Consider the following quote from an article in City AM regarding reputation and crisis management.
“It’s really important to see the whole picture and not just to focus on what the lawyers say. What a good chief executive will do is not just focus on the legal advice but focus on the other advisers in other areas – public affairs, brand, what’s good for the consumer – and, more importantly, that little compass that’s in all of us which is known as the moral compass.
“Sometimes what might seem to be the right road to go down legally could be a complete disaster in terms of your reputation and corporate and public image.”
These wise words came not from someone like me, an ex-editor now advising companies on reputation and strategic communications, but in fact came from a lawyer, Leslie Thomas KC. He represented the family of Christi and Bobby Shepherd, the children killed by carbon monoxide poisoning while on a Thomas Cook holiday.
His City AM quote relates to that case in which Thomas Cook and its management consistently made the legal argument that the company had done nothing wrong in relation to the children’s deaths in 2006 and therefore had nothing to apologise for. In 2015 a coroner’s inquest returned a verdict of unlawful killing and found Thomas Cook had breached its duty of care. Years of legal aggression, denial, refusal to apologise and dreadful relations with the family came crashing in on the once famous brand and its management. It could have been so different.
After the verdict, Thomas told City AM:
“Once the lawyers have gone, you and your board are there alone to pick up the pieces of your company, to answer to your shareholders, to repair the damaged relationship with your customers, and to face the music with the public.
“Therefore, it is crucial to look at the wider reputational impact. Sometimes it’s better to say sorry quickly, mean it and put what has gone wrong right than get tied up with months, sometimes years, of litigation.”
I was reminded of Thomas’s words about facing the music when reading a recent article published by This Is Money https://www.thisismoney.co.uk/money/markets/article-15494275/Beazley-bosses-bought-shares-bids.html which is headlined:
“Beazley bosses bought shares between bids.”
When the public reads that headline, they know what’s coming.
It tells the very recent story of how a cabal of three non-executive directors at the insurer (and the wife of a fourth) bought £347,000 of shares in Beazley between undisclosed bids for the company from rival insurer Zurich, delivering them paper profits of £154,000.
In summary, Zurich made an £8.4bn bid for Beazley in June last year which was rejected that same month. Beazley was not required to disclose this under City rules. The Beazley NEDs then bought their shares in August. Roll forward to January this year and Zurich have returned, making a public offer for Beazley, an outcome the NEDs could not have foreseen with any certainty, it is argued in their defence. True, but by the same token they couldn’t have been sure Zurich wouldn’t return to make an offer and how do things look now? Not great, shall we say.
The NEDs are in the money, but in my view their reputations are in the toilet. What they did was legal, so no wrong doing, but was it advisable?
When reviewing the article on LinkedIn, Oliver Gill of The Sunday Times wrote in restrained terms: “…in a world of heightened focus on corporate governance, there’s something about this that strikes me as not quite right.”
In reply to that post, Patrick Tooher, author of the original This Is Money scoop, went further: “No laws broken, legal/financial advice and due process followed etc but at the end of the day this about choices. There was no requirement to buy the shares – these are non-executives after all – and the optics are poor. Which raises the obvious question: did anyone at Beazley offer any reputational advice on the share trades? Any half-decent PR surely would have raised a big red flag.”
Yes indeed, any half-decent PR would have raised a big red flag and may well have prevailed in arguing that NEDs have a duty of care to protect and enhance the reputation of their PLCs. But only if the PR advisers were asked for an opinion.
In order to receive best advice, a company and its directors have to ask for it, or at least invite advisers to observe what’s going on and comment.
Seeking legal advice is a given (and I expect it happened in this case) but receiving reputation advice is not – quite often because the best reputation advice is often the hardest to hear.
It’s possible the NEDs in this case may well have received the right advice from a reputation perspective but the lure of a quick buck got the better of them. Human nature, you might say, but NEDs are supposed to be better than that.
Another eye watering case of remuneration over reputation involved Jeff Fairburn, the CEO of Persimmon, and his LTIP-fuelled £100m bonus for building houses supported by the government’s Help-to-Buy scheme.
Amidst the furore, he was persuaded to cut the £100m to £75m and promised to donate generously to charity. None of this saved him and he was forced out which, I suspect, wasn’t his original intention, although he still works in the building trade.
He also stars in every media training session on how not to conduct a live television interview https://www.bbc.co.uk/news/business-46154777
Anyway, his advocates will point out his LTIP was originally voted on and agreed by shareholders. True, but shareholders, like lawyers, rarely show up in your defence when it comes to the court of public opinion.
