likened the situation to a police officer putting a loaded gun to someone's head, pulling the trigger and then saying he hoped the bullet in the chamber wouldn't fire.

And what is Parnell saying in the company's release? "We have been devastated by this...."

CNN went on to say: "Mold was found in a cooler used to store peanut butter products; a live roach and dead roaches were found in a washroom adjacent to a production area; and salmonella was found in two locations, including one only 3 feet from finished peanut butter products."

Now read the PCA releases about inspectors' praise and Parnell's regret. Communication is worthless if the words and source have no credibility. If the communications for PCA is being handled by staff and not an agency, I hope they find real good jobs in an honest, trustworthy organization. He/she/they have have performed professionally, given what they had to work with. What's that saying about a sow's ear?

Some Crises Can't Be Averted, But They Can Be Contained if You Strike Quickly and Effectively

One chapter of my professional life involved setting up employee meetings at company locations across the country, studying the issues of each facility, and then briefing our CEO. I'd fly to the site with him on the corporate jet, ensure the meeting ran smoothly and no one wanted to shed the CEO's blood, and then fly back home to Boise. After those trips on a private jet, waiting in airport terminals was forever just a little less awful than bamboo shoots under my nails.

I have a good image of private jets. But among many people, that image has become synonymous with wealth, greed, and wasteful spending. Zak Stambor of Ragan Communications wrote recently about the business jet industry and how it has felt under attack. This is a good study into how the products you make, through no fault of your own or the products themselves, can experience a crisis that you need to address just like any other.

According to Stambor, private jets took a hit when:

• The CEOs of the big three U.S. automakers in November flew to Washington in three separate aircraft to testify that their industry needed a bailout to avoid bankruptcy.
• Senator Carl Levin last month angrily berated executives from Citigroup, which had received a federal bailout, for approving the purchase of a $50 million corporate jet.
• Former Citigroup CEO Sandy Weill used one of the bank's jets to fly his family to Cabo San Lucas, Mexico, to celebrate the New Year.

The industry, led by the General Aviation Manufacturers Association (GAMA) is going on the offensive. Stambor's article states that to get media attention, GAMA and the National Business Aviation Association (NBAA) have given interviews, written op-eds and distributed press releases to a host of news outlets, from national broadcasters like CBS News and National Public Radio to newspapers like the Los Angeles Times and St. Louis Post-Dispatch. Cessna Aircraft Co. announced it was diverting half of its 2009 advertising budget to an all-out communications blitz. The intent is to correct misperceptions and improve reporters’ understanding of the industry. (See Cessna ad at http://www.cessna.com/media_releases/CessnaLdrship_Campaign2009_TimidityAd.pdf)

Among the messages is that 86% of corporate jet passengers are not executives, but mid-level people like I was in my jet-setting days. In addition, 85 percent of business jet users are small- to mid-size businesses, many of which are based in places where commercial airlines have reduced or eliminated service. The industry claims its aircraft and systems are made mostly in the United States, accounting for about 1 million jobs and generating billions of dollars in revenue and wages.

Cessna had a chance to tell its story already in Wednesday's Wall Street Journal (http://online.wsj.com/article/SB123431191461770685.html). "After the testimony of the Big Three automakers, [misinformation about the industry] kind of blew up and got out of hand," Bob Stangarone, Cessna’s vice president of communications told Ragan Communications. "As the largest manufacturer of general aviation aircraft in the world, we felt compelled to take a leadership role in fighting back and countering those misperceptions." According to the Wall Street Journal story, the stigma of flying private jets was so bad by Super Bowl Sunday that some companies reportedly chose to fly their jets to Orlando and drive to Tampa, rather than face criticism for living lavishly.

Take a look at your crisis communications plan. Make sure it has a section that will allow you to respond quickly in case your product suffers an image crisis. For example, if you make a food product, you need to be ready if a similar item is recalled for safety reasons. Will you be ready to tell the world your product is safe and how you know it is? If you work for nursing homes and a dementia patient wanders out the door of a competing facility across town, do you have talking points ready to assure family members with loved ones in your home that you take every reasonable precaution? If you make drain cleaner or industrial-strength chemicals, would you be ready if someone uses your product intentionally to harm others? How about if a rumor about your company or its products starts on a Blog or spreads through Twitter?

You may not have two hours to come up with a strategy, develop messages, and then get Legal to approve. With instant communications in the hands of so many people, you will be behind in managing the crisis before you even start. Write or update your plan.

