Clinton's staff gaff sends message to corporate CEOs

Secretary of State Hillary Rodham Clinton showed great aplomb in her globally embarrassing gaff with Russian counterpart Foreign Minister Sergei V. Lavrov in Ankara, Turkey, Friday (3-6-09). Even so, the embarrassing incident speaks worlds about the importance of competent support staff for C-Suite executives in government and private enterprise. (Sergei also appears as Sergey. The Financial Times of London uses Sergei; The New York Times uses Sergey.)

Before the world’s media, Secretary Clinton told Minister Lavrov that her staff “worked hard” to get precisely the right Russian word for the American English term “reset,” or to begin anew. (The wrong word that was used is "Peregruzka.")

The word was important because it was a play on the office supply store Staples' “Easy Button,” and was intended by Clinton to be the continuation of Vice President Biden’s previous commitment to reset previously contentious American relations with Russia, and to move forward with a more cordial tone.

However, when asked about the correctness of the Russian term, Lavrov told Clinton that “you got it wrong.”  The Russian word Clinton staffers selected for the Secretary’s version of the Easy Button actually meant “overloaded” or “overcharged.”

The two laughed off the gaff and Clinton later suggested that “overloaded” might be a correct description for the work level their two governments will find in front of them.

This embarrassment should’t have too much made of it. Mistakes happen, even to the most well intentioned individuals. However, the source of the incident does speak to American short comings in understanding non-American environments. Where were the native-speakers of Russian to double fact-check exact meanings — to say nothing of the nuanced meanings — of the word?

The incident reminds us, once again, of a mentor who believed firmly in the adage that, “if I can’t trust you with the small things, how can I trust you with the big ones?”

Credibility is built on what one does, and doesn’t do; on attention to detail; on the ability to move swiftly, deftly and accurately. This incident will pass and be largely forgotten, as it should be. But the lingering questions remain: how much attention to detail do American leaders devote behind the scenes and how much expertise is available in Washington to understand the cultures, customs and languages of our allies — and enemies?

To optimize business effectiveness, the same goes for CEOs — and their relationships with critical stakeholders.

Communicating the right pricing message

Faced with dramatically falling consumer demand and subsequent downward pricing pressures, some companies — such as inventory-heavy apparels — feel the necessity to lower or even slash retail prices.

But what sort of message does this send to customers? Are you telling them your products really aren’t worth the prices you’ve been charging? Are you communicating mixed messages that will haunt you when the recovery finally begins?

“Discounting and promotions condition the buyer to expect lower prices” and create a customer mindset that makes it “hard to raise prices later when times are better,” according to Paul Nunes, executive director of research at Accenture's Institute for High Performance

Writing in the Harvard Business Review [2-23-09], Nunes calls this the “discount trap,” and says that it exacerbates the difficulties faced when you want to raise prices. Nunes calculates that a 30% price cut today requires a 43% price increase tomorrow to regain price parity.

Therefore, the Accenture director suggests several alternatives that communicate value more effectively.

• Analyze whether your product has comparable competitors that are strong enough to overcome the brand loyalty you’ve established. Price may not be the deciding factor in your customers’ buying decision processes.
  
• Frito-Lay is trying promotions that are “different at the beginning of the month than at the end of the month," CFO Richard Goodman told The Wall Street Journal. "People have more money to spend at the beginning [of the month] and a little less at the end," he said. It is called 'Paycheck cycle' pricing.
  
• “Discount” by increasing the amount of product you sell for the same price. Nunes notes that "20% more product may cost a lot less than offering them a 20 percent discount” and appeals to consumers’ sense of value.
  
• Haggling is back,” Nunes says. “And it's everywhere. Customers are now prepared to ask for discounts even in grocery stores. Let sales people know how much leeway they have in negotiating prices and “train them to ensure they consistently realize the best negotiated price.”
  
• Create deferred payment plans for higher priced items, formerly known as the “lay-away plan.”
  

So, what’s old is new again, and the mantra “Never pay retail” rings loud and clear.

Read Paul Nunes entire article at the Harvard Business Review.

Geithner: The smartest man in the room?

The smartest person in the room can only claim that title if the others think s/he is. That's because personal and corporate reputations are built on third party opinion. Or, as one mentor was fond of pointing out, “PR is what you do, not what you say you do.”

