Managing fallout of stock options backdating is no easy task as scandals may leave lasting image of greed
Wall Street just wouldn't seem right without a crisis. Having spent the past decade dealing with the rise and fall of the tech boom and the corporate governance fiascos that brought down titans like Enron and MCI, the world of big business is now facing another ethical issue that shows no sign of dissipating in the near future: backdating.
The stock options backdating scandal - a gathering storm that The Wall Street Journal reports has about 100 companies under investigation in the illegal practice of artificially awarding stock options to insiders after-the-fact on days that the stock was low, thereby maximizing their value - has been building for months, and each disclosure sets off shudders in corporate boardrooms. As one financial communications expert put it, the recent HP "pre-texting" scandal has been considered "manna from heaven" by many companies because it drew reporters off the still-hot trail of further backdating stories.
But stories have a way of creeping out. The Wall Street Journal reported on September 22 that Cablevision found, in a recent internal probe, that it had given backdated options to a dead vice chairman in 1999.
Although the job of extricating a company from an illegal backdating scandal falls partly to lawyers and executives themselves, specialized corporate communicators and IR professionals manage much of the fallout. But they say that keeping messages positive in such situations can be a hard task.
"The process tends to be driven largely by the attorneys... most of the PR efforts you've seen have been very stripped down," says Paul Sherer, an Ogilvy PR VP who emphasized that all of his comments referred to the backdating situation in general.
"The challenge here is that, for a number of companies, there are ongoing investigations - both internally and the government look[ing into] these matters," says Peter Duda, Weber Shandwick EVP. "When you're talking to your external audiences, it's the elephant in the room that you can't talk about."
Joele Frank, whose eponymous firm counseled some of the first companies implicated in backdating, says PR pros in these situations should give as much information as possible, talk about the ongoing business as best they can, and never promise a timetable, which would likely prove to be wrong.
"When it first began, none of us knew how to do it," says Frank. "Handling it today is very different from handling it when it initially began."
While the wave of illegal backdating disclosures makes this concept a relatively new scenario to the public, the general outline of the scandal is not different from all of those that have come before. It presents a picture of a few feckless insiders soaking the trusting masses for their own gain.
"For companies that are implicated in the backdating options scandal, it is yet another reminder to employees and investors that there are two classes of people: the haves and the have-nots," says Michael Robinson, a VP at Levick Strategic Communications and a former Securities and Exchange Commission spokesman. "A lot of this is less about the legal issues involved and more about the perception issues involved. And the perception is just terrible."
Robinson counsels classic crisis communications strategies for companies implicated in backdating: full and early disclosure, concrete action to fix the problem, and a pledge to never let it happen again. But he acknowledges that the specter of corporate greed raised by the options makes it "a perfect story for the media" and one that is unlikely to fade from the front pages.
That makes for a gloomy forecast for those executives who may have hoped that their PR advisers could rescue them from the backdating morass. And now that more companies are auditing themselves, the negative news is sure to keep coming.
"With financial issues, the more you look at something, the more you find," Sherer says.