When the FBI Comes Calling, "Corporate Bail Out" May Take on a New Meaning

One of the cool tools offered by the Institute for Crisis Management is our annual Crisis Report, which describes some of the most publicized crises of the previous year, compares crisis categories over the past 10 years, lists the most crisis-prone industries and companies, and tells how you can keep your business out of next year's report. (http://www.crisisexperts.com/2007CR.pdf) I'm eager for the 2008 report, which should be out in the next month or so. I think we'll see some major shifts in crisis categories and crisis-prone industries with the financial collapse and bailout in the third and fourth quarters of 2008.

And if an enormous FBI investigation now underway is fruitful, we'll see an even more dramatic shift for 2009. Many companies are sitting on a smoldering crisis, whether they realize it yet or not.

An AP story on February 11 reported that the FBI has 530 active corporate fraud investigations under way in cases directly related to the current economic crisis. Thirty-eight of them involve some of the biggest names in corporate finance, FBI Deputy Director John Pistole told the Senate Judiciary Committee this week. He said investigators are tackling an even bigger mountain of mortgage fraud cases -- 1,800 of them, more than double the number of such cases two years ago -- in which hundreds of millions of dollars may have been swindled from the system.

“It is a matter of lawyers, brokers, or real estate professionals that are systematically trying to defraud the system,” Pistole said. He added that agents have even seen some instances of organized crime getting involved in mortgage fraud.

After the 2001 terror attacks, about 2,000 FBI agents were moved to counterterrorism work. The FBI is considering moving some of them back to hound these perpetrators of fraud. And some Senators are urging more spending to increase the number of FBI financial fraud investigators.

If you're in the finance and banking business, you better hope that everyone in your organization is above suspicion. Where bailout money is involved, you better have auditors watching your accountants who are watching your other auditors who are watching your other accountants. If you don't have redundant eyes keeping watch on the corporate cookie jar, then I suggest you dust off your crisis plan and hold a table-top drill. The FBI might just raid your executive offices someday soon. Do you have a statement ready for your shareholders? They'll be reading about it online before the agents are back in their car.

Dow/Rohm and Haas Acquisition Crisis Worth Watching on the Communications Front

If the bride and groom are publicly fighting before the wedding, how do you think that marriage is going to fare? That's what's happening in the acquisition of Rohm and Haas Company by Dow Chemical. A domestic squabble is becoming a cage fight. Last summer, Dow agreed to pay $78 per share to buy Rohm and Haas, a huge premium over Rohm and Haas' $44.83 closing price on July 9. The romance, it appeared, was on. The couple was in love. At the time, Dow had expected more than $7 billion in pretax proceeds from a joint venture with a state-owned Kuwaiti company. Kuwait's government backed out of the deal with Dow in late December, calling the K-Dow Petrochemicals joint venture "very risky" due to the global financial crisis and crude oil prices that had fallen more than 70 percent since July. The collapse of K-Dow leaves Dow Chemical unwilling to pay the $15.3 billion pricetag for Rohm and Haas it initially agreed to.

Now both companies have a crisis on their hands. The economy changed radically since their engagement was announced last year. The marriage was supposed to have been consummated in January. Dow can't afford to carry through. Rohm and Haas shareholders are expecting $78 a share and a large profit in a time when every other stock is deeply depressed. This appears to be quite a legal conundrum. A Seeking Alpha blog (http://seekingalpha.com/article/117896-dow-and-rohm-haas-some-deals-are-too-risky-these-days) summed up the problem quite well, I think:

"The deal between Rohm & Haas and Dow Chemical simply does not work in today’s world. The economic situation will likely prevent the combined company from paying back the bridge loan that would be needed to complete the purchase given the failure of the company’s deal with Kuwaitis. The management team of Dow Chemical and the company’s shareholders simply cannot want to be faced with the task of raising billions of dollars as the bridge loan approaches expiration, especially when the company’s core business is in a free fall. It is time for the company to hunker down, conduct small niche acquisitions, retool plants and pay down debt. A blockbuster acquisition cannot be supported given the current shape of the economy."

But it's too late for that now. When is a deal not a deal? Rohm and Haas says never. A letter to Dow on February 2 said, in part: "The behavior we have encountered has confounded us: without claiming any legal justification, Dow refused to close the Rohm and Haas merger as required by the merger agreement between our companies.... When K-Dow collapsed, the reasonable commercial approach would have been to call and explain that there was a problem and set forth your proposed plan for addressing that problem. We specifically requested that you do this. To this day we have not received a substantive explanation of what Dow is doing to address the impact of the failure of the K-Dow deal....

