Companies are realising the press is a tool they can use for their own ends. Anthony Hilton, City editor of London's Evening Standard, reveals how the media is manipulated.
When Gerald Ratner was a little too honest about the quality of some of his company's products, his career nose-dived, and so did his company. When Guy Snowden lost his libel actions against Richard Branson, he was lambasted by the newspapers and so was his company, G-Tech. As a result, it had to cut its stake in the lottery company, Camelot.
Dramatic examples, perhaps, of the importance of the media in framing perceptions of a company, but not untypical. Sir John Quinton, chairman of Barclays Bank in the late 1980s, admitted even then that his job was 40% public relations. His problem was with the other 60% and, when Barclays lost a packet in the recession of the early 1990s, he was widely blamed. Now it is his successor, Martin Taylor, who has made an early exit.
But Quinton's gut instinct was correct and has recently been underlined in a major survey carried out by the US public relations firm, Burson-Marsteller. This showed that no less than 40% of a company's reputation was in fact attributable to the reputation of the chief executive. The most important quality of a CEO, according to the report, is 'communicating a clear vision of the company's strategy', and the reputation of the CEO directly contributes to the company's ability to attract investment, recruit talent and survive crises.
This means that companies which seek to be different can perhaps achieve this more easily by the promotion of their chief executive's reputation. It is not what he does but the way that he is perceived which matters.
This may be bad news for company chief executives who find communication difficult and talking to the press little better than purgatory. But paradoxically, it is also bad news for the press. This is because newspapers are already subject to a constant barrage by public relations practitioners and seem to be losing their independence of judgment. If the perception that boosting a chief executive's reputation is a legitimate and fast-track way to improve shareholder value, then the press can expect greater efforts to manipulate coverage to meet corporate ends.
Most businessmen think that 'spinning' is confined to politics but, increasingly, it is part of commercial life, too. Manipulation on a grand scale takes place throughout journalism, and nowhere more so than on the business and financial pages. This is not to say that every story in every column is provided by public relations executives and reprinted with the spin still intact. There is a much more subtle and insidious agenda-setting process at work, one that operates in all areas of the financial world, that makes and breaks careers and shapes the fortunes of whole industries.
A major reason for this is the revolution that has taken place in the City over the past decade, with the arrival of US firms and US business ethics. Today the City is about doing deals. The days when it was built on long-term relationships between banker, broker and client company have gone. There is scarcely an investment bank in the City which will not abandon one client in favour of another if there is a deal to be won by such behaviour.
To the extent that publicity can help a deal or secure the next one then the City thinks the press has a role. Much of the manipulation of the press is designed to aid this process, but there is also a second element. In today's highly competitive (and highly rewarded) City it is no longer enough for one individual to do well. It is also required that other firms are seen to fail. Any press cutting which suggests that a deal has been wrongly priced, has been hard to sell or has been in some way mismanaged invariably finds its way on to the desk of clients and potential clients across the market.
Journalists are subjected to a daily barrage from City firms aimed mainly at talking their own book but in quite large part aimed also at rubbishing the opposition. Thus, typically, journalists will be tipped off about a new bit of research in the offing, shortly after the firm has bought heavily for its clients, so that there is further momentum put into the share price. They are regularly (but not always truthfully) told by friendly market-makers of a bid coming or a corporate disaster looming, usually because the source seeks to move the shares up or down to correct a short-or long-term position which has the potential to become embarrassing. A naive repetition of the tip in the paper will achieve that for them. Whenever a deal is done those same firms do everything they can to ensure that their name is up there in lights with the client who is paying their bill. More amusingly, if there are joint advisers, as is frequently the case these days, they both try to take full credit for the whole deal, claiming the other house was wheeled in only at the last minute for sentimental or similarly irrelevant reasons.
This sort of activity has always gone on to some extent but in the 1990s it has become much worse. Powerful investment banks are prepared to spend a fortune on public relations. They are staffed, to a great extent, by people with massive egos, who are grossly overpaid for what they do, know that they are, but are naturally terrified that others might realise this, too. It is not that they cannot conceive of making a mistake, but they have a deep-seated fear that if this mistake is recognised, if their deals are met with anything short of adulation, it will lead to their being found out and probably tossed out. Meanwhile, the public relations business has itself become far more sophisticated and single-minded in its approach. Newspapers and the media, in contrast, have been relatively starved of resources and the result is a mismatch. It is an old journalistic adage that the old and cunning will always outwit the young and talented. Unfortunately, these days, the best of the old and cunning have crossed the bridge and now work in public relations, where they regularly outwit journalists.
