Many Financial Services Firms Flunk PR, Survey Says

While more than three in four (77%) financial industry communications and marketing professionals feel their company’s reputation will improve this year, many challenges remain, according to a survey of 150 communications and marketing executives at leading financial institutions, commissioned by Makovsky + Company, and undertaken by Echo Research in February and March of this year.

Chief among the issues they face: negative public perception, which was cited by nearly eight in ten (78%). This is most likely the result of the lingering aftermath of the financial meltdown in 2008, which led to “The Great Recession.” This is borne out by the fact that nearly all of our respondents (96%) said that financial services companies invited negative public perception because of their actions or inactions.

I noted with interest that 74% of those we polled believe that increased regulations of the financial services industry will help their firms improve reputations and trust with customers faster.

This point is both interesting and disturbing. It suggests that their reputations will improve due to external forces (in the form of increased regulation) as opposed to initiatives undertaken by the industry itself and its participants to bolster their reputations.

Should a company’s reputation be left to outside forces? I don’t think so. A company’s reputation is forged by its actions and should flow from its leadership.

Related to this is the fact that the industry and many of the companies in it could be doing a better job, from a public relations standpoint, if they are going to overcome the disease of distrust. In fact, 57% of those polled graded the industry's public relations efforts as “average,” “below average” or “failing."

It is at least heartening to note that most respondents believe their departments will grow in importance in the near term.

The Romney Take on "Etch a Sketch"

I was called the other day by a Forbes reporter who asked my opinion (and ultimately quoted me) about how Mitt Romney should have handled the "Etch A Sketch" remark made about him by Eric Fehrnstrom, one of his longtime advisors, and whether I thought Romney should have fired the aide. Further, how would this particular situation have been handled in the corporate world?

According to the press, when asked about the switch from the primaries to a potential Romney matchup with Obama (and how the candidate would appeal to moderate swing voters), the advisor said: "Everything changes. It's almost like an Etch A Sketch. You can kind of shake it up and restart all over again."

A classic children’s toy, Etch A Sketch is a tablet on which a person draws something and then erases it by turning the toy upside down and shaking it. Romney has been widely cited by constituencies in both parties for changing positions on major policies rapidly ... which accounts for the analogy.

The publicity around the remark was huge because “flip-flop” accusations have dogged Romney since his campaign began.

How did the candidate respond? According to the media I read, Romney first tried to dismiss the comment, but then interpreted the remark to the press as referring to changing processes — such as itineraries or logistics. He also said he would continue to run on the same issues. He said nothing about terminating his aide.

How should Romney have handled it? I would have advised Romney to emphasize that his views as a politician have matured over the years, which accounts for his policy changes — only because the "process" approach he used is really not believable. Changing processes has never been an issue in the campaign. Preferably, I would have asked the advisor to issue a media statement (or have Romney do it) clarifying his response — that the slate is always wiped clean when you move from the primaries to the main event ... the dynamic changes, and the Etch A Sketch point had nothing to do with Romney's position on issues. Fehrnstrom eventually did issue an email.

I would not have fired the aide, as it would only have brought more attention to the matter and suggested Romney's "guilt." At this juncture, I would let the matter drop.

Hopefully, for Romney's sake, the whole issue will get lost in the tsunami of messages that are sent out by his campaign and others, every minute of every day. The tidal wave of information is actually an advantage that national politicians have that is generally not available to corporate titans. An aide to the CEO or a high-ranking officer of a company who is caught in a disloyal act or having made an unflattering statement, which is broadly communicated, is often fired or demoted from the front lines. Obviously, circumstances always must be taken into account.

The Reason CEOs Fail: An Update

There’s a classic article called “Why CEOs Fail,” that first appeared in FORTUNE magazine in 1999. The authors reported that it wasn’t lack of charisma or the “vision thing” that brought down smart, powerful CEOs. Seventy percent of the time, it was simply bad execution.

The article is still relevant today, because CEO failures are even more visible than they were 13 years ago — and in high definition. Last year alone, the CEOs of BP, Hewlett-Packard, Burger King, Bank of New York Mellon and Yahoo were unceremoniously shown the door for failures that — in addition to lackluster execution — also included poor communications skills, an abrasive management style and the wholesale defection of unhappy executives.

Execution is as critical as ever, in and of itself, but today we also have transparency to deal with … no matter what the level. The CEO is communicating with his every move and — because of the open window into our business that has been enabled by the Internet — stakeholders are learning about poor CEO execution faster. Thus, more is at stake than ever before; and the need to vet CEO choices, during the interview process, is greater also.

The Bloomberg Move

The decision by New York City’s Mayor Bloomberg to stand behind Goldman Sachs (GS) — in the wake of the negative news commotion raised when former GS employee Greg Smith damned the firm's culture in a major New York Times op-ed piece — was neither unexpected nor inappropriate.
The question is: was it handled properly? And did the mayor best serve all of his constituencies?