"When we asked on many occasions for a specific plan, we were told, in different ways, that Dow had many 'balls in the air.' When we asked for a specific proposal from Dow concerning the amount of time Dow wanted to delay the closing -- a concept we were willing to accept if we could protect our shareholders in the interim -- your Chairman instead sent an email indicating, that, if we waited until June 30, Dow would then be better positioned to decide if it would honor its obligation to close....

"If Dow is in the terrible financial condition that your Chairman suggests, we do not know how you could have paid the January 30, 2009 cash dividend of almost $400 million. We certainly do not see how Dow and its directors, consistent with their obligations under the merger agreement and Delaware General Corporation Law § 170, can declare any further dividends at this point.... Dow agreed in the merger agreement to take 'all action necessary' to obtain the financing for the merger. This obligation is clear and unambiguous.... When we embarked on this transaction, we certainly did not anticipate being a plaintiff in a massive litigation. That is certainly not the Rohm and Haas way. We commenced litigation because from a practical standpoint we were given no viable choice."

A lovers' quarrel? It's worse! The words were even stronger in a Rohm and Haas release on February 8: "Rohm and Haas believes that Dow has the resources and flexibility to live up to its obligations under the merger agreement. Rather than focus on the necessary steps, Dow has embarked on an aggressive campaign in an attempt to frighten our employees, communities and customers with its statements...."

The release also contains another letter sent from the board of directors: "Thank you for your response to our February 2 letter. In your letter, you suggest principal-to-principal negotiations. In fact, principals of our two companies met face-to-face on three separate occasions, most recently on Saturday, January 24. These meetings were very disappointing, particularly in light of our board's preference to avoid litigation in our efforts to procure for our shareholders the benefits of the merger. At none of those meetings, despite our repeated requests, did Dow's representatives provide ours with meaningful details of what Dow is doing to secure financing for the merger, to address the concerns of the rating agencies, or take other actions necessary to close the transaction as soon as possible.

"To have informed discussions, we need to obtain necessary information from Dow, and to include people with the expertise necessary to fully assess that information....

"Dow's actions continue to be severely damaging to our company. For several months we jointly steered towards integration with The Dow Chemical Company. Now, we confront uncertainty, heavily impacting employees, customers and suppliers. We were also very troubled to learn yesterday that your intervention with the FTC went far beyond what Dow had previously disclosed to us.

"...we reiterate our offer to assist Dow in its dealings with rating agencies, banks and other lenders, and with information on possible divestitures, post closing, from the Rohm and Haas portfolio."

I sympathize with Dow's financial situation in this economic environment. But as a Rohm and Haas statement points out, "Dow, not Rohm and Haas, took the risk that the K-Dow deal would not close. And Dow, not Rohm and Haas, took the risk that the difficult economic climate that both companies already faced in July 2008 would worsen." Rohm and Haas shareholders shouldn't be stiffed because Dow may have, in hindsight, made a bad business deal.

Ethics and legal battles aside, this is a Clash of the Titans that will be worth watching on the communications front. Which will manage this crisis better? Which will communicate better with its key stakeholders? How will the new company -- or the separate companies, if that's how it shakes out -- move forward and become successful? This couple needs a lot of counseling before it's ready to walk down the aisle together.

Say It Ain't So, A-Rod

With the post I wrote below about the indiscretions of Barry Bonds and Michael Phelps, I need to say something about Alex Rodriguez' admission to taking human growth hormones during at least three seasons. If you've been following the Bonds and A-Rod stories, do you feel differently about the two? Why?

I feel much more sympathetic and forgiving toward A-Rod. Like Phelps below, he didn't cover up, he didn't lie, and he asked forgiveness. We can't say for sure Bonds lied until after his trial. But here's a guy who left the Pittsburgh Pirates in the early '90s looking like a baseball player. In San Francisco, he suddenly turned into the Incredible Hulk. I mean, look at the guy! If he is acquitted of lying to the Grand Jury because he never took steroids, who's going to believe it? Then O. J. is innocent of murder, too, right?

