A Delicate Balance: High-Stakes Communications During Regulatory And Enforcement Actions

by Richard S. Levick

One way or another, it’s a landmine.

By now it's obvious that just about any publicly traded company, and certainly any company doing business in a regulated industry, can be targeted by one or more of the diverse regulatory entities that oversee the U.S. business community. Equally possible, companies may be investigated by enforcement agencies at the federal or local level in any number of unwelcome scenarios. Individual managers, unbeknownst to other executives, commit malfeasance or non-feasance. Sometimes it's merely because the company does business with another company that's fallen afoul of the law, and the government wants to know more about its friends.

The legal quicksand is dangerous enough. The drain on money, resources, and time is as onerous as it is unavoidable. Yet effective public communications may be the most daunting challenge whenever regulators or enforcers announce their interest in a company. On the one hand, the company must do what it has to do to protect its reputation and preserve its brand equity in the marketplace.

On the other hand, every press release, every media interview, every blog posted in the company’s self-defense runs the risk of alienating the very regulators and enforcement officials who are investigating the company, no less so than a statement on the courthouse steps might infuriate the judge who will be ruling on the defendant’s future.

From a communications standpoint, the company is, in a sense, being forced to run a race while having to continually look right and left and behind. Under the best circumstances, the regulators and enforcers will be supportive, especially if the company is able to fully disclose its specific communication strategy and thereby ensure the government’s comfort level. If the government has something to gain from the company’s public outreach, so much the better.

Under the worst circumstances, however, the regulator or enforcer is, for whatever reason, an avowed antagonist. In these circumstances, the company may need to be more aggressive, especially when inaction could even be more disastrous than a full-fledged offense.

Let’s take a look at both circumstances: first, some best practices to protect the company’s reputation while minimizing negative fallout from the regulators and enforcers, and second, a practicable strategy to fight City Hall and live to tell the tale.

Threading The Needle

To navigate the cross-currents of public communications amid regulatory or enforcement initiatives, companies must first understand what makes the regulators and enforcers tick. They are not petty bureaucrats who could not otherwise survive off the civil service rolls. Quite to the contrary, they are usually brilliant and aggressive professionals, mostly lawyers who could hold their own at any law firm. Respect them as co-equals. Remember they often have ambitions beyond their current roles, and they typically believe that what they’re doing is right, which makes them even stronger.

Understand to the “market” in which they operate, and that, in this market, their communications strategies are necessarily as purposeful as any that a target company might launch on its own behalf. On the one hand, they choose cases that promote public deterrence. They have a point to make, and the only way to make it is publicly. Assume, therefore, maximum media acuity on their end.

Often they launch sweeps, industry-wide dragnets that are tailor-made for media visibility. Here their audiences are not just potential malefactors, but also include members of Congress who reward them for being conspicuously aggressive, as well as their own rank-and-file staffers for whom an ongoing bloodbath is a real morale-booster.

Against such odds, companies under investigation or facing regulatory inquiries must implement PR counter-strategies. However, if a satisfactory arrangement with the government is still in the offing, they must do so in full awareness that, whatever is said to the press, or posted online, is tantamount to a direct communication with the regulators or prosecutors themselves. In such a situation, the best tactics include:

• The full participation of the company lawyers as members of the media team is absolutely essential. The media strategy must be fully in synch with the legal strategy. The company cannot be saying one thing to the regulators and enforcers via the media while the lawyers are directly telling them something altogether different.
• Companies should identify ways to defend themselves in a way that makes the regulators and enforcers look good too. Perhaps the government official can be quoted in company press releases or online. One professional firm, where a partner was being investigated for theft, quoted a Department of Justice spokesperson, thus underscoring that only one partner, and not the organization itself, was under fire.
• Joint communiqués or press releases with the authorities may also be possible if the company is not a direct target of an investigation or inquiry. If nothing else, the joint release will remind the public that the company is, in fact, not actually under suspicion. At the very least, asking the government to pre-approve all related press releases will show an elevated level of cooperativeness.
• If there are third-party supporters who are also respected by the regulators or prosecutors, the potential positive impact is obvious. Some of these supporters could even be influential on Capitol Hill, which, as we have noted, is a highly valued audience for all regulatory agencies.
• Stay positive in tone and content. Any resentment or outrage will be interpreted by the government as a sign of guilt. Counter-attacks are usually ill-advised. Even if the regulators and enforcers back off now, they’ll be loaded for bear the next time — and the odds of there being a next time go up as well.

Casus Belli

The above best practices presuppose a situation in which a productive agreement can be reached with regulators or enforcers. It is all about protecting company reputation in a way that will not only be acceptable to the government, but may even be a welcome initiative from their point of view.

In situations where the government has crossed a line in the sand, where the battle lines are drawn, where nothing less than total regulatory or prosecutorial victory will satisfy them — in those situations, forget all we’ve suggested. They cannot be conciliated with pre-approved press releases, and it’s probably too late for third-party supporters unless it’s the president or the governor or a congressman with assigned power over the agency. At this stage of the game, a counter-attack may be the only affirmative defense at the company’s disposal.

The first question then becomes, how do we define the point at which further cooperative efforts are hopeless? In most instances, the legal fact patterns will define it. In some instances, there may still be opportunity if, for example, only one or two executives have been indicted. Legal counsel is then the crucial source for determining if their offenses can be sufficiently isolated and that no further liability for the company as a whole is likely to develop.

