The Barbie Case - The Arthur Page Society

arthur w. page society 

founded 1983 

journal 

Case Study Competition in 

Corporate Communications 

2006

contents 

2 introduction 

case study competition in 

corporate communications 2006 


founded 1983 

4 grand prize 

liesbeth de smedt 

annenberg school for communication, university of southern california 

The Barbie © Case 

winning entries – business schools 

16 first place 

daniel j. pozen, tuck school of business, dartmouth college 

Managing a Crisis in Financial Services: Putnam Investments 2003–2004 

29 second place 

quinn bailey, benjamin gilfillan, 

mendoza college of business, university of notre dame 

ChoicePoint: Personal Data and a Loss of Privacy 

35 third place 

david lee, julie ratliff, 

mendoza college of business, university of notre dame 

Citigroup: Restoring Ethics and Image Before Growth 

winning entries – communications ⁄ journalism schools 

41 first place 

yuliya melnyk, moushumi anand, 

university of missouri - columbia 

How the Russian Company Pallet Trucks Used Public Relations Strategies to 

Protect its Business and the German Brand Pfaff-silberblau in Russia in 2001 

54 second place 

anna strahs, school of mass communications, 

virginia commonwealth university 

Court of Public Opinion Points Finger at Wendy’s 

To view the case study submissions, 

teaching notes and slides, go to 

www.awpagesociety.com 

(Case studies can be found under Resources)

2 

introduction 

As part of its mission to strengthen the management policy 

role of the corporate public relations officer, the Arthur W. 

Page Society has long been interested in increasing awareness 

among future business leaders of the value of public relations. 

Over the last five years, the Page Society has made an effort to 

increase this awareness by issuing a call for original case 

studies written by business school and communications/ 

journalism school students that focused on corporate 

communications and the practice of public relations. 

Since the case study competition’s inception, the Page Society, 

in alliance with the Institute for Public Relations, has solicited 

case study submissions from more than 1,000 accredited 

faculty advisors at schools of business, communications and 

journalism throughout the world. And each year, the 

competition attracts an increasingly higher caliber of case 

studies. This year in particular, the judges lauded the 

winning case studies as truly exceptional – with all entries 

incorporating meaningful consideration of the Page 

Principles more so than in previous years. Competition judge 

Stephen A. Greyser, DBA, Richard Chapman Professor, 

Marketing and Communications, Harvard University, 

added that 2006 winners from both business schools and 

communication schools reflected excellent depth and breadth 

– thoroughly identifying the business problem and exploring 

the critical issues at hand. 2006 winners were selected from 25 

entries, nearly evenly divided between business schools and 

communications/journalism schools. 

The objectives for this year’s competition remain the same. 

They are to: 

• Help future business leaders understand various 

communications and reputation management issues that 

will confront them in their careers. 

• Encourage research that contributes to the profession’s 

knowledge base and provide practical suggestions on how 

to improve the corporate public relations function. 

• Offer an increasingly growing resource that educators at 

institutions of higher learning can use in the classroom to 

demonstrate the strategic value of communications and 

public relations to business. 

The student authors and their faculty advisers are awarded cash 

prizes and their prize-winning entries are published in the 

following pages of this Journal and also can be found on the 

Society’s Web site at www.awpagesociety.com. The Grand Prize 

winners are recognized at a dinner that is part of the Society’s 

annual Spring Seminar. This year, the dinner is scheduled for 

April 6 at The Ritz-Carlton New York, Battery Park. 


About the Sponsors 

The Arthur W. Page Society is a select membership 

organization for senior public relations and corporate 

communications executives who seek to strengthen the 

management policy role of the corporate public relations 

officer. It is committed to the belief that public relations is a 

function of executive management and is central to the 

success of the corporation. 

The Institute for Public Relations is an independent 

foundation dedicated to the science beneath the art of public 

relations. It exists to build and document research-based 

knowledge in the field of public relations, and to mainstream 

this knowledge by making it available and useful to 

practitioners, educators, researchers and the clients they serve. 

About Arthur W. Page 

Considered the father of corporate public relations, Arthur 

W. Page (1883-1960) was the first person in a public relations 

position to serve as an officer and member of the Board of 

Directors of a major corporation. He viewed public relations 

as the art of developing, understanding and communicating 

character – both corporate and individual. Page believed the 

successful corporation must operate in the public interest, 

manage for the long run and make customer satisfaction its 

primary goal. 

The principles of business conduct for which he became 

known have influenced thousands of thought leaders and 

have earned the support and respect of chief executive 

officers throughout the country. The Society bearing his 

name is built upon a foundation of management concepts 

that have been tested for nearly three-quarters of a century. 

Page practiced these principles of public relations 

management as a means of implementing his philosophy. 

Guidelines and Judging for the Competition 

A panel of judges representing the corporate, agency and 

academic sectors of public relations reviewed all case studies 

that were entered in this year’s competition, which began 

with a nationwide call for entries in August, 2005. 

The judging was completed in February, 2006. In all 

instances, the judges for this competition are experts in the 

field. They have no specific association to either the case 

writers or the universities they attend, nor to the companies or 

organizations that may be the subjects of the cases they review.

This year’s distinguished panel of judges included: 

Amy Binder, RF Binder Partners, Inc. 

Lou Capozzi, Manning, Selvage & Lee 

Sandra Chrystal, Center for Management Communication, 

Marshall School of Business 

Bob DeFillippo, Prudential Financial, Inc. 

Gloria Dittus, Dittus Communications 

Stephen Greyser, DBA, Harvard University - 

Graduate School of Business Administration 

Steven Harris, Steven J. Harris Communications, L.L.C. 

