Dark Art E-Book

Tim Burt

• Herausgeber: Elliott & Thompson
• Kategorie: Geisteswissenschaft
• Sprache: Englisch
• Veröffentlichungsjahr: 2012

Seitenzahl: 322

Beschreibung

Dark Art' lifts the lid on the covert world of business and financial public relations. Tim Burt, former award-winning journalist at the 'Financial Times', charts the upheaval of an industry that generates multi-million dollar revenues for mainly private, and tightly held, agencies around the world. He sets out to explain the new tactics shaping strategic communications in the 21st century, and questions whether the industry can live up to its promises in a world where the media itself is facing an existential threat. As the industry struggles to adapt, Burt investigates the impact of the evolving digital environment, and the likely winners and losers from the old 'Dark Art' of spin. What emerges is a tale of corporate intrigue, where larger-than-life millionaires agonise about their reputations, where business promises are made and broken, and where demands grow for strategic communications services that can be trusted. Based on high-profile examples of contemporary corporate crises, this is a unique insider view on a discreet industry at a time of unprecedented change. 'Dark Art' examines the challenges facing the PR industry and sets out a vision of how the industry might evolve.

Leseprobe

First published 2012 by

Elliott and Thompson Limited

27 John Street, London WC1N 2BX

www.eandtbooks.com

This electronic edition published 2012 by Elliott & Thompson

Print ISBN: 978-1-907642-56-2

Epub ISBN: 978-1-908739-00-1

Mobi ISBN: 978-1-908739-01-8

PDF ISBN: 978-1-908739-02-5

Text © Tim Burt 2012

The Author has asserted his right under the Copyright, Designs and Patents Act, 1988, to be identified as Author of this Work.

All rights reserved. No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording or otherwise) without the prior written permission of the publisher. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages.

Extracts on pages 14 and 202 © E.L. Bernays, Propaganda (Ig Publishing, 2004); Extract on pages 60–1 © Management Today, February 2000. Full text available in the MT archive at www.management.today.co.uk; Extract on page 82 © Kurt Eichenwald, Conspiracy of Fools (Broadway Books, 2005); Extracts on pages 85 and 93 by Simon Jenkins © Guardian News and Media Ltd, 2011; Extract on pages 87–8 © Eric Alterman; Extracts on pages 91 and 163–4 © Marcus Brauchli; Extract on pages 146–7 © Kenneth Rogoff; Extract on page 151 © Thomas Friedman, The World is Flat (published in the US by Farrar, Straus and Giroux, 2005; and in the UK by Penguin, 2005); Extract on pages 155–6 © Gary Sheffer; Extract on pages 158–9 reprinted by permission from Macmillan Publishers Ltd: Corporate Reputation Review (‘A Systematic Review of the Corporate Reputation Literature: Definition, Measurement, and Theory’ by Kent Walker), © 2010 published by Palgrave Macmillan; Extract on page 160 reprinted by permission from Macmillan Publishers Ltd: Corporate Reputation Review (‘Under What Conditions Do the News Media Influence Corporate Reputation? The Roles of Media Dependency and Need for Orientation’ by Sabine A Einwiller, Craig E Carroll and Kati Korn), © 2010 published by Palgrave Macmillan; Extract on page 171 © Tommy Viljoen, Deloitte Risk Services partner, Australia; Extract on page 173 © ‘Reputation and Its Risks’ by Robert G. Eccles, Scott C. Newquist, and Roland Schatz, Harvard Business Review, February 2007; Extract on page 178 © ‘Leadership in a (Permanent) Crisis’ by Ronald Heifetz, Alexander Grashow, and Marty Linsky, Harvard Business Review, July 2009; Extract on page 189 © Richard Rumelt, ‘The Perils of Bad Strategy’, McKinsey Quarterly, www.mckinseyquarterly.com, June 2011.

A CIP catalogue record for this book is available from the British Library.

Typeset by Marie Doherty

For Helen

CONTENTS

Title page

Copyright

Dedication

Introduction

Part One: The Great Persuaders

The Age of Anxiety

The Feudal System

Managing the Media

Barter and Persuasion

Battle for Scoops

Return on Investment

Rules of the Club

Part Two: The Reckoning

Crisis, What Crisis?

