Brave New World

The Challenge of Western Media for Chinese Companies and Their Legal Counselors

By Richard S. Levick, Esq.

Consider the recent experience of two Chinese companies with the Western media.

Both experiences were bad. Both threatened essential business objectives.

Both underscore the impact of the U.S. media on how U.S. regulators – and, by extension, U.S. judges and juries – reach decisions. Both underscore how necessary it is for Chinese companies to understand the importance of media and plan accordingly.

And, both suggest an essential role for lawyers on company teams formulating and implementing media strategies in the U.S. In-house lawyers are particularly burdened with such larger public perception issues. As company executives, not just legal technicians, they have an obligation to look beyond the “letter of the law.”

In today’s business environment, in-house lawyers now confront two paradoxical facts of life.

On the one hand, public communications can affect the actual outcome of a specific legal matter. Lawyers who ignore the press may find their best professional efforts jeopardized in court or before a regulatory agency because of something that appeared, uncontested, in an Associated Press story or on CNN.

On the other hand, the importance of public communications, and its effect on corporate reputation, can exceed the importance of any single legal outcome. Win in court, but alienate the public, and you sacrifice hard earned institutional trust and market share. Win a vote of confidence from the Securities and Exchange Commission, but generate distrust in the financial press, and no one may buy your stock.

Scenario One: Banks at Loggerheads

When the Chinese media reported that China Construction Bank was being reorganized in early June 2004, the announcement was crisp, to the point, and direct. Unfortunately, the Western media, conditioned by decades of aggressive negativism, reported the story in a way that, from the Chinese perspective, communicated exactly the wrong message.

Consider the Wall Street Journal coverage:

“In a sign that China is pressing ahead with plans to list its giant state banks despite fears of economic overheating…the move gives China Construction a lead over Bank of China in preparation for stock market listings that Beijing hopes will help transform its debt-laden state banks into commercially driven operations in tune with risk, before the market is fully opened to foreign competition in 2007.”

In just a few words, the journalist – who, it should be noted, was based in Hong Kong – used three common Western media devices to make this particular story more interesting, and to give it relevance in the context of the Journal’s broader coverage of China’s growing role in the global economy.

First, the story immediately focused on the potential downside of undertaking the reorganization at this time – i.e., the Chinese economy may be too hot.

Second, the reporter pitted one bank against the other, saying, in effect, that, if one bank wins, the other has to lose.

Third, the story makes it clear that this reorganization is, after all, just what the central government wants.

The Journal also put the story right next to one headlined: “Calpers Says Disney, 3 Others In Need of Governance Reforms.” The spatial context thus reinforced the China Construction story as a less than positive development.

Yet the worst news is that – thanks to an online database industry uniquely sensitive to the needs of news reporter – every editor and journalist who wants to write about Chinese banks will, for years to come, have this story as a reference point.

Scenario Two: A Poster Boy

As we discuss below, there are a number of best practices that foreign companies are well advised to follow when dealing with both regulators and journalists in the U.S. One company that did not appear to follow a single one of these best practices is the China Life Insurance Co. As a result, it found itself at the center of a very unpleasant, very American experience. After an extraordinarily successful initial public offering on the New York Stock Exchange, the company wound up facing multiple investigations by regulators.

Even worse from a long-term reputational perspective, China Life became the poster child for Chinese companies that are not yet ready to fully participate in U.S. and Western capital markets.

From failing to alert potential investors to a wide-ranging accounting investigation by two powerful Chinese government agencies, to self-serving hyperbole that would have made an American advertising agency blush, China Life was ill-prepared for a confrontation with the American media. But confrontation is just what it got.

In its lead story on May 17, 2004, the Wall Street Journal said of China Life that “companies dressed up for an overseas stock-market listing often have yet to grasp Western standards of disclosure. And the listed companies typically retain hard-to-understand ties to unlisted state-owned parents.”

Translation: companies that do not provide all the information that shareholders, regulators, and others want – and it is important to note the difference between what the law dictates must be disclosed and what powerful constituencies demand to know in any event – will be held accountable by the media. In this, as in all similar cases, the results were not surprising. A protracted public study of corporate wrongdoing was recorded to the detriment of China Life. Predictably, its stock price fell.

Unfortunately, there’s another dog that rears its ugly head in all such public imbroglios – xenophobia. Especially when economies are down and trade deficits are up, journalists take a cue from their readers and start targeting foreign interests. When, for example, BP Petroleum closed offices in Cleveland, Ohio, even local radio commercials featured foppish British caricatures as a way to appeal to local consumers.

China, by dint of its size and immense productive capacity, threatens many Americans. Regulators know that. So do reporters. Tar a few Chinese companies and you sell a few more newspapers. A company like China Life therefore has to be even more careful than its American counterparts in dotting every i and crossing every t.

New Skills

What, specifically, are Chinese companies to do, and how can legal counselors help them do it?

First, Chinese companies and their executives need to recognize that, in the hothouse of today’s global business arena, they have to learn new skills. The Japanese spent many painful decades accustoming themselves to the fact that litigation is an inevitable cost of doing business in the U.S. Litigation is not in the Japanese DNA and many Japanese businesspeople have still not quite adapted to this odd American sport.

For their part, Chinese companies must accept a deregulated and sometimes abusive Western media as an irreducible fact of life. In stark terms, this means that, rather than go away, small problems will become much larger later on, when the media gets involved.