And it surely was with such awareness that President Obama named Timothy Geithner the nation’s Treasury secretary, and the point man to fix America’s piece of the global financial crisis.

Why else would Obama on Feb. 9 say, "My instruction to [Geithner] has been let's get this right. Let's create a template in which we're restoring market confidence.... We've got to restore confidence, so that private capital goes back in."

Those expectations have been so deeply unfulfilled that even the very liberal Time Magazine this week repeatedly defines Geithner’s performance as less than inspiring. Among its observations on the head of Treasury are the following.

• Geithner’s presentation of a “half baked plan to save the banks” was “less than inspiring.”
  
• That delivery “left Washington and Wall Street whispering that Geithner wasn't ready for prime time.”
  
• Time’s own assessment of that performance is that, “He survived.”
  
• Then Time echoes Florida Rep. Ginny Brown-Waite's assertion that “every time Geithner speaks in public ‘the stock market plummets.’”
  
• “He doesn't seem to fill his suit.”
  
• “He talks too quickly.”
  
• “He swallows the ends of his sentences.”
  
• “He gives the impression of a grad student taking an oral exam, not leading the country out of perdition.”
  

Time concludes that Geithner was named Treasury in part because he “was considered a smoother salesman” than Larry Summers.

However, the publication notes that when the Administration rolls out its more detailed bank bailout plans in the next few weeks, Geithner will have another chance to salvage his reputation as a salesman…. But the truth is, if the plans fail on their own, it won't be Geithner's tone of voice or his demeanor that brought him down, no matter what the Washington crowd may say.”

Nonetheless, Geithners reputation as the smartest guy in the room will forever be bloodied and tarnished by abundant skepticism and accusation, which once again proves that reality is what people perceive to be real and reputation is defined by public perception.

Read the full Time story here.

Effective messaging: One poke in the eye, one not

It is virtually a truism that a great deal of what solidifies corporate images among stakeholders are their perceptions of what is true or factual or real. However, what is not always acknowledged among communicators is that what constituents believe to be true, factual or real may differ from actual empirical facts.

Therefore, to get your money’s worth when executing communications campaigns, it is very important to view corporate message from the perspective of the end-user, the stakeholder.

An examination of two general aviation companies provides a dramatic contrast in approaches, the visceral versus the thoughtful.

The companies are Cessna [see earlier post] and Hawker Beechcraft.

Their common objective is to prove the efficacy of corporate aviation, overcome public and Congressional outrage over high-flying fat cat executives, and to staunch declining aircraft sales.

Cessna’s pokes Congress in the eye in its appeal to CEO machismo when it says, "true visionaries will continue to fly." The headline virtually hammers the board table when it shouts, “Timidity didn’t get you this far.” These messages sit above a gleaming Cessna jet aggressively poised to thunder into a threateningly black sky.

By contrast, Hawker Beechcraft ads don’t feature an executive jet, but the workhorse nine-passenger turboprop Beechcraft King Air 350. The message is clear: this is a business tool, not an executive luxury.

Instead of a damn the criticism, man, fly anyway approach, Beechcraft provides an easily understood example of how business efficiency is achieved by Starbucks’ use of its aircraft as prudent, cost-effective business tools.

The ad says, “Starbucks is a uniquely American success story with thousands of locations in more than 40 countries. Like most successful corporations, Starbucks relies on business aircraft to manage and grow its business worldwide. We are here to help them fly even more efficiently than before by showing them how to right-size their flight department.”

"You can debate the size and amenities,” Hawker Beechcraft CEO James E. Schuster said. “But that doesn't negate the basic economic premise of the value of business aircraft to many, many companies."

(USA Today reports that The National Business Aviation Association says that 86% of those on board corporate planes are non-executive employees, such as sales people, technical experts or repairmen doing jobs more quickly in difficult locations that don’t lend themselves to regularly scheduled commercial flights.)

CEO Schuster added that the choice of executive aviation should be "function of the cost of their time," not their egos. "What makes a business competitive [is] getting the most out of the people it employs" and prudent use of corporate aviation is one way to achieve this legitimate business goal.

Links to Hawker Beechcraft, Cessna and the USA Today story.

Stakeholder communications still essential

Corporate communications with stakeholders have taken less of a hit during this recession than during previous economic downturns, reported the Annenberg Strategic Communications and Public Relations Center.