The lesson learned for crisis communicators is the same I tried to express below. If you're guilty, admit it, express regrets, explain why it won't happen again, and ask for forgiveness. I'm disappointed in A-Rod big-time. But it's easier to overlook his transgression because at least he was honest about it. It will be out of the headlines soon. Bonds will be in the headlines daily next month during his trial because he denies doing anything wrong.

What To Do When Your Organization Embarrasses Itself

This is a story about two fallen sports legends. The way they are handling their lack of poor judgment gives us a fine example of how our organizations should respond when they mess up.

First up is Barry Bonds, the all-time home run hitter in the history of baseball. When he was accused of using steroids and other human growth hormones, he categorically and vehemently denied everything. He even told a federal grand jury in December 2003 that he never knowingly used steroids. Court documents released yesterday (February 4) included the results of 26 blood and urine tests. Prosecutors contend five are positive for performance-enhancing drugs. Bonds' 2000-2003 test results and other seemingly potent evidence will be used to prosecute him next month for perjury. (http://espn.go.com/video/clip?id=3886811)

Bonds' attorneys want that evidence suppressed. Bonds today pleaded not guilty at his arraignment. His trial is scheduled for next month.

Now let's look at swimmer Michael Phelps, the greatest Olympian of all time. A picture of him at a South Carolina party smoking a pipe usually used for marijuana was published in a British tabloid. He is quoted today as saying the whirlwind around his embarrassment might cause him to skip to the 2012 Olympics. (http://www.sportinglife.com/others/news/story_get.cgi?STORY_NAME=others/09/02/05/SWIMMING_Phelps.html)

Compare Phelps' response to that of Bonds. Phelps has not admitted to smoking marijuana, but also did not deny the authenticity of the photo. He quickly issued a public apology, acknowledging "regrettable" behavior and "bad judgment" after the photo appeared. And today he said, "Seeing my mom reminded me of how it was the day after I got my DUI, and I swore to myself I'd never do that again. This is just a stupid thing of mine that I did, and I have to live with it."

A South Carolina sheriff says he will press charges against Phelps if he can prove he smoked marijuana in his jurisdiction. Marijuana possession is considered a misdemeanour in Richland County and is punishable by up to 30 days in jail and a $100 fine.

Which star elicits more sympathy? If both plead their cases before the same judge, which do you think would be more likely to receive leniency, forgetting that Bonds faces a felony and Phelps a misdemeanor? If I were the judge, I would bury Bonds! Which would get a thumbs down in the court of public opinion? Bonds would be the one thrown to the lyin's.

You can save your organization a lot of grief by admitting mistakes up front. We all make mistakes and, while maybe feeling disappointed and let down, our stakeholders (and fans) are more likely to forgive us if we tell the truth, admit mistakes, and vow never to let it happen again. Denial and lies yield few friends and supporters.

The next time your organization makes a serious and embarrassing mistake, think of Barry Bonds and Michael Phelps as you determine your response. Then make the right choice.

Nuts! I Was Deceived at the Start of the Peanut Butter Fiasco

At first, I thought Peanut Corporation of America was doing a decent job communicating through the peanut butter recall, and I wrote so below. I later thought the company's efforts had deteriorated since the beginning. But now I find that communication was poor even at the start; it had deteriorated before it even began. So I now recall my praise as fast as I would a peanut butter cracker.

I received a confidential e-mail from someone who knows the whole story. This person asked to remain anonymous, but encouraged me to share the facts to set the record straight:

"The first report that salmonella was found in a product manufactured by PCA came out late on Friday. King Nut, a distributor of peanut butter manufactured by PCA, issued a recall on Saturday because the open tub of peanut butter with salmonella had their label. PCA, on the other hand, waited until late on Tuesday to issue a recall. (Read their first press release -- it tried to distance them from the issue by saying it was an open tub http://www.peanutcorp.com/pdf/Peanut%20Corporation%20of%20America%20Recall.pdf.)"

This person claims PCA has removed its early statements from its web site. I can't verify that, but I have no reason to doubt.

"Reporters calling (PCA) couldn't get anyone to talk to them. So just for the record, that's hardly an 'abundance of caution.' And for several days PCA did 'lock the doors and say nothing.'"

PCA's latest statement on February 4 (http://www.peanutcorp.com/pdf/PCA%20Statement%2002%2004%2009.pdf) still follows best practices in crisis communications. But my inside source would differ with accuracy of the content. "I think if you want to praise someone," the writer concluded, "it was King Nut that was proactive and transparent, not PCA."