the power of specialized thinking

Financial +Professional Services

n e w s l e t t e r

Published by Makovsky + Company Volume 22/Number 7

S t rategiesFor more information on Makovsky + Company’sFinancial + Professional Services practice, please visitwww.makovsky.com/financial-services/overview.html

The CEO Imperative:Maintaining Trust in a Mistrustful Economy

The current economic crisis willimpact home and retirement accountvalues for years to come, but where itmay have the biggest impact is incorporate reputations, where eventhe most respected brands in thefinancial services world have seentrust for their leadership andinstitutions drop to all time lows.

Even before we entered the mostturbulent times — marked by thebankruptcy and fire sales of investmentfirms, as well as gargantuangovernment bailouts — trust wasalready a top issue at financial servicesfirms. The Gallup Organizationreported in late Summer, 2008 thattrust had dropped by 15 percent in thefinancial services and 14 othercategories. And the pollster revealedthat nearly half of consumers had “littleor no trust” in business or institutions.

Eroding reputation value means thatCEOs may need to work harder to earntrust and credibility both within andoutside the organization. This is aclimate where difficult communicationsare more frequent — where businessleaders are addressing investors,customers, the media, and employeesabout stock declines, soured invest-ments, price increases or staff cutbacks.It is a climate where corporateadversaries and activists, seeingweakness, may feel newly empowered.And it is a climate where anxiousemployees may be receptive to rumoror resistant to sacrifice.

Given the reputational risk in the marketplace, CEOs and other business leadersmust make trust a priority in theircommunications programs and go theextra mile to enhance it. Here are a fewcommunication principles to follow:

» K.I.S.S. – In today’s climate, a CEOspeech or e-mail may resemble thechild’s game of telephone. The messagehe or she intends may be steadilyreinterpreted or misunderstood as ittraverses an unsettled organization. Thelesson: keep it simple ... and direct.

When he was Prime Minister during theSecondWorldWar,Winston Churchill wasfamous for refusing to read anycorrespondence from ministers andsubordinates over one page long.Churchill’s basic principle applies today. Ina climate when people are anticipatingbad news, CEO communication needs tobe clear, succinct and direct.

This does not mean CEOs should cutback on communication. Rather, theyshould be communicating externallyand internally more than ever to remindaudiences that the company’s values are

intact and business strategies are still relevant despite marketchanges. In fact, despite a negative news climate, constructivedevelopments can resonate even more strongly. Marriott, forexample, received good press coverage of its recent five-pointplan to reduce the environmental impact of its globaloperations. Ford Motor Co., in the midst of this summer’s gasprice escalation, won high marks from consumers and mediacommentators for the aggressively promoted announcementof its plans to scale back SUV production and focus on moregas-efficient vehicles.

» Act Local – Harvard marketing professor John Quelchrecently observed that, “when hard economic times loom, wetend to retreat to our village.” He is suggesting, in part, thatunsettled people seek local authorities for insight,interpretation and inspiration. Within a business organization,those local authorities are the day-to-day supervisors.

Hard times make it essential that these “local” managers beempowered with the information necessary to make themcredible, reliable internal spokespeople for their staffs, especiallywhen layoffs have occurred or are rumored. There is no moreefficient way to stoke employee anxiety and resentment than toleave their immediate supervisors in the dark.

How can the organization be mobilized in this way?Leadership councils are one of the best techniques totransform managers into spokespeople up and down theorganization. The technique typically involves“hub and spoke”style meetings between supervisors and their immediatereports, where news and policy decisions are presented,followed by questions and discussion. These meetings,replicated at every level of organization, are an outstandingway to build understanding and support for executivedirection. Ideally, the intelligence garnered here flows backup the organization as well.

» Highlight Values – This top-to-bottom flowingcommunication is a public relations process and ultimatelyan expression of the company’s values and culture.Specifically, organizations that best maintain employeeloyalty and morale in good times and bad are usuallycharacterized by tight cohesion around a set of corporatevalues. Today’s best reputation companies — from CharlesSchwab to New York Life to Southwest Airlines to WholeFoods — reflect this quality in communications.

While corporate values engage and help fuse globalorganizations, they are ultimately the CEO’s domain. GreatCEOs understand that values are not just articulated, but mustbe modeled and enforced from the top. Otherwise they ringhollow. Jack Welch, former CEO of GE and the ultimatenumbers manager, once said that good performing managerswho flouted GE’s values were weeded out, while evensubstandard performers who modeled them were givenopportunities to improve.

» Maintain Accountability – A commitment to transparencyhas become a widely-emulated corporate value over the pastdecade. Yet in hard times, transparency takes more courage.CEOs face the temptation, in one fashion or another, to hunkerdown. This can be an especially dangerous stance in a tougheconomy because it often feeds uncertainty, one of the virusesthat most weaken reputation.

Starbucks founder and CEO Howard Schultz provided apositive example of transparency under fire at thecompany’s recent annual meeting. Facing a 50% decline instock price, Schultz addressed 6,000 disgruntledshareholders and told them, “I share your concern anddisappointment with how the company has performed andhow that has affected your investment. And I promise you:This will not stand.” Schultz proceeded to review a clear,readily understandable five-point plan to address Starbucks’problems, and to answer all questions from attendees. Thecapacity audience gave him a standing ovation.

The hallmarks of today’s economy — turmoil in the creditmarkets, rising energy and food costs and volatile markets —pose unprecedented challenges to the financial servicessector. One of the major challenges facing CEOs in thisindustry is maintaining their organizations’ reputation. Leadersare often tempted, in a climate like this, to lie low and try toweather the storm. Yet the times require the exact opposite: adeeper commitment to the communications process,including a rededication to transparency, leadership visibilityand organizational unity. Each of these is ultimately theresponsibility of the CEO.

About Makovsky + CompanyFounded in 1979, Makovsky + Company (www.makovsky.com) is today one of the nation’sleading independent global public relations and investor relations consultancies. The firmattributes its success to its original vision: that the Power of Specialized Thinking™ is the bestway to build reputation, sales and fair valuation for a client. Based in NewYork City, the firm hasagency partners in more than 20 countries and in 35 U.S. cities through IPREX, the third largestworldwide public relations agency partnership, of which Makovsky is a founder.

Learn more about howMakovsky’s Financial + Professional Services Practicecan make a difference for your company.

Contact Scott Tangney212.508.9661stangney@makovsky.com

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