EDITORIAL: Lies, damned lies and our statistics

This week we tackle what is almost certainly the most controversial issue among PR professionals (see p18). The industry has always been uncomfortable with its reputation for spinning, and the idea that pros simply lie is even more offensive.

This week we tackle what is almost certainly the most controversial issue among PR professionals. The industry has always been uncomfortable with its reputation for spinning, and the idea that pros simply lie is even more offensive.

Ever since Arthur Page framed his document of 11 PR Commandments, honesty has been preached as a PR virtue. But the reality is that 25% of pros admit to lying. And remember - that's just the ones who admit it.

This statistic will cause much squirming and embarrassment. But even to admit to lying shows a degree of integrity and a passionate concern about the exposure to conflict that a job in PR regularly entails.

This statistic also has to be seen in the context not just of a professional's duty as a company advocate but as a practitioner in the cut and thrust of business. The fact is that business people do lie on some occasions.

And the biggest source of conflict - and problems - is found in the 62% of PR pros who said they had been compromised in their work by being told a lie or denied access to the truth. That is the root of the problem.

And until everyone starts obeying the original Ten Commandments, the job won't get any easier.

The real story behind Sard Verbinnen

Industry observers have been quick to criticize the cost of the Sard Verbinnen deal. The strange thing is that so many of them appear to accept the specifics at face value. With revenue of 13.8 million dollars and earnings of 1.8 million dollars, on the face of it this specialist IR firm has little to boast about in terms of financial performance. And so, when the UK-based Incepta Group pays 58 dollars million, in cash and stock, the whole industry gets in an uproar at the 29-times profit multiple.

And that's before factoring in the additional 92 million dollars in potential payouts over the next five years.

But why is everyone so duped by the face value profits of a private company, and an investor relations specialist at that? Private companies do not need to show handsome profits. Their duty is to the partners, who pay themselves in handsome bonuses instead. Besides, investor relations firms are almost certainly the most profitable ones in the business, with margins of 40-50% not uncommon. That's almost certainly why the elite private firms - Kekst, Sitrick, Abernathy McGregor, Rubenstein, Torrenzano and until recently, Robinson Lerer Montgomery - have always been so secretive about their numbers.

As PRWeek discovered, when bonuses are stripped out of Sard Verbinnen's accounts, the profitability of the business going forward will most likely be in the 40 50% range. Incepta chief executive David Wright told PRWeek that he expected the firm to earn 6 million dollars in 2000.

That would still be a nearly ten times multiple. But as the Council of Public Relations Firms showed in a study last year, the norm is between six- and eight-times earnings. With its strategic value to Incepta, the real story should really be about the impact of a now-global IR powerhouse.

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