Not today!

No rant today. Today we celebrate 25 magical years since I convinced the Lady Carolyn to marry me.  You should all be as happy as we are.

How Much Is Enough

Apparently it’s all in how you look at it. According to a Governance Metrics International (GMI) study, on average CEO pay levels jumped 28% in 2010. And it gets worse. At the top, CEOs of “S&P 500” companies saw their income jump 94.2%. CEOs of “S&P Midcap” companies did even better; they got an average 123.5% boost in 2010.

At about the same time the GMI study was released, an article posted on CFO.com whined, “Ghost of Enron Wreaks New Havoc on Exec Pay.”  Written by an “Executive Compensation” Attorney, the piece goes on for several paragraphs about how certain tax dodges that were changed post-Enron are now resulting in those at the top of the pile being forced to pay more taxes. Poor babies!

The growing gap between the rich and the poor in America raises the ethical question, how much is enough? There is not a speck of evidence that these outrageous executive compensation levels create great leaders; quite the contrary in fact. Nearly a decade ago best selling author and business consultant, Jim Collins, addressed that subject in a USA Today OP-ED. His company found, “In a five-year study, after 112 separate analyses looking for a strong link between executive compensation and corporate results, we found no pattern whatsoever. If you have the right people, they will do everything in their power to make the company great.”

Take away? It’s the people, not the paycheck. Should executives be well compensated? Of course. But this out-of-control “Carpet Land” battle to take home the most bucks is insane. In way too many cases it is taking the focus away from leading the company and turning it to leading the pay scale.

A few decades ago CEOs earned about 40 times as much as the lowest paid employee in the company they headed; today 1000 times is not uncommon. So how did executive pay rocket out of control? Greed. Ego driven greed enabled by corporate directors who allowed it to happen; directors too often chosen by the CEO. These CEOs then conned them into hiring Compensation Consultants who –knowing which side their bread is buttered on– make sure they convince these compliant directors that they must boost executive compensation. And so a destructive cycle drives the bucks up, up and away.

Hopefully the stockholders will shake off this compensation culture, boot the consultants and others that drive this destructive practice and reign in executive compensation. After all, a stable society is built on a content middle class, an endangered species these days.

These top-dogs will still be able to afford the luxury goods that are flying off the shelves across America today, while those down the food chain worry about the basics. And maybe if the greedy don’t have quite so much extra cash lying around, they will stop speculating in oil and driving up the price of gasoline. That would be nice and it might just simmer down the growing discontent with life in these United States. How much is enough? Enough is Enough!

Whose Money Is It Anyway?

Occasionally we get to see the folks on Wall Street actually engaged in the job we expect them to carry out, creating capital. All of the other nonsense that takes up most of their time –trading bogus investment instruments, pawning them off on unsuspecting clients and then laying bets that they will fail– are not interrupted, of course, but some social good does bubble up to the surface of the slime pit in lower Manhattan from time to time.

Initial Public Offerings (IPOs) are perhaps the most visible benefit provided by the monster (in all defining aspects of that word) banks like Morgan Stanley, Goldman Sachs and the three or four other names we have become painfully aware of since they sent us crashing into a recession in 2008.  They gleefully took our money to forestall a world-wide economic collapse. And while we are slowly climbing out of the crater they left us in, they are doing very well thank you, making money hand over fist.

Actually they are doing exactly what they were doing before, the same things that dumped us into the sewer. We thought our money was supposed to help small businesses and other job creating stuff. But that’s hard and it’s so much easier to succumb to their gambling habit of old. That’s what some folks see even creeping into the IPOs that are beginning to turn up again on Wall Street.

Merrill Lynch and Morgan Stanley were hired by LinkedIn, the B2B social media site, to take the company public. The banks’ role was to evaluate LinkedIn and judge what the market would pay; their figure was $45.00 each for the just under eight million shares in the offering. That netted LinkedIn about $350 million, a healthy infusion of capital. However, the $45.00 turned out to be way low; by the end of the first day the stock had rocketed up 110%. In fact the minute it went on the market it jumped over 80%. So the investment bank’s customers and a few others bought low and probably sold high, doubling their money in one day. Money that some believe should have gone to LinkedIn.

It’s easy to tag Merrill & Morgan as the bad guys. With their fingers on the pulse of the market they should have known the run-up would be huge. On the other hand, LinkedIn was the first of the social media companies to go public. With a yet-to-be proven business model that only pushed $16 million to its bottom line last year, LinkedIn was hardly a slam-dunk to rocket into Wall Street Stardom. When you take into account that the Street still has the dot.com bubble in its rear view mirror, the $45 price doesn’t look so bad. Had the banks overpriced the shares and seen them plummet when they hit the market, the legal beagles in the banks would have been busy for years defending a storm of lawsuits.

There is an alternative, an auction that allows the investors, the market, to set the price. While that description is a bit too simple, the auction model IPO seems a better path. It doesn’t take the banks out of the process completely, but it does give the company a lot more control over who gains from the offering. Take away for the other IPOs in the wings? An auction will put more of your money in your pocket.

Too Big to Jail?