The Five Stages of Grief

Media in Peril

Digital Divide

The Launderette

The Tower of Babel

Intelligence Agencies

Talent Pool

Quadrennial Test

Part Three: Good Reputations; Bad Reputations

Reputation Management

Risky Business

Constant Vigilance

Securing a Narrative

New Rules of Engagement

Index

INTRODUCTION

David Grigson, the finance director of Reuters, was late.

Around the conference room, on the 5th floor of the group’s London headquarters, there was a banker, the director of corporate affairs and the in-house legal counsel. The voice of Niall FitzGerald, the non-executive chairman, was issuing instructions over the conference call line – his quick-fire Irish patter audible to everyone.

Grigson rushed in. He shuffled his papers, which outlined the terms of an $18 billion bid for Reuters from Thomson Corporation, and looked around the board table. He went white and wide-eyed. Interrupting his chairman, he pointed my way and shouted: ‘What on earth is he doing here?’

The Reuters finance director associated my face with the Financial Times, where I had been media editor for several years. Digging the dirt on Reuters had been a core part of the beat, scrutinising the company’s arch rivalry with Bloomberg and its long-running transition from news agency to electronic data group. No one had told Grigson that I had crossed over. So far as he was concerned, a senior editorial writer had somehow infiltrated­ a secret discussion about the future sale of the company.

The corporate affairs director intervened. ‘It’s all right. Tim’s now at Brunswick. He’s helping us on the deal.’ Grigson shook his head and grunted: ‘Welcome to the dark side.’

In the corporate world, the ‘dark side’ has become the moniker for a shadowy industry that generates global revenues of more than $10 billion annually. Those revenues are earned by a disparate network of business and financial PR companies, which have multiplied rapidly over the past 30 years. Launched initially in the leading capital markets’ centres of London, New York and Frankfurt, the largest firms now have tentacles in every city with any kind of growing business community.

From Atlanta to Zhejiang, firms have opened offices to help manage the public relations of companies large and small. These are the practitioners of what critics call the dark arts – the tactics employed to burnish corporate images or to protect companies from media vitriol.

For most of its history, the art of the financial PR industry was not that dark. It relied on a relatively simple and transparent model: to distribute a client’s earnings announcements and to secure positive coverage in the press month-after-month, year-on-year.

The business equation was similarly straightforward. Each agency sought fees from enough retained clients to more than cover their costs. They then competed for the hugely profitable deal mandates that flowed with mergers and acquisitions. It made rich men of entrepreneurs such as Richard Edelman and Gershon Kekst, the eponymous leaders of their New York-based agencies, as well as Lord Bell of London’s Bell Pottinger, Christoph Walther of Munich’s CNC and Anne Meaux of Image Sept in Paris. Alan Parker, the chairman of Brunswick, is typical of the entrepreneurial pack. The firm he conceived with a couple of friends at his London kitchen table in 1987, now employs more than 600 people working in 20 offices around the world.

Leading agencies can enjoy multi-million dollar retained fees from individual global clients, exceeding $10 million a year in some cases. The payments are even richer in times of crisis and takeovers. For owner-controlled firms, such fees and the more modest retainers that pay most of the monthly bills have sustained an extremely comfortable lifestyle. Second homes and second wives are common. For the most successful, the trophies frequently include third homes, chauffeurs for the third car, fractional ownership in NetJets, and race horses or grouse moors for the weekend. To preserve their wealth, agency founders have reinvested heavily in expanding their businesses, building a network of offices from which to manage the media. In some cases, that strategy persuaded firms to recruit aggressively from the media, seeking to strengthen their connections to the journalistic community.

In 2004, at my desk at the Financial Times, the telephone rang. ‘I have Alan Parker for you,’ said one of his three secretaries (two for business, one for social engagements). The ensuing conversation and subsequent meetings amounted to a corporate seduction. The chat-up line was relatively simple. ‘We’d like you to replicate your FT trajectory on our side of the fence – help us internationalise our media offering; help us open offices in new markets; help us advise the sort of clients you write about.’

Brunswick’s approach was well timed. The newspaper industry was just waking up to an existential threat that would, in the ensuing years, challenge its old business model. Costs were being cut throughout the media. Advertising revenues were tumbling. Morale was mixed, at best, in newsrooms. A career change, with an open invitation to return to the FT, seemed worth considering. A five-year stretch at Brunswick, one of the most successful financial PR agencies, offered a ringside seat to some of the largest takeover deals of the decade, along with behind-the-scenes roles in major corporate bust-ups, executive scandals and various corporate intrigues.

