Twenty years ago the PR consultant's place was well and truly outside the boardroom. Now they are invited in to sit alongside the decision makers in the City.
Of all the growth industries that were spawned during the great takeover boom of the 1980s, the one that has survived the best is the one that many feel is least deserving. That business is financial public relations.
Twenty years ago, the field was still largely the preserve of former financial journalists who could make a reasonable but far from exceptional living from typing up press releases and swapping titbits with their former friends and colleagues on the national newspapers. It was sometimes boozy, often useful work but nobody at the time would have claimed that it was a particularly important - let alone a glamorous - function. It was certainly not a profession in any ordinary sense of the term.
In such an environment no company chairman in his right mind would have dreamt of inviting a PR consultant to sit down in the boardroom to discuss the company's share price, let alone its strategy or takeover tactics. The PR man's place (it was then an almost exclusively male profession), if anywhere, was outside the boardroom, waiting by the photocopier for the board to hand down its latest pronouncement, which he could then dutifully relay to the outside world. Roddy Dewe, who entered the PR consultancy field as a pioneer in the late 1960s, remembers doing just that. Now his consultancy, Dewe Rogerson, regularly sits down with the Treasury and merchant bankers from houses such as N M Rothschild and S G Warburg to discuss the marketing of the next big Government privatisation issue. Nor is its experience exceptional. In many of the country's largest quoted companies, the PR consultant is now able to command a seat in the chief executive's office - though not, one suspects, quite as regularly as the consultants themselves would have you believe. Some can charge themselves out at £300 an hour or more, and the best in the field such as Alan Parker, senior partner at Brunswick, or Tony Carlisle, the new chairman of Dewe Rogerson, are able to charge considerably higher - rates that compare well with those achieved by other senior City professionals, including accountants and lawyers. Indeed, the revelation last year that Brunswick received fees of over £1 million for its role in Lasmo's successful bid defence against Enterprise Oil - a campaign which ran for just 10 weeks - was seen as confirmation of PR's admission to the ranks of the City's high-rollers.
For their part the City PRs consultants are doing their best to throw off the image of the languid amateur. An increasing number, though still a minority, now have MBAs and other professional qualifications. A small but significant number have moved over from the corporate finance departments of merchant banks.
Thirty years ago, Robert Townsend wrote in Up The Organisation that the first task of any manager should be to fire the PR department. He also memorably described a management consultant as someone who borrows your watch to tell you the time. In that light it's not hard to imagine what he would have to say on the subject of an outside consultant who claimed to tell the chief executive what he should say to his shareholders and the financial press. Anecdotal evidence suggests that many company bosses are still inclined to share his feelings. Yet Townsend's advice to show the PRs the door has clearly proved difficult to put into practice. The need to manage a company's communications with the outside world is simply too great to be overlooked.
The statistics certainly support that. According to PR Week magazine, financial PR consultants now account for roughly a quarter of the £350-450 million that UK companies spend every year on public relations. Unsurprisingly, it is the largest companies that account for the bulk of that estimated quarter; for example, 85 of the current FTSE-100 companies said that they retained an external public relations consultant in some capacity. The trend is unmistakable and irreversible. Financial PR is here to stay.
The reasons for its growth are not hard to find. One is the undoubted increase in the scope and influence of the financial press. This in turn can be attributed to both the growth in the number of newspapers and magazines that report on business and the increase in the amount of space devoted to financial and business news within the wider media. More important than any changes in the worlds of print or broadcasting, however, has been the upheaval in financial markets brought about by deregulation, globalisation and the impact of computerised trading and information systems. Since Big Bang, the stock market is no longer a cosy oligopoly where information accrued to the favoured few, rather than the market at large. Similarly, the spread of cross-border institutional investment has meant that the share registers of most large companies have an increasingly international flavour. At the same time the rules governing the disclosure of information are increasingly codified and supported by legal process.
The result, indisputably, has been a need for much more professional communication between companies and markets. Until 10 years ago, for example, the finance director's programme of investor relations at one of Britain's largest companies consisted of a glass of sherry once a year with the 20 largest institutional shareholders. It was up to the company's brokers to do the day-to-day job of keeping the rest of the market happy. The financial press, meanwhile, was handled separately but on the same largely informal basis. There was little systematic attempt to decide what the company should be saying, nor much effort to ensure that the same message was directed at different audiences. Few companies would dare to act the same way today, particularly when management is held increasingly accountable for the company's share price.
There are still some large companies, however, that resolutely refuse to lift the veil on what they are doing: Great Universal Stores, for example, one of the 15 in the FTSE-100 which does not retain a consultant, is renowned for its reticence. Others, such as BAT and Marks & Spencer, keep their PR activities in-house on the grounds that they are by far the best placed to handle the brief. Alternatively, there are those companies that do retain consultants but use them to act as a screen between themselves and the press. Others still prefer to maintain a low profile in the belief that their financial results, when good, provide adequate proof of performance. The latter, however, are increasingly in the minority. In this fertile expanse the professional PR can flourish.
