Enron saga should teach corporations to put greater stock inemployee communications

In light of Enron's ignominious collapse - and various polls showing confidence in big business at an all-time low - American corporations should be concerned about relationships with all key stakeholders. But they should particularly mull their relationship with employees, as the Enron fiasco has cast a harsh light on some of the changes that have taken place in that area in recent years.

In light of Enron's ignominious collapse - and various polls showing confidence in big business at an all-time low - American corporations should be concerned about relationships with all key stakeholders. But they should particularly mull their relationship with employees, as the Enron fiasco has cast a harsh light on some of the changes that have taken place in that area in recent years.

Over the past decade, employee stock ownership has become common in US corporations. Companies like it because they believe employee shareholders are more committed, and because ESOPs and 401(k)s put a significant chunk of shares beyond the reach of corporate raiders. Employees - until Enron - liked it because it gave them the chance to see the kind of returns previously restricted to senior execs: just ask Microsoft secretaries who bought shares in its early days and became millionaires when the stock soared.

But many companies have promoted their own stocks to staffers, focusing on the opportunity while not addressing the risk. Employees, often not sophisticated investors, may feel pressured to demonstrate loyalty by choosing to invest in their company's stock. A study by experts at UCLA recently found that nine out of 10 employees actually felt their company's stock was a safer investment than a diversified mutual fund.

In response to Enron, many are calling for changes. Some proposals, like letting employees sell stock earlier (today, they must hold for three years), make sense. Others, like putting a cap on the amount of company stock a 401(k) can hold, are troubling because they restrict employee choice.

But one thing that must happen is increased education. Companies should not be expected to bad-mouth their own stock, but they should have to explain the importance of portfolio diversification, and provide employees with the tools to make wise investment decisions. That's a communications challenge requiring the expertise of both employee communications and investor relations pros.

Getting employee communications and IR people to work together may not be easy though. At most companies, the PR function is so fragmented, the employee communications person may report to HR, while the IR person reports to the CFO.

Thus, the PR department may have little control over an issue that has the potential to damage one of its most important stakeholder relationships, and ultimately tarnish the corporate reputation.

One lesson from the Enron debacle is that stakeholders are no longer discrete groups, divided from one another. Employees are shareholders too. When you compartmentalize communications functions, you may send conflicting messages - or, at the very least, fail to realize key synergies.

See Market Focus, p.16.

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