At the time of my departure, in June 2005, an FT spokesman told MediaGuardian: ‘He isn’t the first journalist to move in to PR and he won’t be the last. Maybe one day he’ll move back.’ As that door closed, and another opened, Alan Parker warned: ‘You have to be sure you have finished with journalism; we occupy a different world.’

In reality, journalism is never finished with you. That is why most of the reporters converting to public relations tend to apply their old editorial skills to their new trade: the ability to tell a good story; how to formulate thoughtful commentary; delivering succinct verdicts about a company; and the experience to predict how the media will cover things. As strategic consultants, they still rely on shorthand; still thrive on media gossip; still retain an eye for the main story. They just do it behind the scenes; from the dark side.

But the conversion from newsroom to agency, from high-visibility correspondent to low-profile consultant requires more than simply plying your old trade in a new suit. Predatory news instincts have to be abandoned. As a consultant, success depends on swapping an adversarial approach to business for unashamed advocacy. The transition is not easy. It requires a willingness to shed old prejudices; an ability to defend instead of prosecute.

Dark Art attempts to shine a light on the evolution of an industry rarely written about: financial and business public relations or, as it now often describes itself, strategic corporate communications. It offers a window on the world of media management, crisis planning, deal-making communications and the growing reliance on industry intelligence. It is part ‘rough guide’ to PR, part history album of the industry and part diagnosis of the new forces reshaping the market.

Today’s communications consultant is a quite different operator than his predecessor. The old rules of patronage and favours – which sustained some agencies for years – are being replaced by a new meritocracy built around professional services. Traditional powers of persuasion have not been abandoned completely. But they are proving less effective in a rapidly globalising, increasingly digital corporate environment.

The ‘wind of change’ sweeping through public relations has its roots in the storm conditions battering other business sectors – from crisis-hit clients at one end of the corporate spectrum to loss-making media outlets at the other. Since the financial crisis of 2008, companies and their boards have become increasingly anxious about how quickly hard-built reputations can be shredded in a digitally connected world. The roll call of high profile corporations suffering PR meltdowns – from banking to the oil industry, from newspaper publishers to carmakers – has only heightened business anxiety.

The crisis cycle has coincided with a structural change in media consumption habits, defined by worsening newspaper economics and costly new distribution systems. Traditional media outlets, competing with new digital rivals, have become more opinionated and polemical in a twin bid to retain existing audiences and to secure new ones. Many business leaders see a direct linkage between a media industry struggling for survival and the shift towards greater risk-taking by reporters, and the rise of agenda journalism.

Whether it is real or not, the perceived behavioural change in the media has prompted new engagement tactics by the PR industry. The old way of doing things, the simple art of story placement, has been transformed into the communications equivalent of three-dimensional chess, in which clients and their advisers have to consider several moves ahead before making their opening play.

Yet in spite of the growing complexity and the emergence of new opinion formers, many chairmen and chief executives tend to agonise about only a few types of coverage, and largely in traditional media outlets. For some, their innate conservatism has proved their communications downfall. A discreet call to the editor of the Wall Street Journal can no longer spike a story. A quip to a TV reporter can go viral in a matter of seconds – haunting a chief executive to his eventual resignation. Tony Hayward, the former chief executive of BP, would testify to that. Companies in multiple sectors are desperate to avoid a Hayward moment, and they are demanding new sorts of communications advice with different sorts of outcomes.

Dark Art looks at an industry struggling to adjust. It explores what has gone wrong, and what might emerge in the next generation of strategic communications. It does not claim to have all the answers, or even to address all of the industry’s shortcomings. But it examines some of the issues and the case histories of a business that rarely admits to health problems, and which does not like to self-diagnose.

This book would not have been possible without the support and encouragement that I enjoyed over five years at Brunswick – especially from Alan Parker and his co-founders Andrew Fenwick and Louise Charlton. Friends and colleagues there, and at numerous other agencies, have offered helpful advice and suggestions. Business leaders have been similarly generous with their time, including many who spoke on condition of anonymity, with useful insights and corrections. Dark Art also relies heavily on my 16 years as a business reporter, foreign correspondent and industry specialist at the FT – a rare newspaper to have survived and flourished in the multi-platform world. Reporters and editors at the FT, along with several other media outlets, have assisted with the text.

