Corporate Case Study: EDS embraces comms to help clean up its business

Senior leadership came to respect the counsel of EDS' PR team, whose charge to restore confidence in the company began with strategic messaging and media relations.

Senior leadership came to respect the counsel of EDS' PR team, whose charge to restore confidence in the company began with strategic messaging and media relations.

Thomas Mattia has learned one lesson the hard way: If you are the corporate communications chief of a company in trouble, don't bother taking a vacation. Electronic Data Systems (EDS), which Mattia serves as corporate VP of communications and advertising, has had a bad year. Wall Street's unhappy rumblings began with questions about megacontracts requiring heavy upfront investments and EDS' inscrutable percentage-of-completion accounting method. Two of its clients, WorldCom and US Airways, filed for bankruptcy, as did a few other of its smaller clients. And that was just the beginning. "We've addressed just about every communications issue that you could address in a career," Mattia says of the past year. And senior leadership came to respect the sound counsel provided by EDS' communications team. "In a difficult environment, people understand that the business issues surrounding the success of a company are not driven by the head of communications," he explains. "We managed to get through some difficult stuff without bursting into flames." Difficulties included CEO Dick Brown losing his job and a miss of quarterly earnings by a wide margin (and resulting media and investor fallout), not to mention human resources problems that required internal communications damage control. While Mattia gained stature during the ordeal (earning a promotion and added responsibility after his boss, SVP Don Uzzi, retired in November), he lost a lot of sleep and some sightseeing opportunities. When EDS client WorldCom filed for Chapter 11 protection last summer, Mattia's family was vacationing in France. He spent four days sleeping on a couch so his late-night phone calls wouldn't disturb others. During spring break this year, the Mattias planned to get away from it all in the remote Big Bend region of Texas. He bought a satellite phone just in case. Sure enough, Mattia was called off the Rio Grande River to help announce Brown's ouster and replacement with the out-of-retirement, Dell-style leadership tag team of former Westinghouse CEO Michael Jordan and EDS veteran Jeffrey Heller. "We started writing the release when he was 100 miles west of Abilene," recalls Jeffrey Baum, director of corporate communications and global community affairs. High marks for accessibility The biggest problem facing the information-technology outsourcing company that H. Ross Perot built, then abandoned, came last fall. The company seemed eerily immune from tech-industry woes until it shocked investors September 18 by lowering its third-quarter earnings estimate 80%. The announcement came mere weeks after Brown touted EDS' fiscal health during an investor relations road show. The company's stock, which topped $70 per share in its heyday, bottomed out at about $11 (it has since rebounded to around $18). The fourth-quarter drop fueled much speculation about who knew what when. While analysts, investors, and reporters uncovered no evidence that EDS delayed or withheld bleak financial news, they found little comfort in Brown's plea of ignorance. An SEC investigation ensued. "It was because of big contracts that didn't materialize. That's kind of the nature of their business," explains Chuck Hill, research director for Thomson First Call. "They probably could have said something sooner," he speculates. Reporters give EDS high marks for responsiveness and accessibility, but note that the PR team didn't concede negative points without a fight. "They really didn't want me to do the story," says Fortune writer Carol Loomis, whose February article ran with a photo of Brown and the headline "I own this problem." "They argued that the timing wasn't good, and I agreed that it wasn't good for them," she says. Another journalist describes EDS as arrogant before financial problems surfaced, and later contrite but aggressive in promoting its position. "Whenever [the press] took a step that we felt was unfair, they heard from us right away," Mattia says. "If I have to send a letter to the editor, I failed somewhere in the beginning of the process." For example, the PR team learned on a September Sunday that The Wall Street Journal planned to run a Monday-morning wrap-up of the prior week's developments. Mattia, who had offered access to top executives, phoned and insisted the reporter interview EDS officials before writing the piece. "The story, while still negative, was not nearly as bad as it would have been," Mattia says. "About 50% of the story was information the reporter got from us on that Monday." Messaging framed EDS as a solid company that had veered slightly off track, but was still profitable. The company hired Kekst & Co. to help with financial communications and revived its relationship with Edelman. The firm had been EDS' agency of record, but work dwindled because of budget cuts in the months leading up to the crisis. Strategically placed messages Since Mattia gained advertising oversight, paid messaging has become more low-key and less abstract than the cat-herding and squirrel-running Super Bowl spots that raised EDS' profile a few years back. Last fall was a bad time for PR, Mattia says, so having advertising came in handy. "Every story has to go back to all the baggage you're carrying," Mattia explains. "Even something positive is going to go back to the fact that we missed on September 18." So, EDS chose to bypass the press filter and run small but strategically placed client testimonial ads in The Wall Street Journal. But no communication effort could save Brown, a consummate salesman once hailed as EDS' turnaround savior. "Dick [Brown] was a very polished, very proactive communicator. That, at a time and place, was very good," Mattia says. "Mike [Jordan] is more laid back and quiet, and in this time and place, that's really a good thing." Morale suffered under Brown, despite his practice of communicating directly with employees via e-mail. He instituted efficiency-driven staff cuts and a bell-curvish ranking system that forced employees onto both ends of an evaluation scale. Drastic cutbacks in the company's once-liberal severance policy amid layoffs left employees feeling particularly bruised, Mattia says. Among Jordan's first actions was addressing "people care" problems. He and Heller visited EDS facilities, eliminated forced ranking into the lower evaluation categories, and reinstated the term "human resources" into what Brown had called "leadership and change management." They also budgeted money for raises and restored much of the severance package's luster, even adding a few new features. New management unblinkingly took on tough financial issues, too, attributing a first-quarter loss to problems with its massive US Navy contract. CFO Robert Swan also expressed distaste for percentage-of-completion accounting. Jordan spoke softly at the company's annual shareholder meeting last month, vowing to fix what ails EDS, but deferring specific strategy discussions until a June analyst meeting. "The investors are reacting favorably," notes IR VP Myrna Vance. "They like the candor, they like the transparency, and I think they are giving this management team the opportunity to deliver on expectations." After an 18-month hiatus, EDS revived its TV-advertising program in May. Unveiled during the Byron Nelson Championship, a PGA tournament EDS sponsors, the campaign is described by Mattia as a return to metaphor, but more concrete than past efforts. The spots depict clients as forklifts and sports cars, illustrating how EDS can help improve performance. Those who kept up with EDS' 2002 financial problems, however, might find unfortunate irony in one ad. In it, "your company" is shown as a van stalled on railroad tracks. The van narrowly avoids getting hit by one train labeled "your supply chain problem," only to be hit seconds later by another train headed the opposite direction labeled "your distribution problem." "No business can see everything that's coming," the voice reads. "That's why you need EDS." ----- PR contacts Corporate VP of comms and advertising Thomas Mattia Director of corporate comms and global community affairs Jeffrey Baum Business and industry relations director Ken Smalling Executive comms director Springfield Lewis Ad director Cheryl Smith-Johnson Employee comms director Stephen Holder Industry analyst relations director Clyde Kesling Government affairs VP Bill Sweeney VP of IR Myrna Vance Communications staff size 80 Outside agencies Kekst & Co. for financial communications; Edelman for regional and corporate support

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