He had to show some solidarity with GS, a major taxpayer and possibly one of the biggest customers, globally, for his company’s terminals (which dispense critical financial information by the minute). Further, Michael Bloomberg is himself "part of Wall Street" ... it's where he made his fortune. Goldman, as The Times has reported, citing a variety of sources, has been “down-on-its-luck." Bloomberg went to the GS offices to do a “pick-me-up” and shake hands with the CEO and others. He intended to make them feel better. He did. But that was only the half the job.

Where did Bloomberg go wrong? He quite properly made a statement supporting the importance of GS as an employer and taxpayer.

But he then clearly expressed his contempt for employees who chose to leave an employer, and particularly long-term employees. Was this comment necessary in the very free society in which we live and work? Obviously, he could not support, nor should he, an employee disparaging his or her former employer publicly. But I felt Bloomberg erred in not explicitly acknowledging the reciprocal obligations which employers have in maintaining a strong and vibrant culture for their employees — which is at the heart of any business! That is what attracts and keeps clients. When people and clients start leaving and saying nasty things, it is not a good sign for any business; particularly one like Goldman that has faced an extraordinary level of public scrutiny.

Since the financial crisis, the culture at GS has become a focal point for critics. There is a growing popular concern about the values that Greg Smith — a 10-year insider — expressed in his op-ed piece, which caught the popular fancy, as his were charges that have been leveled against Wall Street time and again. The Mayor of New York represents these folks, who represent a wide range of backgrounds, including disaffected Wall Street employees and shareholders. In my opinion, Bloomberg should at least have acknowledged the legitimacy of their concerns as well.

Perhaps if he had made his statements from City Hall, rather than at Goldman Sachs itself, Bloomberg might have felt freer to objectively address the topic, appealing to both Wall Street and the other 99%. After all, cultural strength is an important issue for all of a company's stakeholders.

Goldman, Wall Street and A Culture Crack-up

Andrew Goldberg, EVP and Head of the Change Management Practice at Makovsky + Company is today’s guest blogger.

The recent allegations of a mid-level banker at Goldman Sachs, Greg Smith, that the firm relegates client needs to its search for quick profit is only the latest in a number of events since before the financial meltdown that highlights a culture of greed. For Goldman, what seems to be the expression of heartfelt emotional pain of a long-term employee conflicted over ethics, this places it at a reputational crossroads.

Goldman has weathered and rather successfully survived outside criticism from regulators and the media, even as it fends off legal challenges from the SEC and others. But when your own people, occupying critical positions in your core trading business, begin to lose faith or react in anger against the firm, it is an indication that the internal system is cracking. And when your people lose confidence in your business model, your clients will also. The survival of the firm is then put at risk.

The question for Goldman now is how to contain its reputational damage.

The first step was a letter from CEO Lloyd Blankfein and President Gary Cohn to their employees which was on its face self-contradictory. The letter first makes the critic and his claim seem unimportant—as just one of thousands of employees rather than one who worked his way up over twelve years with long-term client relationships—and his experience unreflective of the larger culture of the bank. But then it goes on to say that the senior Goldman executives would now examine Smith’s claims of callousness toward client interests. This indicates the claims might have some credence. These language contortions raise doubts as to how thoughtfully Goldman is addressing what could be similar concerns on the part of others at the bank. Nor does it seem that Goldman was considering how outsiders, including the media, would interpret the letter.

Such an ambivalent approach cannot work easily, given the pounding Goldman has already taken. A clearer direction is needed:

First—the company should avoid acting in a punitive way toward an employee who on the face of his claims actually has the interest of the firm at heart. Although it is reported that the company has tried to reach Smith, it is not clear how and under what circumstances. Instead, he should be publicly invited in to meet with top management and speak frankly regarding his concerns—along with the knowledge that the company will hold him harmless from legal action arising from his open letter to the Times.

Second—and a much bigger challenge to address, is creating internal structural barriers to the embedded conflicts that face many trading houses. One step would be contracting with a prominent outsider such as a former Justice Department executive, who can dispassionately assess potential conflicts and has the ability to go directly to the Board of Directors with any findings of abuse.

Finally—the Goldman board itself needs to take an activist role in sustaining its reputation. Since the financial meltdown and subsequently the recent boom years of record profits, Goldman’s board has played a quiet role despite continued reputational hits. Taking the lead in a thorough audit and correction of cultural risks and conflicts at Goldman is an essential role for Goldman’s board at this critical time.

What happens now is a test-bed not only for Goldman, but for Wall Street. As the biggest player, how it handles its suggested cultural crack-up will be benchmarked by its peers. It can be hoped that Goldman will act with the health and integrity of its industry in mind.

New Business: Looking Beyond Borders

The yellow pages used to define our markets. Unless you were in a major hub — like Tokyo or New York — your clients were mostly confined to the city or region in which you operated. Today, although many firms still have a geographic focus, it’s possible for anyone, anywhere to seek out your company.

I believe this trend will accelerate.

First, there’s still tremendous potential for growth in terms of global internet usage, whether by conventional computers or mobile devices. While more than 78% of North Americans are wired to the web, less than one in four Asians and only 36% of the people in South America and the Caribbean are currently connected to the internet.

