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Web article: Lessons on press relations following the Anderson-Enron event

The fall of Anderson should have left a resounding message to all professional service firms: if it could happen to a firm like Anderson, it could almost certainly happen to your business. Richard S. Levick, president and Larry Smith, strategic director at Levick Strategic Communications examine the fall of Anderson and the lessons that law firms should absorb to ensure that they do not make the same mistakes.

2 December 2002

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A media disaster:
Lessons on press relations following the Anderson-Enron event

The fall of Anderson should have left a resounding message to all professional service firms: if it could happen to a firm like Anderson, it could almost certainly happen to your business. Richard S. Levick, president and Larry Smith, strategic director at Levick Strategic Communications examine the fall of Anderson and the lessons that law firms should absorb to ensure that they do not make the same mistakes.

All professional services, not just accounting, have changed immeasurably in the 18 months since Arthur Andersen, enmeshed in the Enron scandal, collapsed with dizzying speed.

Of course, rather than whistle past the graveyard, we need to be gathering the lessons, big and small (and all important), that the Andersen disaster provides.

As the court-appointed examiner in the Enron matter has made abundantly clear, law firms are at the top of the list in terms of who needs to study hard as these lessons get chalked up on the blackboard.

The lessons fall into two categories. First, there are lessons on how to run a professional firm in a way that keeps you out of the quicksand the Andersen auditors sank in. These are the oversight and due diligence lessons that global growth makes all the more imperative.

Then there are the lessons about crisis management. Sometimes companies fall into the bog. Sometimes that’s terribly unjust but other times they deserve to drown. In any event, there are a few powerful facts related to how Andersen tried and failed to manage the crisis, including its media crisis response, that have not been adequately appreciated to date, and from which there is much to learn.

An unlikely paradigm

Fact number one is a shocker: from a media point of view, most of what Andersen did was right. In fact, we know of few better models for how to set up and manage a crisis team than Andersen. It is, of course, an irony that a firm that endured one of the worst media blitzes in modern history should be such a paradigm, as the media campaign implemented by the team ultimately failed to save the day.

Yet Andersen’s demise does not belie the soundness of Andersen’s media planning or the seaworthiness of its team. The dismal caveat is that some crises are terminal, either because the company is guilty of unforgivable transgressions, or because, no matter how well advised the media response, there are times when no one will believe anything you say.

It is essential to remember that Andersen’s team, set up before the Enron debacle, was perennially effective in its handling of media relations in a variety of law suits and other institutional skirmishes. The lesson must be: if it can happen here, it can happen anywhere.

Worldwide, Andersen spent $100 million on marketing annually, a giant sum when compared to law firm marketing. It had a brand, something few law firms have achieved, and had moved on to the next stage of marketing maturity. It had become synonymous with an institutional symbol - the orange/red circle - the way Nike has become known for its 'swoosh'.

Yet despite this market penetration, market dominance, and a history of ethical leadership, 77,000 employees were brought down by the acts of a dozen or so bad actors. No firm is immune.

Another important lesson is that it is always later than you think. Crisis situations demand all of your attention early.

It wasn’t their day

Most law firms do not have a crisis team or plan. Most litigators do not even know when to tell their clients that a case may become publicly high profile, and that media prophylaxis is required. By comparison, Arthur Andersen was a cornucopia of best practices.

Andersen’s crisis team was nationally based in the firm’s Chicago headquarters and its Washington DC office. It included staff with expertise in public relations, legal, and lobbying. In turn, smaller Andersen teams in London and Hong Kong communicated 24/7 with that team, and with countries in their own time zones, to ensure the most consistent message delivery possible

Logistically, they drew up an immediate list of priority publications to which they would speak directly, and dedicated their website to information for everybody else. The team was deluged. There were literally thousands of press queries per week.

Despite the deluge, the team was able to respond directly to rampant speculation and get the message out that the indictment was "grossly political.” They ran effective attack advertisements, got their top people on television shows, and placed op-ed pieces in the right places. They built highly visible grassroots teams and introduced an unimpeachable spokesperson in Paul Volker.

The problem was that no one was listening.

Andersen also had terrible luck because the story hit during proxy season, and, when corporations like Delta publicly fired Andersen, it was ominous indeed. Actually, less than 5 per cent of Andersen’s client base bolted at that point, but the press presented the defections as terminal symptoms, so the exodus accelerated. Had the story hit in June or July, it is likely there would still be an Andersen.

One is hard pressed to find a better example of starting early on with a media crisis plan, so you’ll have every chance to elude Dame Fortune’s jealous clutches. Andersen fought its 'holding action' well and the media team leveraged every message.

A fatal error

Yet there was one weakness in the Andersen strategy that law firms in particular must understand. Andersen’s messages were ultimately too legalistic. They lacked the: “We’re responsible” dimension that, from the Checkers speech to Tylenol, has stood beleaguered media targets in good stead. Audiences will tolerate mistakes, but they will not accept the absence of responsibility.

By being too legalistic, in fact, too focused on the specifics of the case, they failed to address the bigger picture. There were no positive messages about Andersen itself. The crisis team was forced into a defensive position. Opportunities should have been created to portray Andersen as, in a thousand other situations, the protector of our financial reporting system, not its destroyer.

WorldCom reminded the world that it was, despite its scandal, a crucial part of the American infrastructure. They even slipped in a reminder that the Pentagon depended on WorldCom technology. Nobody loved WorldCom as a result of this messaging, but the public was less inclined to howl for blood. It would not have been in the public interest to do so.

To be sure, Andersen had greater odds against it - like that nasty bit about the shredding. On the one hand, the echoes of Watergate were resonant. Even without that dire antecedent, audiences judge news in pictures and put those pictures into simple broad categories - good versus bad, trustworthy versus untrustworthy, right versus wrong.

Shredding is not only illegal, from a media standpoint it’s even worse - it’s visual. One envisions sweaty little executives destroying documents in their dimly lit offices as the dawn breaks.

The war was over when that word picture hit the newsstand. The only recourse for Andersen at that point was a visual news byte of some sort that could counter this image with equal force. None was forthcoming.

Mop-up campaign

Once the war was effectively over, Andersen’s media team fought its 'rear action' well, meaning that it used targeted media placements to help preserve individual reputations and maximise the value of the remnant Andersen business units in order to fetch the best prices from buyers or in mergers with other firms.

Andersen was successful in achieving an auction mentality for its business units rather than allow for a fire sale. When you know you’re going to dissolve, the key is to use media to generate the kind of marketplace you want - to suggest through targeted placements that a particular practice or business unit is still valuable, and that it’s being bid on, not picked up on the cheap.

At the end of the day, many believe that Andersen’s first mistake was irreparable: they listened to lawyers who told them they were innocent. They focused on the letter of law and took no responsibility for Enron. It was a media relations mistake that grew from arrogance, and an inability to understand that innocence was irrelevant. Crisis situations are about perception. Reality is the distant cousin and should be treated as one. Warmly invite reality into your home, but only when the entire family is ready.

Richard S. Levick is president of Levick Strategic Communications and can be reached at: rlevick@levick.com. Larry Smith is author of Inside/Outside: How Businesses Buy Legal Services and director of strategy at Levick Strategic Communications. He can be contacted at: lsmith@levick.com.

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