Dark Art would never have reached the book stores without the subsequent encouragement of my colleagues Philip Gawith and Julian Hanson-Smith at StockWell Group, the firm where I am now joint managing partner. Halfway through writing it, I shattered my shoulder in an accident. As with that incident, any error of judgment in Dark Art is mine alone. Any inaccuracies are likewise mine, with single-handed typing and voice-recognition software not offering any excuse. But the book has not been a single-handed effort. It would not have been possible without the support of friends and colleagues including Anthony Silverman, Suzanne Bartch, Robert Morgan, Borbala Nagy, Anushka Mathew, Chloe Maier, Kate Heighes and Lorraine Aziz. David Crundwell of Thomson Reuters deserves special thanks for introducing me to Olivia Bays, the unendingly patient mentor, editor and publisher at Elliott and Thompson in London.

The greatest thanks are due to Helen, my long-suffering partner, who has accompanied me from cub reporter to corporate adviser. When I contemplated leaving journalism for public relations, she advised sagely: ‘Don’t do it for the money.’ As most authors of non-fiction can attest, a book like Dark Art is not written for the money.

PART ONE

The Great Persuaders

CHAPTER 1

The Age of Anxiety

The first decade of the twenty-first century ended with a series of corporate calamities that shook the confidence of boards and their shareholders.

In short order, the world’s most successful investment bank was threatened by questions over its role in the global financial crisis. The largest automotive group was undermined by an unprecedented vehicle recall, prompted by a consumer outcry over alleged safety problems. And one of the most profitable oil producers was hit by a massive spill off the coast of its most important market.

In each case, the communications response to the corporate maladies made things worse, not better, at Goldman Sachs, at Toyota Motor Corporation and at BP. Consumer confidence in business conduct, already shaky following the collapse of Lehman Brothers in 2008 and still fragile amid a continuing sub-prime mortgage crisis, was dealt a further blow. The series of crises, which continued into 2011 and 2012, exposed serious shortcomings in the communications planning and preparation at several leading businesses. It also raised questions about the capabilities of their costly PR advisers, hired to contain media criticism and wider consumer discontent in times of trouble.

In PR terms, the end of one decade and the beginning of the next marked a new age of anxiety, when company boards feared for their reputations. Directors everywhere wanted to know: how to avoid being the next BP. The oil giant was tarnished by the 2010 oil spill that has since become a case study in how to lose a reputation.

The Deepwater Horizon accident, involving the death of 11 oil rig workers, reverberated in the global media, alarming other companies exposed to major industrial risk. Unlike the Exxon Valdez oil disaster of 1989, this was the first major spill of the digital age. The combination of TV footage from the ocean floor, vivid images of stained wildlife and a US media consumed with the devastation to local communities made BP public enemy number one. It was the first corporate crisis played out in real time, spawning a worldwide digital debate about business trust and ethics, and leapt quickly from the business pages of newspapers on to the front pages and then into television prime time.

BP was unprepared. ‘There was chaos and confusion inside the company because there were few contingency plans of how to deal with it,’ according to one PR adviser involved in the crisis. ‘No one imagined that the safety back-ups would fail. Such a scenario was described in BP’s risk register as a low probability high impact event.’

Another person involved in trying to repair BP’s reputation recalls: ‘There wasn’t a good crisis communications handbook. What BP did have in terms of a crisis plan stayed in a drawer.’

The reputational damage was compounded by the Obama administration’s decision publicly to chastise the company. Facing mid-term elections, the President was keen to avoid the same damage to the White House that President George W. Bush had suffered in the aftermath of Hurricane Katrina. So the story, initially a serious environmental accident, became a major political one. In an unprecedented intervention, President Obama suggested that he would have sacked Tony Hayward if he had had the power to do so.

Every PR effort to demonstrate BP’s clean-up commitment was undermined by engineering setbacks. The rising tide of US anger and media criticism escalated when attempts to cap the leaking Macondo well failed. It descended into farce when a ‘junk shot’ of shredded tyres and old golf balls was fired into the well. By then, even golfing magazines were laying siege to BP’s PR machine, keen to know what brand of balls were being used.