When a covey of executives from Goldman Sachs appeared before the Senate Permanent Investigations Subcommittee in Washington, they first stood up and swore to tell the “Truth, etc., etc.” When the committee’s 650-page report was released, it seemed pretty clear that they did not tell any part of the truth let alone the whole truth. Already under attack by the S.E.C., Goldman is now facing charges from multiple sources.

We are all tired to death of grandstanding members of the Congress and their “Gotcha” hearings. Senator Carl Levin, Chairman of the Permanent Investigations Subcommittee, does not fall into that classification. Levin has a law degree from Harvard and experience as Michigan’s Special Assistant Attorney General. He doesn’t do “Gotcha.”

That said, the appearance of the Goldman Sachs “Carpetland” crew, including CEO Lloyd Blankfein, in front of Levin’s committee pretty much turned into just such an outing. The Senator turned over the results of their investigation to the Justice Department suggesting that they review as to bringing perjury charges. While we claim no legal insight, what Blankfein and his associates said under oath and what they said in internal documents obtained by the Committee are vastly different.

The Justice Department has taken no action. We would assume they are building a case. After all, they are putting baseball legend Roger Clemens on trial for exactly the same offense –lying to the Congress while under oath– with seemingly little more than the word of Clemens’ one time trainer. While lying to the Congress under any circumstances is a bad thing, whether or not a sports figure shot up some performance enhancing drugs is not quite in the same class as involvement in triggering the derailment of our economy.

Meanwhile New York's newly minted state Attorney General, Eric Schneiderman, is charging ahead with an investigation into the role played by several major investment banks –including Goldman Sachs– in triggering the financial collapse. And Manhattan District Attorney Cyrus Vance, Jr. has issued subpoenas to Goldman for records relating to the 2008 crisis.

The New York based prosecutors have a unique tool, the 1921 Martin Act, a state law aimed at curbing financial fraud. Schneiderman and Vance could use the Martin Act along with information gleaned from an S.E.C. and two federal investigations to help build cases against the individuals who created worthless financial instruments and conned buyers into paying top dollar for them.

Many Wall Street lawyers seem to believe that nothing much but some slap-on-the-wrist fines will come of this. They are sure nobody will go to jail or even end up with “Felon” attached to their name. That would be a tragedy; it would do nothing to deter a repeat of the reckless behavior that ran us off the cliff.

After all, if we are going after sports heroes for lying about behavior that resulted in fooling their fans, how can we justify not holding those accountable who appear to have thrown us into a recession that has wracked our nation to its core. What’s good enough for Roger Clemens is good enough for Lloyd Blankfein and the others who appeared before Senator Levin’s committee. We deserve their day in court.

We Have No Mandate to Spin

Anyone who has ever watched a cop show is familiar with the “Read ‘em their rights” routine. “You have the right to remain silent. Anything you say can and will be used against you in a court of law. You have the right to speak to an attorney, and to have an attorney present during any questioning. If you cannot afford a lawyer, one will be provided for you.”

I don’t see any reference to any right to public relations counsel in there. That’s why I was stunned by a Reuters story outlining the “Dream Team” of lawyers, private eyes, and public relations practitioners Dominique Strauss-Kahn is assembling to defend himself against charges of sexual assault. He is, of course, innocent until proven guilty of these charges; however, at best he has a reputation as an outrageous womanizer. Now I understand -and I agree- that he is entitled to all the lawyers and gumshoes his millions can buy, but why would anyone in the reputation business (that’s us, isn’t it?) want to be associated with Strauss-Kahn or this mess?

Occasionally a long-time client is ensnared in some illegal activity, mostly unjustly, sometimes through stupidity, or an act of a rogue employee. In that case we would want to be on the team, although our counsel would likely be dramatically different from what the Strauss-Kahn team is looking for. Sadly, many who fly the public relations flag are happy to work with anyone and follow whatever agenda the folks with the cash are looking for.

Most communications pros recognize their role as a “Canary in the Coal Mine,” on guard to sniff out the slightest hint of reputation damaging activity and roadblock it before it can tarnish our employer or client. However, there are a minority of spin-doctors and worse who bring shame on all the good guys. Unfortunately, a few of the largest firms in the business fall into the latter group.

One of our professional organizations, the PRSA, has the good work it does diminished by its toothless ethics code. They enable the pond-scum that clings to us all to brazenly fly the PRSA flag and puff themselves up showing-off their PRSA issued credentials. Meanwhile the rest of us have to share the same tent and put up with the stench.

What we have in this situation is a 32-year-old widow, struggling to support her daughter on a hotel maid’s income, stacked up against all the guns a multimillionaire big shot can bring to play against her. It’s already started; they’ve put out the word that she lives in an apartment complex reserved for HIV/AIDS folk. Score one for the Strauss-Kahn Dream Team; it’s just the first salvo in the Dream Team’s efforts to demonize this young woman.

Of course no one mentions that she is from West Africa and was granted asylum in the United States; facts that explain the HIV/AIDS issue quite nicely. But still, what chance does she have? At the end of the day, if they are successful in this assault on the assaulted, all those who toil where they might encounter the mighty will be afraid to report future assaults.