"The only plausible reason for this change is recognition that in our hyper-informational, increasingly transparent environment, organizations of all types need to communicate effectively or see their relationships with their key audiences wither away. This seems to be true even when — or perhaps especially when — times are tough” said SCPRC director Jerry Swerling in a news release.

“Engaging with your stakeholders in cost effective ways is no longer an optional practice; it’s essential," he added.

For the 200 companies surveyed, 7.4% reported 2009 budgets lower than in 2008. “Thus far in 2009, surveyed organizations have further reduced their spending by an average of 3.9% relative to their planned budgets for this fiscal year,” the release stated.

Budget cuts have hit agencies rather than internal staffs. “While the recession has certainly hurt, and there will undoubtedly be more pain in the future,” Swerling said that, “our survey respondents, who come from a wide swath of the economy, have experienced significant but not debilitating budget cuts and have been able to prevent, at least through today, widespread layoffs.

Read the Annenberg release and report here.

Just the facts, ma'am.... well, almost

CEO responsibilities rise above fact-checking speechwriters’ illustrative statements. And to attend to their higher duties without being menaced by minor issues, executives deserve knowing that their wordmongers get it right — otherwise the boss’s credibility gets dinged.

And no less a symbiotic relationship exists between President Obama and his own word crafters.
Nonetheless, as we all know by now, Obama is fond of entertaining tales and phrases. He evidently believes they contribute to his ‘ordinary man’ quality while elevating the mundane or simply tedious to the palatable.

Therefore, in addressing the joint session of Congress about both the American auto industry disaster and the ever-resilient American spirit, Obama once again entertained us with such an informative statement: "I believe the nation that invented the automobile cannot walk away from it."

While a handy turn of phrase, it is not correct.

The Library of Congress credits Germany with inventing the automobile, according to USA Today’s James Healy. And a Diamler AG spokesman says, “It's a fact that Daimler invented the car.”

All of this reminds us of another executive over-reacher, former Vice President Al Gore, who told CNN in 1999 that, “I took the initiative in creating the Internet.”

When Today's Healy asked the White House about the error, a presidential spokeswoman, Jen Psaki, challenged: "There may be some question about who invented the car, but make no mistake, we still make the best cars right here in America." [We don't think J.D. Power agrees with that, but we may be wrong.] 

The White House aide suggested that Obama was encouraging Americans "to remember our rich history of ingenuity."

Which brings us to another fundamental of executive communications: Admit mistakes, and demand that your lieutenants do, too.

Attempting to rewrite history doesn’t work, and is completely contrary to the notion of learning from one's mistakes and moving on.

Of course, we could take the approach of William Godwin, who pleaded in his 1797 “Of History and Romance: ”Dismiss me from the falsehood and impossibility of history, and deliver me over to the reality of romance.”

PS: One final thought on facts and accuracy: Dragnet's Sgt. Joe Friday is often credited with the phrase, “Just the facts, ma’am.” Close. Actually that exact sentence appeared in a 1953 Stan Freberg spoof of the cop drama. The accurate Dragnet phrase was, “All we know are the fact, ma’am.”

Business communication must address crisis realities

You will need to recalibrate and refocus your business communications based on “a new logic” defined in a Wharton Business School study just released, which suggests the end of conspicuous consumption and the notion of luxury as an entitlement.

The severity and uncertainty of today's economic crisis will be more pronounced and last longer than the outcomes of other post-Depression downturns. While spending will resume, Wharton says, it will be “without the vigor” characteristic of the roaring 2000s.

Wharton marketing professor Wesley Hutchinson says the Great Depression “changed consumer behavior and attitudes for a generation," and set a “precedent for a very large shift" to come from today’s economic crisis. These new behaviors include the following.

• Consumers will learn to become more frugal.
  
• Conservative spending practices “are likely” to become a post-recovery standard.
  
• Bad credit management habits will be replaced by an “overextending” wariness.
  

Consumers who “learned to trade up when times were flush are now learning to trade down. They realize they were wasting money on higher-priced goods and services.” They are finding a new sense of well-being in becoming more discerning shoppers. "There will be more of a premium placed on seeking value," says Wharton marketing professor Stephen Hoch.

This will not be an ephemeral shift. Consumers won’t “go back to spending like they did, at least not anytime soon," Erin Armendinger, managing director of Wharton's Baker Retailing Initiative.