Second, the number of cross-border investments is expected to rise. Among the most important sources of potential leads for our industry, according to Goldman Sachs, are likely to be companies from the BRIC economies: Brazil, Russia, India and China.

Keep in mind that, according to the IMF, the real GDP growth rate for the U.S. last year was only 2.8 percent.

Over the past ten years, the BRICs were responsible for more than a third of the total rise in GDP worldwide. Goldman Sachs predicts that the BRICs will become an even larger force in the world’s economy … which means even more opportunity for us.

So we should be considering how our companies can build relations with these countries — if we’re not already doing so.

Choosing the Right Behaviors

Free will versus determinism is a knotty philosophical question. Do we really have the ability to choose our behavior? Or, is free will an illusion and — given the circumstances — whatever happened was fated to happen? There are definitely benefits that come with the belief that we have choices in life. A team of researchers led by Tyler Stillman of Florida State University found that a belief in free will predicted better career attitudes and better performance evaluations.

It reminds me of a story I heard a long time ago … so long ago that I can’t even remember the source. It was about a king who’d heard that Moses was a kind, generous and courageous leader. The king consulted his astrologers and had the court phrenologists study a portrait of Moses. (Phrenologists back then believe they could deduce a lot about a person’s character by examining the shape of his skull.) Having completed their studies, they told the king that Moses was actually greedy, self-centered and cruel.

The king’s curiosity was piqued even more by this, so he decided to visit Moses himself … and found him to be a very good man. The king related what his advisors had told him. Moses listened and then told the king that what the astrologers and phrenologists had said was quite true.

“They saw what I was made of,” said Moses, “but they couldn’t tell you how I struggled against it, so that I could become what I am.”

I was really struck by this story because it so clearly demonstrates that behavior is the result of conscious choices. Your character is not your destiny. You can shape your own future by choosing the behaviors that will enable you to win.

Or — to put it even more succinctly — as Mark Twain once said: “Always do right. This will gratify some people, and astonish the rest.”

Heritage Brands’ Digital Bridge to Millennials

Makovsky EVP Matt Wolfrom and AVP Matt Makovsky wrote an article which appeared in AdAge on 2/29. The following is based on that article.

Facebook’s IPO will be the largest of any tech company in history, and that spotlight has Chief Executives asking their CMOs, “What’s our Facebook strategy?” Why this question?

Last week, at the inaugural Facebook Marketing Conference in NYC, Facebook took another giant leap forward with the launch of a new “brand timeline” – a digital canvas for brands to tell their stories dating back to their earliest days.

The brand timeline will no doubt unlock opportunities and also expose risks for many CMOs, but we envision a new world of possibilities for established heritage brands – and specifically to build connections with millennials.

This generation is the largest, most diverse, educated, affluent, complicated and influential consumer base that CMOs have ever encountered. Even with over 800 million users, Facebook remains a platform that was created by a millennial, for millennials. With the new brand timeline feature, brands will now be able to interact through a “virtual life story” that is inherently authentic to the brand and its history, on a medium that’s now second nature to a generation.

So what steps must CMOs consider before making this new Facebook conversion?

•Is your brand story ready to make the leap? Before making the digital leap, make sure your core brand story is quick to understand, easy to remember, more emotional and invites participation. Control is out. Co-creation is in. To be successful, marketers must be willing to let go of elements of their story, enabling millennials to discover new and lasting partnerships with heritage brands.

•Any skeletons in the closet? Every brand has a past, and given the ease with which millennials can discover past problems, it’s important to be transparent and face up to any past painful history and how the brand has dealt with it. Otherwise the backlash could be severe.

•Tap millennials within your marketing organization. Smart CMOs are complementing their traditional marketing acumen by tapping the adept millennials. For heritage brands, the new timeline not only creates an opportunity to build relationships with the millennial consumer, but also attract new marketing talent and vitality to the brand.

While it is too early to know exactly how the Facebook brand timeline will connect with the market, we believe the principles outlined above will prepare heritage brand CMOs to capitalize on the seismic shift occurring on one of the world’s largest marketing platforms.

Digital Natives on the Rise

Dr. Gary Small, a psychiatrist at UCLA, has reported that digital natives --people who can’t remember the time before technology -- have trouble maintaining eye contact or noticing non-verbal cues in a conversation. This is an example of the more subtle challenges — and opportunities — facing the public relations industry in the future.

Education may be a useful tool for enabling digital natives — who will definitely be our employees — to communicate more eloquently with “old-timers” who rely on eye contact and a warm handshake.

But it’s also possible that, for this next generation of managers, these cultural gaps may not exist at all. Digital natives may actually be more comfortable communicating with each other without nonverbal cues.

Just as we learned to be sensitive to the cultural nuances associated with cross-border business, we may have to learn how best to communicate (verbally and nonverbally) across the divide that separates digital natives from the rest of us, whether they are clients or colleagues.