COMMENT: Five Cs the C-suite needs - candor, clarity, consistency,credibility, communication

In the cycle of pathos surrounding lack of propriety of corporate disclosure, a simple fundamental of communications has been lost - communications.

In the cycle of pathos surrounding lack of propriety of corporate disclosure, a simple fundamental of communications has been lost - communications.

Corporations must start communicating again - with candor, clarity, consistency, and credibility ... and they need to start now. Their silence is damning.

But, to overcome a growing credibility gap with key audiences, companies need to communicate with quality and without contrivance. Too often, large corporations have done their best to limit information, bond with analysts, and create unclear expectations through roguish pro forma earnings statements. During the current earnings-reporting season, corporations keep using this ingenuous device unabatedly. Despite SEC caveats. Despite rising doubt about corporate credibility.

Thank you, Yahoo!, for stopping such reporting. But, more than 80% of US companies continue to issue pro formas.

Do pro forma earnings distort? A Michigan University study last year concluded that higher levels of excluded expenses lead to lower future cash flows and can mislead investors about a firm's profitability: This is because "every dollar of exclusions per share in a quarter results in roughly .83 fewer dollars of future cash flow."

This figure shouldn't surprise corporate financialists who issue these earnings statements, but this may at least slightly chagrin investors in ET companies (from Enron to Tyco). The investment they thought they made was in a company that, as Business 2.0 wrote in April, reported earnings not EBITDA, but EABWCRBWSE (Earnings As Best We Can Remember Before We Shredded Everything).

Stop the insanity. Companies must look beyond their own balance sheets to see the cumulative effect of their acts. It is the Dow Jones Industrial Average which has sunk into Orpheus' Underworld in the last year.

Pro forma earnings statements are not a habit that will just go away.

It is a fiercely held tool by IR representatives used in an apparent effort to sculpt a smoother landscape for investors to understand a company.

Unfortunately, no standards or guidelines exist for the use of pro forma earnings statements.

Heavyweight journalists, for example, have questioned pro forma earnings for a long time. The Wall Street Journal has an editorial policy that restricts publication of pro forma earnings. Sadly, this is one time business didn't listen to the WSJ.

SEC chairman Harvey Pitt says, "Our financial disclosure system is the best in the world. It is, when we use it properly.

Disclosure can work. But, I believe corporations have been using the wrong people to carry their message - financialists instead of communicators.

The latter ceded financial communications at many companies within the last decade. It was an unfortunate transfer of duties, and companies have been paying for it in their market value for more than two years.

Good companies are unfortunately being tarbrushed by the excesses of corporate criminals, who, thanks to Congress, may actually get the chance to learn how to enjoy prison shower time. Good companies need to communicate in bad times.

It's now time to return to some fundamentals of corporate communications that have been out of vogue, the same ones I cited at the beginning - candor, clarity, consistency, and credibility. It's time for CEOs, not CFOs, to start telling the truth about their companies. If CEOs think the truth will hurt, look at the agony subterfuge has wrought.

Corporate governance begins with ethical behavior and self-policing, and is reinforced via candid communications.

CEOs need a new strategy. They need to use professional communicators who are trained to perform these duties, who can bring clarity to financial complexities. Expert communicators who know the value of truth, as it plays out beyond corporate walls. Communicators understand the sound strategy of consistent communications, which allows companies to speak with one, strong voice.

Communicators need to be trained in many cases, and be ready for this role. Professional organizations like the PRSA offer this training. And, luckily, some communicators will be able to dust off their knowledge from the era when corporations addressed earnings in a consistent fashion.

CEOs must start accepting good counsel from communicators and firms who don't have a vested interest in keeping the stock pumped. I promise you that communicators are awaiting your call.

And while they are communicating, CEOs must start telling their company's story to more than just Wall Street analysts. They need to speak to shareholders, the media who covers them, and, importantly, their employees, who need to maintain faith in their companies and thus in our corporate value system on the stock markets. Slowly, but accurately, stock in corporate America can start growing again with a much more sustainable future than the use of the current corporate-speak, pro forma earnings statements.

Reed Byrum has been a journalist and a corporate PR executive for three decades. He is the president-elect of the Public Relations Society of America. He counsels private technology companies from Austin, TX.

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