The consumer mood is clearly downbeat, says Paco Underhill, author of “Why We Buy: The Science of Shopping.” " The level of depression is pervasive. This is a very dark period," which is defined by income security rather than income, and broadly falls into three consumer groups.

• Lost their jobs and are downwardly mobile, crosses social lines from the Wall Street banker to the GM worker. "This is traumatic.”
  
• Not at immediate job-loss risk, but friends have lost jobs. They are cutting back; take pride in comparison shopping.
  
• Relatively untouched: have paid-off mortgages, portfolios may be down sharply, have adequate cushion. Cutting back because conspicuous consumption seems like bad manners.

The changing consumer psychology also cuts across age groups.

For the sub-30-year-old Generation Y, who “believe spending is limitless…. This is the first financial trauma of their lives…. They have no idea of budgeting."

For the 30-to-45 Generation X, the decline in housing values is the challenge.
Baby boomers also are caught by the challenged of collapsing housing values. "They forgot to save, and thought their houses were doing the saving for them." Their expectations for retirement will be downscaled.

The way to cope psychologically with these changes is for each group to understand that “no acquisition in life that is transformative…. Nothing changes you into somebody you weren't before that purchase happened," Underhill suggested.

The 'Communications Impact' charted

A modest "Obama bounce" was seen in the Dow during the days immediately after the President's inauguration. However, once in place, the President's plans and non-plans began to emerge, and the notably unsentimental and apolitical Wall Street communicated clear dissatisfaction. Pundits and pols alike expressed their belief that Treasury Secretary Tim Geithner's non-plan recovery presentation was precisely the wrong communications package; it was a plan to have a plan to be announced later, but not a plan as expected. 

To see graphic representation of Obama's dramatic impact on the stock market, click the chart below and get a larger image.

Then, to add to the confusion, Sen. Dodd said live on Bloomberg TV: “I don’t welcome that (bank nationalization) at all, but I could see how it’s possible it may happen…. I’m concerned that we may end up having to do that, at least for a short time.” 

Almost immediately after Dodd's comments, Bank of America and Citigroup shares tumbled, and Treasury felt compelled to issue a brief statement saying the President’s plans did not include bank nationalization. That statement, however, was not all-inclusive or definitive. Confusion prevailed and stocks fell further. 

The White House attempted to counter the impact as Obama spokesman Robert Gibb told the media, "Let me reassure as best I can on banks. This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring they are regulated sufficiently by this government. That's been our belief for quite some time and we continue to have that." Stocks came off of their lows following these comments.

Unfortunately for American individual and institutional investors, the business of communications and effective performance of the communications function both were failures.

Sen. Dodd's communications DISASTER hurts Americans

The U.S. may have to temporarily nationalize certain banks, Senate Banking Committee Chairman Christopher Dodd said Friday in an interview on Bloomberg Television. The headlines sent shares of Citigroup and Bank of America down more than 20 percent on fear they could be involved in any such nationalization plan, reported ForexTV.com.

The market overall tumbled further in its current free fall following Sen. Dodd’s comments.

Dodd said on Bloomberg TV: "I don't welcome that at all, but I could see how it's possible it may happen…. I'm concerned that we may end up having to do that, at least for a short time."

Dodd did say that the Obama Administration is doing what it can to avoid such action.

With market uproar still sounding, CNBC’s Steve Liesman contacted Treasury, which contradicted Sen. Dodd and assured the business reporter that “As Secretary Geithner has said, we will preserve a financial system that is owned and managed by the private sector”

Does Obama have any control over this Democrat-majority Congress and its outspoken Sen. Dodd. Obviously not, and the miscommunication presented global financial markets are costing investors of all strips enormously.

Financial crisis exposes communications breakdowns

“The force and speed of the global downturn have sent most companies reeling, and many senior managers have not yet figured out how to respond,” according Booz & Company research among 800 global managers conducted in December, 2008.

While that may not be surprising, a “significant lack of confidence in senior leadership’s strategies” is disturbing, and suggests the need for greater C-suite outreach among key stakeholders, namely employees, customers and investors. The numbers:

• 34% of respondents are “skeptical of plans being put forth by senior executives.”
  
• 51% of managers not reporting to the C-level manager expressed similar doubts.
  