What was once an even contest between the journalist and the PR machine has now tilted in favour of the machine. More and more copy appears in newspapers as the PR people want it. Independently researched and written stories, and those which depart from the official line, are much rarer, as indeed are journalists who know how to find things out, and newspapers which are willing to publish their results. Being 'on message' is not just a cross government ministers have to bear, it runs through every finance house in the City. Any executive who is found to be 'off message' is firmly gagged for the future; and every newspaper which runs off-message stories is told that there will be no co-operation with it on any level in future. Indeed that can happen even if a paper is mildly rude about a company. It often seems as if intimidation is the continuation of public relations by other means.
But if this is the big canvas, there are also some eye-opening stories at a local level. Many executives realise that the press is a tool they can use to their advantage; sometimes to achieve a very limited objective - the sacking of a chief executive, the ramping up or down of a share price, the removal of an auditor, the transfer of blame for a corporate disaster; sometimes for more strategic issues.
The nastiest of the little local issues is the removal of the chief executive. It works like this. First a PR consultant of a tame stockbroker hints to a journalist that the institutions are gunning for a particular chief executive. A phone call to the chairman follows and, on a strictly non-attributable basis, the story is confirmed. It is duly published, the chief executive leaves a week later, and the journalist congratulates himself on his scoop. Years later it may emerge that there was no pressure from institutions. It was the chairman who wanted the executive out, and the press provided the pretext. 'I'm sorry about this, Joe, but I have no choice,' one might imagine him saying. 'I cannot ignore what it says in the newspapers.'
It does not take a genius to spot which senior figures have been on the receiving end of similar whispering campaigns, though not, it must be stressed, instigated by their chairmen or boardroom colleagues. Andrew Teare at Rank and Jonathan Taylor at Booker were both able to read all about their private difficulties in the papers on a regular basis. More recently, Bob Ayling at British Airways has had to put up with allegedly well-sourced murmurs of discontent in the City pages.
There are more benign, but no less effective ways of getting rid of lower profile people. Mick Shields, one time chief executive of Associated Newspapers, used to joke that his most pressing task was to identify the junior executive who might one day be his successor - and get rid of him. That may not be the sole motivation but many is the over-ambitious and irritating middle-ranking manager who has been selected for a high-flier profile in the company house journal. The article is a wonderfully positive salute to a clearly rising star. Within days of publication the calls from head-hunters start to come in.
Newspapers are also used to help with change. Mick Newmarch once said that in any meeting at the Prudential, of the eight people round the table nodding and saying yes, at least five meant no, and one meant never. He hoped - through the press - to tell lower ranked employees what he wanted, because he was not sure the message was getting through the internal channels.
Newmarch left rather suddenly having been too candid too often about regulation. Had he stayed, would the strategy have worked? Probably not. As Sir Peter Davis has found since, it takes a lot to shift the Pru.
The pace steps up rapidly when there is some corporate activity - a bid or a merger - or these days even when there isn't a bid. Some months back when Cable & Wireless had still to be forgiven in the City for the long boardroom feud which eventually led to the departure of both chairman and chief executive, rumours began to circulate about a possible deal with a mainland European company. So strong were they that the influential 'Lex' column in the FT commented on the story, weighed up the pros and cons and reflected on an appropriate price.
It would be wrong to suggest without firm evidence that this was orchestrated. But there is no doubt that the comment was helpful - to the company and its advisers, in getting the issue out into the open and gauging how far the company's rehabilitation had gone. It had not gone far enough as it happened. The deal never happened.
The right kind of press comment makes a huge difference in a merger. One of the reasons why agreed, no-premium deals are hard to arrange is the risk that a third party will make an offer at a premium for one or other of the participants. The trick therefore is to announce the deal and then get the shares up so far so fast that any would-be predators are put off by the price they would have to pay. Richard Gamble, the former chief executive of Royal Insurance, called this 'getting the cost savings into the market'.
When the Royal's merger with Sun Alliance was announced, the press release contained some analysis of the millions of pounds of cost savings which might reasonably be expected to accrue to the combined group, but the figures were fleshed out in quick-fire background briefings - not for attribution. The moment the market heard about those savings, the shares soared and the merger was effectively secured against the possibility of a hostile predator. That is what is meant by getting the news into the market.