Almost 90 days after the initial rig explosion, the Macondo well was sealed. But by that time, more than $100 billion had been wiped off BP’s market capitalisation, and the company had set aside $40 billion for compensation.

For BP, it was a near-death experience. Midway through the crisis, according to one BP insider: ‘Markets took fright at potentially unlimited liabilities. Our debt became illiquid. The environmental disaster risked becoming a financial one. There was a scramble for cash inside the company; the Treasury department worked around the clock to save it.’

BP was saved – at significant cost. Tony Hayward was not. Announcing his resignation, barely ten days after oil stopped leaking, Hayward said: ‘I believe the decision I have reached with the board to step down is consistent with the responsibility BP has shown throughout these terrible events. BP will be a changed company as a result of Macondo and it is right that it should embark on its next phase under new leadership.’

Privately, Hayward felt a victim. He later told one colleague: ‘I stepped off the pavement and got hit by a bus.’ He is said by friends to nurse a lingering, deeply held antipathy to the media in all shapes and forms.

The lessons were far-reaching, according to those involved in the reputation-recovery work. ‘The biggest PR warning was to show that companies have to think about their reputational exposure in what we call peace-time. In the heat of the battle, when a company is in trauma, it is too late to start educating people about what is good about your response strategy,’ says one BP veteran.

Barely had the well been capped before companies large and small began to commission reports on how to enhance their own crisis communications. Although PR had been seen as part of BP’s problem, agencies elsewhere sensed an opportunity to sell a new kind of service: how to prepare for and avoid a Macondo-style trauma.

The services focused on improved crisis rehearsal and the need to develop a detailed communications handbook on how to behave towards multiple audiences including regulators, politicians through to customers, suppliers and consumers. It was also clear from BP that companies in crisis should not always deploy their chief executive as ‘chief communicator’ because, as Tony Hayward found to his cost, they are often ill-equipped to deal with the media.

At BP, there were well-developed risk policies. The group crisis handbook recommends that a single steering group should be formed to run the entire response effort. But BP did not create such a group until well into the Deepwater Horizon disaster. By that point the US coastguard had assumed control of a clean-up operation involving more than 200 different organisations and 30 call centres.

As the crisis unfolded, the PR industry watched with a mixture of despair and alarm as tried and tested tactics failed to stem the criticism. TV appearances, town hall meetings, press conference apologies – nothing reduced the clamour. It was a turning point for PR.

In spite of BP’s public humiliation, several other companies did not embrace the PR lessons, or learn how to alleviate acute reputation anxiety. Within a year, similar anxiety attacks hit McKinsey, Nokia, Tepco, Blackberry, Netflix, HP, News Corp and Olympus. Other companies felt pre-judged by the media and suffered reputational damage when they were later found not to be at fault.

Toyota, the Japanese carmaker, publicly apologised and announced a major set of reforms following massive vehicle recalls in 2009–10 in response to allegedly faulty accelerators, brakes and other components. In February 2011, the company would eventually be exonerated by safety bodies and regulators in the USA. But the damage was already done. Toyota was judged guilty by parts of the media well before the official investigations were complete. Toyota whistle-blowers fed the media, as did industry rivals, consumer groups, class-action lawyers and politicians. The furore threatened to destabilise the entire strategy laid down by Akio Toyoda, the first member of the carmaker’s founding family to lead the company in generations.

On 9 March 2011 – eighteen months after the recalls began – Toyota attempted to draw a line under the affair. The company president cut the size of Toyota’s cumbersome board by more than half. He removed an entire layer of management, and set up an independent advisory committee to monitor quality controls. Insiders vowed that they would not allow the brand to lose a PR battle again.

Whether the reputational damage was unjustified or not, most of the corporate crises of recent years have been characterised by a lack of readiness for the ensuing media circus. And companies were unprepared for the impact on their share prices as investors took fright at potential liabilities.

The corporate crises of 2010–11 wiped more than €170 billion off the market capitalisation of the businesses affected, according to investor research which calculated that the value destruction far exceeded the pervading stock market volatility. Amid such value destruction, many company executives blame the media – particularly the social media – for rushing to judgment before the true cause of the problems has been investigated. Some communications spokesmen talk regretfully about having to ‘feed the beast’. Others despair at the pack mentality of a media sector hunting for the next scoop. This PR lament is even louder among companies that, for whatever reason, have fallen from grace.