The Booze&Co. report concludes that these numbers may result form:

• “Executives inability to communicate the elements of their plans,” or
  
• “The plans simply don’t resonate with many of the people who must make them happen.”
  

The study suggests the existence of a significant gap between logical actions and actual actions of senior executives, which is creating a world view that “isn’t always realistic.” Booz researches suggest three steps to remedy this problem.

• First, executives should get “an accurate read” on their business environment and their company’s relationship to it.
  
• Second, they then must pick an appropriate response to the situation, thus “there are many different ways to strengthen the balance sheet….”
  
• Finally, essential to regaining wary stakeholders’ confidence is effective communications and decisive action.
  

[The full study is available at the Booz&Co. Web site.]

The KISS that never fades

“When everyone else suffers from over-complexity, there is a market for products and services that simplify life” Rosabeth Moss Kanter writes in the current editon of the Harvard Business Review.

The noted Harvard Business School professor cites several examples of businesses that became too complex and suffered as a result. The one that all of us can all relate to is P&G’s Crest toothpaste options; which one to choose? Basic, whiter, tarter control, gum disease? Ahah! P&G simplified by creating Crest Pro, which combines all the benefits into one product.

However, Prof. Kanter asserts that “simplification is not the norm, and that's a problem.” Unnecessary complexity, she believes, has contributed to the global economic meltdown, the failure of GM’s 47 brands, Bernie Madoff’s faud, and out-of-control American healthcare costs.

[In contrast to GM, Prof. Kanter points to Ford Motor Co., which “started its 'One Ford' campaign to integrate its international units and simplify its global structure. Ford was profitable despite industry woes in the first part of 2008 and did not require government assistance.”]

Prof. Kanter’s insights on business complexity translate perfectly to business communications and stakeholder outreach. The communications example we find always compelling is that of great American literature: Hemingway is more interesting, understandable and compelling for most readers than is Faulkner.

[Read Rosabeth Moss Kanter’s full HBR article on business complexity.]

Communications vacuum impairs judgment

Operating in a vacuum — where the only input you get is from animals of your own stripe — will surely produce skewed perceptions of the dangers that lurk in your jungle. Wall Street executives and the nation’s largest bankers have been swinging from their own trees for so long that they have failed to perceive all of the threats around them — those in the larger American habitat.

This apparent lack of clear corporate perception promises potentially dire consequences for these executives, their companies, and the rest of America.

Effective corporate communications are based, in part, on a dialogue among executives and stakeholders to gain insight and support.

As we have said in previous posts [see Cessna], executives who manage without the knowledge such dialogues provide do so at their own peril — and now everyone else's, too.

Such an outcome has emerged “buried deep inside the $787 billion economic stimulus bill,” the Times reports [1-15-09]

“Much tougher” than proposed by Treasury Secretary Tim Geithner, the very restrictive compensation aspects of the bill are the handiwork of Connecticut Democrat Sen. Chris Dodd, who seems to enjoy his ability to smack around business leaders on behalf of his constituents.

“The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence,” Dodd said. “These tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses.”

“These tough new rules” also may have some negative unintended consequences, according to both Administration and outside experts.

First among these is a brain drain in the financial industry. The top talent, the best traders and managers may flee to hedge funds and foreign banks not constrained by Congressional action.

“These rules will not work. Any smart executive will… get another job,” compensation consultant James F. Reda told the Times.

Second is the likelihood banks and other financial entities covered by the bill can simply increase executives salaries.

“About the only way to address these limits is to pay large salaries,” according to Michael S. Melbinger, an executive compensation lawyer at Winston & Strawn in Chicago. “There’s no pay for performance in this,” which is what bonus are all about and help ensure quality output.

And finally, “at some point, you begin to wonder: has the government given up on these companies anyway?” asked Alan Johnson, a compensation consultant and advisor to Wall Street banks. “Why would the government or White House want to go along with that unless they have come to the conclusion they will have to nationalize these firms anyway?”

Hearing these argument against Sen. Dodd’s addition to the rescue bill makes one wonder if the CT Democrat is hastily helping along the President’s effort to redistribute wealth in America — ushering in The Socialist Era in America.

In any case, bankers operating in a corporate information vacuum have brought the nation to this uncomfortable situation.

[Read The New York Times' story on this Congressional action.]