How to survive the recession

Two leading industry figures - one agency group head and one FTSE comms director - share their experiences of past economic downturns

Lord Chaddlington and Simon Lewis
Lord Chaddlington and Simon Lewis

Lord Chadlington
CEO of Huntsworth

lan Greenspan, the legendary former chairman of the US Federal Reserve, warned a month or so ago that the world is facing an economic meltdown more severe and far-reaching than has been the case for 50 or even 100 years.

This forces those of us who run consultancies to ask how we should adapt.

The closest parallel I can find is the early 1970s – the time of the Bank of England lifeboat and the collapse of property prices. I had just started Shandwick and remember just how tough it was.

Based on that experience and the two or three other severe downturns through which I have tried to build PR businesses, I believe there are some lessons to be learned.

Let us start with the good news.

Consultancies are much better managed today than during any other recessionary period. There is a willingness among today’s management to deal with the bad news, to follow the demands of better budgeting and forecasting, and, above all else, to take timely and determined action.

There is one other major change – the digital world. We all know how important this is but it – perhaps more than anything else – has raised the expectation among all stakeholders about the need to communicate. Silence is no longer an option. Everybody needs to enter into the communications fray.

Silence will result – almost inevitably – in the assumption there is something to hide.

So perhaps for the first time, our market will find it very hard simply to shut up the communications shop.

But this optimism does need to be tempered by what happened in previous recessions. Somewhat impeded by the rep-orting restrictions imposed by the Sarbanes-Oxley Act, my recent research brings out some interesting trends.

Large single-brand agencies appear to have found some recessions very difficult indeed. However, I think that to some deg-ree this might have been caused by over-aggressive accounting and some very large accounts dominating certain geographical regions.

In the past, those PR companies that were poorly capitalised – carrying a lot of debt or long earn-outs – or had a generally weak balance sheet, hit crisis point early.

But many mid-sized and small agencies with flexibility, a fleetness of foot and an ability to adapt have often done well.

Pretty obviously, financial PR companies that were dependent on the merger and IPO market had a difficult time, although retainer financial PR, which deals with calendar work, seems to be largely unaffected.

Consumer PR can grow in tough financial times – sometimes quite dramatically – as advertising is cut.

Public affairs often grows, as does CSR – perhaps because companies do not want to be viewed as ‘fair weather environmentalists’. The corporate and healthcare PR sectors have also traditionally bucked a downward trend.

This analysis certainly squares with our experience at Huntsworth. In the first six months of 2008, while our financial deal business was down 40 per cent, our retained financial work and consumer PR was up 12 per cent.

Public affairs was up 16 per cent, corporate work was up five per cent and our UK healthcare business has grown strongly.

Based on my recent research, my own experiences and the changes in consultancy culture, I am led to conclude that consultancies should weather these economic storms with some – but not a dramatic – decline in their revenue streams.

And if we are all prepared to face up to the bad news early, we might come out of it stronger than when we came in.

five-point plan survival in a recession for agencies

1 Face bad news early – get clients to tell you honestly what they will spend in 2009 – and listen to what they say

2 Aim for their projections and cut costs ahead of the revenue curve

3 Preserve cash. Profits are of no use if you are not preserving and collecting cash

4 Continue to put the quality of your client work at the top of the agenda

5 Nurture your best performing staff and follow the Goldman Sachs rule – get rid of those who do
not perform.


Simon Lewis
Director of corporate affairs, Vodafone Group

During my career in public relations, most of which has been in-house, I have seen three economic downturns, including the current – and perhaps most dramatic – period.

Over that time, the in-house sector has matured from a largely reactive press office-style function to a fully integrated corporate affairs discipline. The role has moved, both metaphorically and in some cases physically, into the boardroom and now the reputational implications of every major commercial decision are routinely considered with input from corporate affairs professionals.

There is no doubt that challenging economic times call for a different style of communication. From an in-house perspective, there is the need to be more interpretive and contextual in dealing with a company’s external stakeholders, but also to move fast and deal with issues that, as we have seen with
Lehman Brothers, can threaten the very existence of an organisation. In many ways these are exciting times for communicators, but judgement and experience will be prerequisites.

The current deteriorating economic environment has a number of implications for the in-house sector. An
economic downturn forces companies to focus on costs. This becomes particularly important in the appointment of new agencies and planning projects. In tough times there is a much greater emphasis on value for money. ‘When in doubt use in-house,’ goes the motto. On the other hand, research and evaluation services will continue to be important as in-house departments analyse even more carefully what they are getting for their money.

Secondly, the dynamics of in-house functions will change with the economic times. Internal communications will bec-ome even more important in managing uncertainty among employees. Media relations will move from being transactional, as it often is in good times, to analytical as the media try to understand the implications of fast-changing markets. In difficult times, a company’s corporate responsibility programmes and social commitment become a point of differentiation.

Agency/client relationships change in challenging times. Long-term relationships have always been the heart of successful advisory roles and although companies might be less inclined to change advisers when time are tough, from a consultancy point of view, keeping close to the client becomes even more important.

Communicating when times are good is always easier. But there will now be a greater emphasis on providing a perspective.

Paradoxically, career opportunities in the in-house sector may start to look more attractive to those working in consultancies. As project work diminishes or dries up, the challenges of the corporate sector will be seen in a different light. There is diversity and management experience to be had in-house and the opportunities to work in other markets and cultures.

As one of my mentors said to me earlier in my career: ‘It is how you deal with tough times that marks you out as a good manager,’ and in the current environment, there will be plenty of opportunities to prove that maxim again.

As in-house communicators, I believe the enormous strides we have taken as a discipline stand us in very good stead for these new and uncertain times. Bill Gates was famously reported to have once said: ‘If I was down to my last dollar I would spend that on public relations.’ That is not a bad advertisement for our industry.

 

five-point plan survival in a recession for in-house PROs

1 Think about how you communicate with your stakeholders in ways that help them better interpret the fast-changing environment

2 Keep your consultancies and advisers close – they will complement your team’s eyes and ears on the outside world

3 Ensure your team has the management skills to deal with the very different operating environment

4 Be a smart buyer – ensure you get value for money from external agencies

5 Retain and develop your best people as career opportunities will be perceived differently in challenging times.

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