10th anniversary: financial analysis

Various corporate scandals prompted more regulation, calls for transparency, and rethinking of comms tactics

In late 2001, Enron started to un-ravel. The company ultimately would disintegrate under a shroud of disinformation and corporate malfeasance. Financial communicators were transfixed to the events, witnessing in real time what would change their professional world.

Indeed, much of the regulation and increases in calls for transparency that followed can be tied to that one company and the misdeeds of a select number of executives, such as Kenneth Lay and Jeffrey Skilling. After Enron, nothing would quite be the same.

Mark Palmer, who joined Enron in 1996, was promoted to VP of global corporate communications in 1998. He went on to become MD of corporate communications following Enron's bankruptcy.

“Once we went bankrupt and got a new management team, my role shifted from commenting on issues related to the reasons we went bankrupt and issues related to former executives that were going through their own special version of hell... to helping preserve value, distribute that value as quickly as possible, and preserve as many jobs as possible for the non-bankrupt portions of Enron's business,” he recalls.

Now VP of corporate communications for food-service marketer and distributor Sysco, Palmer walked away from the Enron experience realizing that communicating to the internal audience is a critical daily function.

The Enron scandal and the others that soon followed (WorldCom, Tyco International) helped to create and expedite significant changes to how public companies reported material information. As a result, PR pros at public companies and financial services firms today – with the economy causing great uncertainty – have different approaches to their craft than they did 10 years ago.

Pressure to communicate internally is now coupled with the need to communicate to a larger variety of external audiences.

“When my client had a problem, it was important that I saw this New York Times reporter, this Wall Street Journal reporter, these two big customers… you could make a list,” says Adam Miller, president of Abernathy MacGregor Group. “Now everybody is important because the customer that you don't even know is your customer puts something on a blog, that blog is on a bigger blog the next day, and then it's on the cover of The Wall Street Journal.”

In addition, the investor has evolved into a sophisticated and savvy market-watcher.

“There's a smarter consumer out there and investors have become more affluent,” says Scott Tangney, EVP at Makovsky & Company, citing those with a high level of investable assets, as well as hedge funds and private equity groups, as those among today's investor pool. This has added a layer of complexity to the markets.

The explosion of the Internet and the 24/7 news cycle has also made getting information – and dissent – out to the larger world a much quicker process.

“The media is much more rapid, more intense, and there's also a localization of it in terms of re-porters on the ground, in the bankruptcy court, or in the local markets where news is actually happening,” says Andrew Brimmer, partner at Joele Frank, Wilkinson Brimmer Katcher.

“Shareholder activism, in particular, has changed our business markedly, in large part because of the exponential growth in hedge funds over the last few years and the visibility that they've been able to gain through financial media,” adds Steve Frankel, also a partner at Joele Frank.

In 2000, what financial communicators, particularly IR pros, could say to all these varying audiences and media became a matter of corporate governance with the passage of Regulation Fair Disclosure (Reg FD). The legislation is deemed by some to be the most important development of the past decade.

“The biggest thing over the last 10 years has to be Reg FD,” says Ryan Barr, SVP and director of financial relations at Hill & Knowlton. “It was not just a changing point for financial communications, but almost a validation for financial communicators. The regulation really helped advance the practice in general to become something that was elevated to the board level.”

Technology plays a critical role in the communications process, and is sure to continue to do so into the future with the use of e-mail, corporate Web sites, webcasting, and other digital tools.

“Ten years ago, you'd fax a press release in advance of earnings or there'd be this archaic technology system, uploaded with quite a bit of time in advance,” says Ruth Cotter, director of IR at AMD. “Now you just e-mail minutes before.”

Technology's allowance for proactive outreach has also spurred collaboration between PR pros.

Over the past 10 years, the role of the financial communicator has expanded, shifted, taken on greater significance, and become an aid to the bottom line. All that has happened is now contributing to the response to the dire situation on Wall Street.

“The key points that anyone in this situation is asking themselves, and getting a pretty quick answer to, is whether or not they're prepared,” says Sean Kevelighan, VP at Zurich Financial Services' media relations group in North America. “If you have a foundation set up, you're going to be much more prepared to go into hard times or good times. Turmoil brings both.

Looking back
2000 - Passage of Reg FD
Regulation Fair Disclosure transformed the way public companies disclose material information and how they communicate with every group of stakeholders

2001- Enron scandal
The first of a string of corporate scandals, Enron rode high atop the corporate world until fraudulent accounting practices were uncovered and the company went bankrupt

2002 - Passage of Sarbanes-Oxley
Following a series of corporate scandals, SOX increased both transparency and accountability of public companies

2008 - Bear Stearns meltdown
Despite being liquid, investors didn't believe because the company failed to communicate

2008 - Increased adoption of XBRL
XBRL is changing static corporate financial information into facts and figures that can be manipulated by diverse audiences

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