Nowhere has that fall been faster and harder than at News Corp, the global media empire led by Rupert Murdoch.

A business built up over generations has been dealt a hammer blow by illegal phone-hacking commissioned by its disgraced former tabloid flagship: the News of the World. Responding to the crisis, News Corp closed one of its few reliably profitable newspapers. It jettisoned its UK publishing chief executive; accepted the resignation of the head of Dow Jones; and saw a clutch of employees past and present arrested. In 2011, the group’s ageing chairman and his heir apparent, James Murdoch, were verbally caned by a parliamentary select committee, and then faced even more intimate scrutiny less than a year later from the Leveson Inquiry into UK media standards.

‘Mr Murdoch has looked lost,’ reported Philip Stephens in the Financial Times of 11 November 2011. ‘Too slow to grasp the significance when the dam burst, he has been at once contrite, dismissive and irritable. You can see what he must be thinking. After half a century of labour, is this how it ends?’

The scale of the reputational damage was acknowledged by the octogenarian News Corp chairman in a full-page newspaper advertisement carried by seven British newspapers in July 2011. In it, Murdoch wrote: ‘We are sorry. The News of the World was in the business of holding others to account. It failed when it came to itself. We are sorry for the serious wrong-doing that occurred. We are deeply sorry for the hurt suffered by individuals affected. We regret not acting faster to sort things out.’

It was not a time for public relations. It was the moment for public regret.

Mr Murdoch’s contrition ranked among the more extraordinary recent mea culpas by chief executives. A collection of other corporate apologies, compiled by The Street on 14 October 2011, the US business media website, quoted similarly humble words from Mike Lazaridis of Research in Motion, Reed Hastings at Netflix, Lloyd C. Blankfein of Goldman Sachs and, of course, Tony Hayward at BP.

Amid the reputational wreckage of Deepwater Horizon, Hayward even had to apologise for an apology. It was the nadir of his PR exposure. At the end of May 2010, Hayward caused uproar for qualifying how sorry he was to a US TV reporter, by adding: ‘There’s no one who wants this over more than I do. I’d like my life back.’

By the following Wednesday, 2 June, Hayward had to apologise again, admitting: ‘I made a hurtful and thoughtless comment on Sunday when I said that I wanted my life back. When I read that recently, I was appalled. I apologize, especially to the families of the 11 men who lost their lives in this tragic accident. Those words don’t represent how I feel about this tragedy, and certainly don’t represent the hearts of the people of BP – many of whom live and work in the Gulf – who are doing everything they can to make things right.’

The apologies, scripted and unscripted, were symptomatic of a growing anxiety over the risks posed to hard-won business reputations. They also represented an admission of collective failure by many companies that their crisis communications plans were not ready for the digital age, where constant online scrutiny has sharply reduced reaction times.

Such threats are hardly new, as observers of BCCI, Polly Peck, Mirror Group, Pan Am, Enron and Arthur Andersen would testify. No amount of PR could have saved those companies. But even healthy companies now feel exposed. Rising profits and revenues can help to defend a reputation, but they are no longer a guarantee of respectability. Many companies have begun to review the quality of the advice they have traditionally relied upon.

The growing threat prompted the chairman of Britain’s Institute of Directors (IoD), Neville Bain, to urge company boards to attach a higher priority to reputation management. Calling for more concerted action, he cited Benjamin Franklin’s warning that: ‘It takes many good deeds to build a good reputation, and only one bad one to lose it.’

In June 2011, the IoD issued a report in collaboration with the Chartered Institute of Public Relations with a dozen recommendations on enhancing reputation planning and minimising risk. In doing so, the two business associations presaged a subtle, major and potentially lucrative shift in the advisory services provided to leading companies.

‘Senior public relations/communications professionals should take an active part in strategic planning so that reputational opportunities and risks can inform decision-making,’ according to one recommendation. ‘This is a different approach to that of expecting the public relations professional to manage the impacts of strategic decisions that have already been made by the board, without considering reputation explicitly.’

This exhortation has been taken up enthusiastically by PR agencies. In the absence of much mergers and acquisitions (M&A) activity and a thin pipeline for initial public offerings (IPOs), crisis work helped pay the bonuses and fill the incentive pools for some of the largest firms in the communications industry.