At that point, the company can still protect itself, both legally and in the Court of Public Opinion, by making the requisite sacrifice. For the media, for shareholders and analysts, for internal audiences, the message is that a terrible problem has been solved and that the company aggressively cooperated in the solution. The result — which will be plain for all to see — is that a new day has dawned.

The second question is, how to avoid a Pyrrhic victory in which the public counter-offensive ultimately cripples the company’s ability to do business in the United States on anything like a long-term basis?

The following fictionalized case — involving a company that clearly was beyond any hope of negotiating with the government — will provide some clues to what an effective strategy looks like under these circumstances.

In 2000, a Paris-based pharmaceutical manufacturer launches U.S.-based production and distribution of an ulcer medicine.

In 2003, there are reports of severe depression among some users. Under FDA pressure, the French parent company agrees to affix product warnings and conduct research.

In 2004, the company discovers a product manager, based in the U.S., simply destroyed test evidence that the drug is potentially dangerous. The U.S. Attorney indicts the manager and the company. The company fires the product manager and agrees to a deal with the government, whereby it will pay a huge fine and cease distribution in return for full immunity for all prior related acts. The agreement is effective Jan. 1, 2005.

In 2006, the fired product manager reveals that, in 2002, the COO was likely aware of possible problems and had guardedly advised him to “do what I had to do to make it right.” Interpreting this communication as sufficient evidence of further company-wide malfeasance, the government rescinds its plea agreement, arguing that the company has violated the agreement by not fully disclosing prior bad acts, even though those prior bad acts pre-dated the terms of the agreement (and there is actually no real evidence of bad acts prior to the agreement becoming effective other than the say-so of an indicted participant).

The two sides are irremediably at odds, and rough justice is the best the company can hope for. Legal counsel advises that the government’s action is indefensible, in part because the original plea agreement was badly drafted and porous. Now the question is, how can the French parent company counter with an exculpatory public communications campaign that doesn’t result in a war of attrition that it cannot possibly win?

To win, it must win now — and it must do so with campaign themes that speak to the abiding interests of multiple audiences. In most shooting wars with powerful public sector entities, effective strategies use the specific facts of the case in order to make powerful arguments and underscore powerful themes that go beyond the case.

The government’s game is to use companies as poster children for larger iniquitous trends. The best response is for those companies to beat the government at that game by pointing to the even larger, even more iniquitous trends inherent in its actions.

The French parent company has two immediate strategic messages:

• The U.S. government greatly overstepped its authority by refusing to honor an agreement. By doing so, it is undermining basic American (read: "American," not "French") values.
• The government's betrayal of its own agreement is one more example of the ill effects of Enron and the other corporate scandals - not just corporate malfeasance, but a permanent imbalance of power as the government uses the scandals to justify nearly everything. It's called the Law of Unintended Consequences and it's more threatening to America (read "America," not "France") than anything Kenneth Lay or Jeffrey Skilling might have done.

Note that here the French company is arguing broader principles, not facts. Such argument is essential if companies battling the regulators and enforcers are ever to gain the crucial third-party allies, such as think tanks, academics, corporate NGOs, and politicians, who can sway public opinion and perhaps eventually change or moderate government action.

Crucially, however, the French company’s strategy is not just about principle. The larger themes must also speak to interest — the collective interest of businesses and even of the government itself. In particular:

• If the U.S. breaks this agreement, why would other companies ever want to enter into a similar covenant? Allowing this aggression to stand could undermine regulators and enforcers everywhere.
• If one French company can be so betrayed, why would any other French company - or British company or Chinese company or Nigerian company - take a chance of doing business in the U.S.? We're on a slippery slope here, and American jobs are at risk.
• If the American government can ignore its promises to a foreign company, why can't foreign governments ignore their promises to U.S. companies? The slope just got more slippery as the growth plans of U.S.-based multinationals are now just a little less confident.

To win long-term in a public struggle with regulatory or enforcement agencies, the key is to therefore isolate the adversary. By basing campaigns on both principle and interest, the defending company garners support in the business community, because of the fear of other companies that they too will be unfairly targeted and because of the likely economic consequences whenever government agencies act in bad faith.

Yet the campaign isolates the adversary from its own public sector compeers as well - regulators and enforcers at every level, who are being reminded that this action can only make their own lives more difficult.

In a sense, both our scenarios have at least one thing in common. To pursue a brand-protecting public campaign with the approval or even the blessings of regulators and enforcers, know where their interests lie. To fight them and win a pitched battle in public, the same knowledge is equally critical.

Richard S. Levick, Esq. is president & CEO of Levick Strategic Communications, which protects brands and reputations during the highest-stakes global crises and litigation. Honored as Crisis Agency of the Year by the Holmes Report in 2005, the firm wins the hearts and minds of key audiences with comprehensive campaigns on behalf of clients targeted by regulators, embroiled in litigation or confronted by grassroots movements. He was recently named to the PRNews Hall of Fame for life time achievement. Find a comprehensive arsenal of vital communications tools at http://www.levick.com , including books, newsletters and helpful articles. Copyright 2007 by the author. Responses welcome.

Reprinted with Permission of MEALEY’S Emerging Toxic Torts [Feb. 2, 2007] [Vol 5 Issue #21].