The simple questions remain: what exactly does financial PR contribute? And, perhaps more pertinently, is it worth the money? On this the jury is still out. In the 1980s, at the height of the last great takeover boom, some of the claims that were made on behalf of the profession were even grander than they are now. Some in financial PR claimed not just that they could 'deliver' a favourable verdict from the financial press but also that they could move the share price of their client companies as well. There was also much talk about PR being an important influence in the formulation of a company's strategy.
You hear less of all that now, and with good reason. As Ferne Arfin points out in a new book, Financial Public Relations, the excess of the 1980s has given way to more reasonable expectations on both sides of the divide. The consultants make less grandiloquent claims than before and, in turn, company bosses have more realistic expectations of what they can hope to gain from the use of outside advisers.
Archie Norman, chief executive of Asda, speaks a good deal of sense on the subject. The problem, he says, is that PR consultants 'sell themselves for something which is grander than they are'. The only reason financial public relations is controversial is, he believes, because in most cases the results are 'constantly disappointing'. Many companies expect more from their outside public relations and investor relations consultants than they can actually deliver. He is equally dismissive of claims that financial PR can influence the share price. On the contrary, its price is set by financial markets, which are if not wholly, at least fairly efficient. 'Public relations won't change that,' he concludes.
Many company chairmen would agree, at least in public, but it is not quite that simple. Since markets began, it has always been possible to play the game of inflating the share price - putting the best gloss on everything, winning a market following and using your highly valued equity to finance a string of takeovers. In an age when the media still loves to personalise business issues, there are still occasions when old-fashioned hype can work - and more than enough PRs who will gladly help the process along. But a high profile is also a dangerous thing. Sooner or later, those who live on the oxygen of publicity - and little else - die by it too. John Ashcroft, for example, chairman of the ill-fated Coloroll, was one of a number of '80s entrepreneurs who skilfully used a high public profile to great effect when building their empires. Regular appearances on television and numerous newspaper profiles, augmented with colourful details of Ashcroft's lifestyle, all served to create the persona of a successful businessman of near-celebrity status. It was perhaps inevitable that when Coloroll went into receivership in 1990 with debts of more than £350 million the spotlight was just as bright.
Arfin cites the rule for responsible companies as proposed by Richard Giordano, chairman of both British Gas and BOC (where he was formerly chief executive): 'You want to be seen roughly as what you're like - not too much better, because that will catch up with you. And certainly not worse.' Sir John Harvey-Jones has his own perspective: 'Unless you build up a reasonable relationship with the press and the institutional investors, then you do not have any credit; the bad news - or the bad rumours and untruths - will always be believed. And the day comes in every company when you need, actually, to be believed.'
The only sensible advice to companies on the subject is invariably the commonsense one: to match expectation to need - and not attempt the impossible. First comes the recognition that financial PR covers a range of disciplines - and beware those who claim to be good at all of them. Some financial PR consultants have particularly good contacts among City editors. Others work well with institutional investors: the emergence of specialist investor relations is another more recent trend. Other consultants - arguably the most underrated - are simply good at putting what the company is trying to say into accessible form, whether that is as a press release, a presentation or a full-blown takeover document.
Those who have spent their professional lives listening to company chairmen and chief executives will appreciate the value of one who can express ideas in a clear and unambiguous form. The process of translating the chairman's mumbling monologue into a speech betrays, as nothing else, whether or not he has any real grasp of what he is trying to do with his company. Good leaders are typically brilliant communicators but for most it has taken hard work. The need for financial public relations arises because companies now have to communicate more often and more effectively than before. And business, in that respect, is more complex than it ever was.
MAJOR FINANCIAL PR CONSULTANTS
FTSE-100 clients Largest clients1 Annual fee
Brunswick 19 Barclays, BTR, Glaxo 8.02
Lowe Bell Financial 14 Grand Metropolitan, Hanson,
National Power 15.83
Financial Dynamics 11 Cadbury Schweppes, Royal
Bank of Scotland,Tesco 5.2
Maitland Consultancy 9 BT, British Gas, Unilever n/a
Dewe Rogerson 7 Legal & General,
Reckitt & Colman, TSB 10.1
Cardew & Co 5 Allied Domecq, BAe, NatWest n/a
Shandwick Consultants 5 Courtaulds, Rank
Organisation, Royal Insurance 5.4
Citigate Communications 4 Commercial Union, Granada,
Southern Electric 3.5
1by market cap, 2estimate, 3group income Source: PR Week (updated).