Hostile bids provoke even more possibilities, although these are a phenomenon more associated with the 1980s than the 1990s. In such circumstances, the takeover code and the timing are all weighted heavily in favour of the aggressor - the takeover code is, after all, written by merchant bankers who make their living from bids. In such circumstances the press is often the only tool the defence has. Thus in any bid you can expect to see stories of a 'white knight' bidder to try and get the shares in the market above the price the bidder is offering. More ambitiously, the story may be built up into something completely different - whether there was insider dealing in the run-up to the bid, whether the bidding management is all it's cracked up to be, if the bidder has a credible strategy, or whether there is a hidden jewel which is the real reason for the predator spreading tales of boardroom splits.
Companies also go to huge lengths to secure favourable comment - knowing that if all of the press is going one way, it makes it much harder for fund managers to go the other. When he was running Guinness, Ernest Saunders used to invite City editors into lunch during bids and asked them confidentially what he should do. His advisers were useless, he would say, only journalists really understood the markets, and he listened assiduously. Only years later did the City editors compare their own notes and find they had been all been fed the same line, often on successive days. Saunders' aim was flattery, not advice. A flattered journalist was less likely to be a critic, he believed, and who is to say he was wrong?
Perhaps such tactics have always been around in some form or another and they seem to have done little long-term damage to the press or indeed secured any lasting advantage to business. But it is arguable that in the 1990s, with the increasing sophistication and resources of public relations, the increasing pressure on business to perform and deliver consistent increases in earnings and profits, and the growth of a transactions-based rather than a relationship-driven City, the nature of these manipulations has also changed. The overall result is that the press has moved from being an observer of the business scene to a participant in it. We have seen this most clearly in the area of regulation. In the '80s, after the Financial Services Act was passed and the creation of self-regulatory bodies, both politicians and practitioners made the cardinal mistake of promising what they could not deliver. They created an expectation in the public mind that there would be no more City scandals.
They then found, as the Hammersmith & Fulham swaps debacle was followed by the Maxwell and BCCI frauds and finally pensions mis-selling, that the public needed to be appeased. This the regulators achieved by bringing in the era of trial by headline. When a firm strayed, it could expect to see the offence reported in the most lurid terms.
From this it was but two small steps to the situation which arguably exists today. First, people and firms are put under tremendous pressure to plead guilty and told if they do not, they will get negative publicity anyway. Second, firms which have done nothing more sinful than express a view disliked by the powers that be find themselves named and shamed on the most dubious pretexts. Back in the 1970s in the US, the Securities and Exchange Commission (SEC) was widely criticised for trial by headline - securing vast acres of coverage when someone was arrested, only to find the case quietly collapse some months later. We are not too far off a similar situation in the City today.
The same engine has driven the changes in corporate governance which have characterised the past 10 years. It is tempting to see the arrival of the recommendations of Cadbury, then Greenbury and, most recently, Hampel as some kind of cosmic accident, akin to an asteroid deciding for no apparent reason to collide with earth.
Certainly no one sat down and decided that Britain needed to reconstruct its entire system of corporate governance. Rather politicians reacted to specific events and, to take the heat off themselves, briefed journalists of 'the something must be done' mentality. This put pressure on the Stock Exchange, the CBI and the other great and good organisations which in turn led to the creation of the various bodies and their subsequent reports. But the process did not stop there. Further briefings were used to create a climate of impending legislation which bounced a jittery Stock Exchange into according these reports quasi-official status, effectively making them binding on large companies. Few people wanted these regulations, no one thought through what was supposed to happen once they existed - least of all the authors of the reports. They arose out of trial by headline without anyone being quite sure what the offence was. There are times when lynch law seems quite sophisticated by comparison.
In an ideal world one might expect the pendulum which has swung one way to swing back, but this appears to be unlikely. The advent of new technology has not simply speeded up the information, it has brought a need for quick-fire decisions. Analysis gives way more and more to instant reaction and, if newspapers can condition such a reaction, then they will be used.
Burson-Marsteller's research confirms how far this process of media manipulation and image-building has gone. They found that a firm's reputation was inextricably linked to the reputation of the chief executive.
The moral of this story is clear, if depressing. If a new chief executive wishes to increase shareholder value, then he should not waste time on operations. Rather he should hire his own personal public relations consultant and create for himself an image as a dynamic mover and shaker. If he does that successfully, then his company's share price will soar and shareholders will be delighted - though he has, in fact, done little or nothing for the business. Thus we have it: as we approach the millennium, media manipulation has become a legitimate way of increasing shareholder value.
HOW TO GET RID OF YOUR CHIEF EXECUTIVE
STEP 1. A PR hints to a journalist that the institutions are gunning for the CEO
STEP 2. The journalist calls the chairman who, on a non-attributable basis, confirms the story
STEP 3: The story is duly published
STEP 4: The chairman fires the CEO on the basis of the newspaper report.