Wouldn’t it be nice if one of our discipline’s heavyweights signed on pro bono to act as a truth squad and protect this woman in the media? Wouldn’t they have fun crossing swords with the best that Strauss-Kahn can throw at her? 

Don’t Mess With the Little Folk

Urban Outfitters operates a couple hundred retail outlets worldwide offering a range of  kitcehy goods from housewares to shoes to clothing and more, under six brand names. Their appeal is to teens and twenty-somethings striving to be “Hip,” whatever that means these days. It is a remarkable success story launched by Richard Hayne (now worth $1.8 billion) in 1970 with a single store on the campus of the University of Pennsylvania.

According to a piece in the Huffington Post and other sources, Urban Outfitters is caught up in an intellectual property dustup with Stevie Koerner, a Chicago based designer selling her jewelry online. She has a line of handmade silver pendants, many in the shape of some of the 50 states, a few countries and several continents. They all have a heart cut out; she calls these her “World/United States of Love” line.

So one day a design similar to her New York State pendant shows up in an Urban Outfitters’ store. Not cool, thinks Stevie, but not much I can do about it. She tweets a complaint with her sad tale and soon a “Boycott Urban Outfitters” movement begins. Before long Twitter is trending heavy with the message and it goes viral worldwide. Unconfirmed reports indicate that Urban Outfitters pulled their version from the stores tout de suite.

This is not the first instance of a ripoff design showing up in Urban Outfitters’ stores. A year ago The Brooklyn Paper and The Village Voice ran stories about similar design ripoffs involving Urban Outfitters. The issue has not escaped Urban Outfitters; reportedly they are now asking suppliers if their designs have been “inspired” by others. Given Ms. Koerner’s recent experience that message hasn’t done much to cure the problem. Perhaps a plainspoken, “If we find that you ripped this design off from someone, we will make you eat it and you will never sell us another dime’s worth of anything” might do the trick.

Getting the ripoff of Ms. Koerner’s design out of Urban Outfitters is apparently just the beginning of a reversal in her fortune. A note on her website, www.IMakeShinyThings.com tells it all: “Thank you SO much for the support everyone! Orders will take a bit longer due to the overwhelming response to Urban Outfitters! Please give me 3-4 weeks to create and ship your items! Xo.” Seems that taking on the giant retailer has raised her profile and business is booming. Good for her!

In Tom Friedman’s Flat World the lesson for Urban Outfitters and others in a similar position –is– don’t mess with the little folk; they can organize an army of supporters and even make billionaires back down. The lesson for the little folk like Stevie Koerner –is– don’t take it lying down; use Twitter and all the social media to go after anyone who has wronged you. The message for the rest of us –is– it is a new day, a brighter, nicer, kinder, more ethical day.

WhisperGate

Things don’t sink much lower than having the guardians of reputation forgetting that reputation is their sole reason for existence. Despite what some believe, the vast majority of public relations practitioners are not a bunch of smarmy spin doctors. They value nothing more than their ability to be the “Canary in the Coal Mine,” sniffing out the slightest hint of an action that might damage the reputation of their company or their client.  

That’s what makes a blatant attack on Google engineered and carried out by PR giant Burson-Marsteller on behalf of Facebook so mindboggling. Tagged “WhisperGate” by the media –perhaps because of its resemblance to a nasty grade school rumor– it’s hard to understand how anyone thought this was a good idea. The fact that two guys who recently moved into the PR world from fairly senior positions in journalism were badmouthing Google to their contacts in the media makes it even harder to fathom.

What level of hubris made them think they could carry off this kind of nonsense? What journalist or ex-journalist would fail to see this going public and viral in the blink of an eye; as it did? Their phone calls were stupid; pushing their garbage in emails was insane. How long did they think it would take for someone to forward their own words to the world? Who did they think they were?

Of course we have no way of knowing how this all came about, or whose idea it was in the first place. We are not likely to discover how many others –alongside, or up the food chain– were involved. But it does lead us to take a look at Burson-Marsteller. A quick perusal of their history and website leaves one less than impressed with their ethical grounding. To their credit they swore off tobacco last year (2010) after shilling for Philip Morris and other industry players for years. Among other things, they set up what were made to look like independent scientific entities to cast doubt on the dangers of smoking.

They lay claim to crisis management credentials springing from the 1982 Tylenol tragedy in Chicago. In a carefully parsed paragraph they say, “Burson-Marsteller worked closely with Johnson & Johnson.”  To our knowledge all the smarts that have become the gold standard for dealing with this kind of catastrophic happening came solely from J&J. Burson-Marsteller certainly played no part in setting the course J&J chose.   

The Burson-Marsteller Google attack delivered a black eye to every public relations practitioner, the good and the bad. Sadly, the good guys have no way to distance themselves from the smarmy elements in their discipline. As Warren Buffett famously said, “It takes 20 years to build a reputation and five minutes to ruin it;” in this case for somebody else to ruin it. Burson-Marsteller will shrug off this despicable incident and go on to the next smarmy tactic, seemingly their only regret that they got caught. Meanwhile the good guys will suffer.