‘Crisis is the new M&A’ has become a common refrain among PR leaders. For some agencies, crisis and reputation risk management became a vital earnings stream in 2010 and 2011, and continues to be so in 2012. It has certainly become one of the most important revenue streams for firms on both sides of the Atlantic. Edelman, the US agency, was called in to support News Corp. Bell Pottinger, its London-based rival, was contracted to support government organisations from Sri Lanka to Bahrain. Brunswick acted for both BP and Toyota. Collectively, they and other agencies earned generous fees from crisis mandates. For some, the revenues were running at several million dollars per month.

The crises also marked a watershed for agencies that had previously focused on one discipline, such as financial public relations, product marketing, investor relations or public affairs. Suddenly, they had to adapt to attacks that spanned every area of a client’s reputation, posing a threat to the jobs of numerous chief executives, alarming investors and arousing the ire of consumers, regulators and politicians. This new broader scope to PR has coincided with a cyclical change in client sentiment.

Alan Parker, founder and chairman of Brunswick, one of the agencies to capitalise on the crisis upturn, summed up the change in approach. In the Brunswick Review, distributed to the firm’s clients at the end of 2010, Parker wrote: ‘It is always more difficult to manage and communicate when times are hard; and how management responds defines its reputation. In this challenging environment it is easy for management to see only increased hostility and risk. But we believe there is never a better time to communicate a company’s vision and aspirations’.

In reality, the events at Toyota, BP, News Corp, McKinsey and others have tended to make senior business leaders risk averse, and less willing to communicate. But in a digital era, a say-nothing approach poses a major risk. Other commentators will fill the vacuum. The crisis years have posed a threat not only to famous corporations but also to the entire service proposition of PR. An industry that thought it was indispensible has had to reassert itself. It has had to justify its existence.

The industry now insists that its advisory capabilities – following BP and other calamaties – are now more relevant than ever. PR veterans warn that the challenge is not whether to communicate, but how. For most of the past century, financial PR advice was limited to controlling the earnings messaging and managing the print media. In the second decade of the new century, such tactics have been found wanting. It has prompted a realisation among boardrooms, in-house PR leaders and PR agencies themselves that the old ways of communicating have to change.

CHAPTER 2

The Feudal System

In the mid-1980s, the chairman of a leading international company was alerted to a potentially damning story about his private life that a Sunday newspaper intended to publish. Concerned at the damage to his profile, the chairman called his retained PR advisers.

Within an hour, one of the PR firm’s young executives was dispatched to the Sunday newspaper’s offices. His job was clear but challenging: retrieve any compromising pictures of the client-company’s chairman.

The PR man walked to the back of the newspaper offices, where newsprint was being delivered in huge rolls for the presses that in those days still occupied the same building as the editorial staff. Having blagged his way through the delivery entrance, the executive found his way, along passages and up stairways, to the newsroom. Claiming to be a temporary sub-editor working a shift, he found his way to the picture desk, where he asked for the film proofs of his client. The picture editor, assuming he was liaising with the back-bench on page layout, handed them over. The PR executive made his way out of the building. This time he walked audaciously through the main entrance. The pictures never appeared.

Back in the 1980s, this sort of bravado was one way to demonstrate client loyalty. It reflected what corporate bosses expected from agencies, which they treated like old retainers. This duty of loyalty, and the risks taken by advisers in their client’s cause, owed less to professional marketing services than to old-style feudalism.

Traditional feudalism, dating back to the Norman Conquest, was founded on the principle of land grants in return for armed service and loyalty unto death. Before long, with land and loyalty in short supply, England’s nobility found it more convenient to pay financial ‘indentures of retainer’. Charles Plummer, the nineteenth-century historian, coined the phrase ‘bastard feudalism’ to describe how medieval aristocracy started paying cash-for-favours instead of offering land to vassals. By the 1980s it neatly captured the bonds of public relations. Under Plummer’s useful metaphor for the PR industry, feudalism was thus bastardised into retained contracts based on ‘loyalty for as long as it pays’.1

Most old-school PR gurus would plead ignorance about bastard feudalism. But had such PR advisers existed in the Dark Ages, they would have joined retinues including judges, mercenaries, courtiers and the clergy. Retained priests could be especially useful when divine intervention was deemed helpful.