To build a better reputation, or counter a negative one that has already taken hold, Chinese companies should solidly combine five guiding rules of Western corporate communications strategy.

1. Media Relationships – As the authority and power of individual reporters covering the Chinese corporate sector increases over time, it is imperative to develop relationships with each one who currently reports on the company. The days of waiting for journalists to call for information, and being confident that they will publish a verbatim version of what you recite, are long gone. Only through strong media relationships involving the company’s communications professionals and its executives can fair treatment be expected.
2. Telling the Truth – As professionals, journalists know when a source or corporate executive is misleading them. It is often wise to let a journalist know that a specific question cannot be answered, but it is critical to provide a reason (e.g., the judge in a court case has issued a gag order, or a new product is not ready for launch). Deliberately misleading a journalist will squander all of the goodwill built up over time and may likely focus investigative reporters on the company as a future target.
3. Third Parties – Journalists do not work in a vacuum. They rely on ostensibly disinterested sources. As such, to succeed with the media over the long term, companies should recruit third-party allies to tell the company’s story. From industry leaders to market analysts to academics, these sources are key conduits for information about the company. Reporters need to hear that companies are doing good work and not cutting corners.
4. Hot Buttons – Savvy communications professionals always know the half-dozen or so hot- button issues that can spell trouble for their company at any given time. In the U.S., for example, there is today no issue more potentially vexatious than executive compensation. The rule is to be ready ahead of time with “message points,” including facts and figures about how the company compares to others like it. Third-party commentators should be waiting in the wings to declare, for example, that the CEO is worth a big bonus because he guided the company to record profits last year.
5. Laws and Regulations – The scars left by the corporate scandals of 2000-2003 are still raw. As a result, the media views compliance with the law as just the first step toward good corporate citizenship. In other words, companies get no credit in the media for doing what they are supposed to do. Only those companies that go the extra mile, and provide the details of what they achieve as a result, will be rewarded in the media.

Chinese companies have everything to gain in the global marketplace. Their potential as suppliers of consumer goods and services staggers the imagination. But without time-tested, Western-style corporate communications and public relations strategies, their growth may stall for precious years.

The Lawyer’s Role

Time was, media skills were highly desirable assets that in-house counsel might or might not bring to the table. In some situations, companies determined, quite shrewdly, that their own inside legal team actually offered ideal spokespersons during crises and lawsuits.

When, for example, the Bhopal disaster occurred, Union Carbide chose Joseph Geoghan, its chief legal officer, as spokesperson. Geoghan provided the best of two worlds. On the one hand, as a lawyer, he could self-monitor his public statements for hidden minefields and potential liabilities. On the other hand, he wasn’t just a legal “mouthpiece,” but a key member of corporate management.

Union Carbide could thus protect itself in its public position while simultaneously demonstrating the kind of personalized concern and commitment credible only with the direct involvement of its own executives. With this chief legal officer out front, the company was being extra careful but it was not hiding.

Such a pronounced media role for in-house counsel speaks to the very definition of in-house practice. In post-Enron America, every legal entanglement is a potential media disaster threatening corporate reputation and product or service brands. What ultimately defines the responsibility of corporate counsel if not reputation and brand protection?

Ergo, media skills – or at least the respect for the practitioners of those skills with an equal seat at the table -- are potentially as important for an in-house legal manager as legal skills.

Skill Sets

For lawyers, it’s a tough admixture. Media and legal skills tend to be very different. The key to media skills is controlled disclosure. But the instincts of lawyers is to guard all words uttered, to utter them only if necessary, and to parse them so carefully that, from a media standpoint, their statements often wind up bowdlerized beyond any possible interest to readers or viewers.

The specific skills now required of in-house counsel involve both planning and delivery. As much as any public relations professional, lawyers should be intimately involved at every stage of the campaign. For example:

• Make sure a crisis planning team is in place at all times, long before a crisis occurs, populated with in-house legal staff, communications professionals, and C-Suite executives.
• Have a template that identifies the media outlets, both print and broadcast, that are likely to be important to the matter at hand.
• Articulate possible substantive messages – brief and coherent – to deliver to those outlets. They can be refined or added to as circumstances dictate.
• Develop relationships with key reporters before a crisis occurs. Such relationships can stand you and your company in good stead when journalists make judgment calls that can go either for you or against you.
• Coordinate with outside counsel for their advice on media strategy and their possible participation as spokespersons. Some in-house lawyers – notably Steven Hantler, Assistant General Counsel for Government and Regulation at DaimlerChrysler – now insist that outside litigators do more than pay lip service to media management, but have demonstrable skills in that area.
• Learn the ground rules of media engagement – what, for instance, does “off the record” really mean?
• Not just print media, in-house counsel should be trained to survive the electronic media as well, especially TV, and familiarize themselves with all the tricks of that challenging trade.

Chinese companies doing business in the West – and, increasingly, in Asia too – need expert counsel on what the law doesn’t require. They need to take key steps that will prepare them for a very different kind of tribunal: public opinion. And, they must have counselors wise enough to balance the equally crucial perspectives of law and public relations.

Richard S. Levick, Esq., rlevick@levick.com is President of Levick Strategic Communications, which has handled the media on the highest- profile matters, from Napster and the Florida election recount to the Catholic Church controversy and the Rosie O’Donnell Rosie magazine lawsuit. His new book, Stop the Presses: The Litigation PR Desk Reference, is available free by emailing stopthepresses@levick.com.