Fast-forward several hundred years and some PR leaders still liken their role to priesthood: counselling, explaining codes of conduct and advising on best behaviour. At least three leaders of UK agencies have considered taking holy orders or even trained as priests. Lord Chadlington, the PR baron and chairman of Huntsworth (a firm representing more than 600 clients), is one such convert. In December 2011, he told BBC Radio 4’s Today programme: ‘I don’t think the step from being a priest to being a PR man is that different. Because in one sense you are persuading people; you are thinking about a message; you are selling it as hard as you can do, and that is what both roles involve.’

For most of the last century, PR was built on the simple tasks of salesmanship and persuasion, underpinned by feudal loyalty to clients.

The PR industry’s adoption of such principles was first analysed in the 1920s by Edward Bernays, a former special adviser to US President Woodrow Wilson. After serving on the US Committee on Public Information during the First World War, Bernays turned his attention to lucrative corporate clients, advising companies including Procter & Gamble and Alcoa.

Bernays back then, like Lord Chadlington today, saw public relations as a vital intermediary between business and ordinary consumers. Writing in 1928, he laid the foundations for corporate communications when he analysed how public relations should meld psychology, salesmanship and propaganda. Business, Bernays wrote, ‘must explain itself, its aims, its objectives, to the public in terms which the public can understand and is willing to accept … it is this condition and necessity which has created the need for a specialized field of public relations’.

The Bernays model, set out in his book Propaganda,2 earned him the title ‘father of public relations’. In it, he acknowledged the feudal loyalties of the industry, adding: ‘Business now calls in the public relations counsel to advise it, to interpret its purpose to the public, and to suggest those modifications which may make it conform to public demand.’

The ‘father of PR’ urged all ‘successful propagandists’ to portray business as a public good, delivering more than just profit and shareholder returns. Every company had to be a business of repute, creating a groundswell of goodwill and customer support. The Austrian-American publicist was remarkably prescient, especially given the crises that would overwhelm companies such as BP and Lehman Brothers 80 years later. ‘An oil corporation which truly understands its many-sided relation to the public, will offer that public not only good oil but a sound labor policy,’ Bernays wrote. ‘A bank will seek to show not only that its management is sound and conservative, but also that its officers are honorable both in their public and in their private life.’

His thinking was influenced heavily by psychoanalysis, a field to which Bernays was first exposed by his uncle, Sigmund Freud. Using Freudian methods, he deduced that public relations depended on managing ‘psychological and emotional currents’.

As the dynasty behind both the father of psychoanalysis and the father of public relations, it is not surprising that communication techniques continued to run in the family. That mantle has been inherited, and continues to be refined today, by Matthew Freud, head of the eponymous London-based PR agency.

Rather like Bernays and his great-grandfather Sigmund, the younger Freud sees his role as solving problems for retained clients. In some respects, Freud has adopted the image of PR adviser as corporate therapist, counselling his clients through tough decisions. Sounding more like a shrink than a communications guru, he told one interviewer, in Management Today, February 2009: ‘I get to talk to interesting people who have interesting problems. They may be CEOs, but they’re surprisingly isolated. They’re surrounded by people who work for them. They’re also isolated by their sector.’

Freud, who is married to Rupert Murdoch’s daughter Elisabeth, personifies PR feudalism. Charming and intimidating in equal measure, Matthew cajoles, harries and seeks favours on behalf of his clients. In return, they pay him lucrative retainers that sustain an agency of more than 200 people catering for clients including PepsiCo, Carphone Warehouse and Nike.

Feudal duty to long-standing clients has also shaped other agencies – including Finsbury and Brunswick in the UK and Kekst, Abernathy MacGregor and Edelman in the USA. By promising absolute client loyalty, such firms have secured a lucrative role as both gatekeepers and consiglieri to chairmen and chief executives around the world. Yet Freud says: ‘I’ve got almost no influence in my own right. The people I represent are genuinely influential. But if I’m joining the dots, it’s not for me or my benefit but for the mutual benefit of other people.’

The real power of such agency founders lies in their access to business leaders – the feudal overlords – who pay for reputation management. In turn, this system relies on a powerful extended network of patronage, which helps to bring in new business.

As with the feudalism, the use of patronage by the PR industry has parallels in medieval power-broking. In the USA and UK, the