Frederick Wells Hill 

Sandra Macleod, Echo Research Ltd. 

Ken Makovsky, Makovsky & Company 

John Manfredi, Gillette Company 

Carl Maugeri, Wharton School Communication Program 

Frank Ovaitt, Institute for Public Relations 

Doug Pinkham, Public Affairs Council 

James Rubin, Ph.D., Darden School of Business 

John Spelich, Gateway, Inc. 

Don Stacks, Ph.D., University of Miami 

Don Wright, Ph.D., University of South Alabama 

Patricia Wright, BP America, Inc. 

The judges had the authority to make a final determination 

regarding any or all of the posted prizes and also the 

authority to make no awards if none seemed appropriate. 

Criteria used to judge all entries included the following: 

• The purpose of the case study, its relevance and timeliness. 

• The significance of the business problem (not the 

communications problem) and the critical issues 

identified and explored. 

• How the effective use of the Page Principles generated 

constructive action and support from affected 

constituencies or, conversely, the outcomes generated from 

the ineffective use or non-use of the Page Principles. 

• How well the problem addresses a substantive challenge 

and its importance to the organization. 

• How the interests of the organization and its constituents 

were served. 

• How the impact of the communication is measured. 

The judges were also asked to weigh a submission’s 

usefulness and general value to the profession as well as its 

educational value. 


Competition judge Sandra Macleod, CEO, Echo Research 

Ltd., summed-up the caliber of entries in this year’s 

competition: 

"A frequent concern about the teaching and practice of 

professional public relations has been the lack of thorough 

case studies to underpin the science behind the art. 

The entries into the Arthur W. Page Society's Annual Case 

Study Competition have been extraordinary. As a frequent 

judge on other national and international communications 

awards, I was blown away by the clarity of the challenges at 

stake, depth of insight, management understanding, and 

grounding of the key public relations principles enshrined by 

Arthur W. Page in all of our entries this year. The choice of 

winners was difficult from such a compelling selection. 

It is heartening to see that as reputation grows in importance, 

sound professional PR counsel is being keenly developed 

and enriched." 

Awards and Prizes 

Cases submitted for this competition may address any 

category or specialty within the field of corporate 

communications or public relations. At the discretion of the 

judges, 1st, 2nd and 3rd prizes may be presented. The Grand 

Prize is awarded to the best overall entry. The posted prizes 

for the 2006 competition were: 

Prize Student(s) Faculty Adviser(s) 

Grand $5,000 $1,500 

1st $2,500 $650 

2nd $1,500 $350 

3rd $800 $200 

Eligibility Requirements 

Any student, graduate or undergraduate, who is enrolled in 

an accredited school of business, communications or 

journalism and is pursuing a degree (full or part time, regular 

or adjunct, tenured or non-tenured). 

The Arthur W. Page Society and the Institute for Public 

Relations wish to thank all who participated in this year’s 

competition, and we look forward to honoring all winners at 

our Spring Seminar in April. 

3

4 

Introduction 

When Neil B. Friedman was promoted on October 11, 2005 

from his position as head of the successful Fisher-Price® 

division to become the President of the combined operations 

of the merged Mattel® and Fisher-Price® units, he might have 

considered this promotion to be a daunting task to take on. 

At the start of his job as the President of the Mattel® Brands 

Division, the sales of Barbie®, Mattel®’s signature doll and 

profit engine, which account for an estimated 25 1 to 35% 2 of 

Mattel®’s sales, had fallen for seven straight quarters on a yearto-year 

basis. 3 Barbie®’s global third-quarter sales in 2005 were 

down 18% from the previous year, and U.S. sales decreased 

30%. This decrease in sales affected Mattel®’s overall 

performance as shares tumbled to their lowest point in four 

years. 4 

The toy industry overall was struggling, with sales down 5.3% 

through the first nine months. U.S. retail sales of dolls fell 6% 

in that period, according to market researcher NPD Group. 

Analysts believe the slide will continue as more kids choose 

video games and digital-music players over action figures and 

board games. 5 

In addition, Friedman was confronted with an anti-Barbie 

climate with campaigns challenging Barbie®’s beauty ideal 

launched by The Body Shop and more recent ones by Dove® 

and Nike® as well as a tradition of Mattel losing legal battles 

time and again against artists who parodied Barbie®. 

History of Barbie® 

The Beginnings of Barbie®: 1950s 

Arguably the single most important moment in the history of 

the American toy industry took place in 1956. The co-founders 

of Mattel – Ruth and Elliot Handler – took their family on 

vacation to Switzerland. While shopping, Ruth Handler 

discovered a strikingly adult doll named Lilli, complete with a 

grand prize 

Liesbeth De Smedt 

Faculty Adviser: Craig Carroll 

Annenberg School for Communication 

University of Southern California 

The Barbie © Case 


curvaceous figure and high heels. 6 In Hamburg, Germany, the 

artist Reinhard Beuthhien, had created a character, name Lilli, 

for the Bild Zeitung newspaper. In August 1955, Lilli was given 

a third dimension and sold as an eleven and one half inch doll. 

Ruth Handler did not realize at the time that Lilli was a symbol 

of sex and pornography for the men of Germany. She was 

often a gag gift and was a type of “fantasy doll”. 7 8 

For years Ruth Handler had been trying to persuade Mattel®’s 

designers to create a three-dimensional adult doll. She had seen 

her daughter and her friends play with adult paper dolls, 

preferring them to baby dolls. They would play make-believe 

and mimic the conversations of their parents. “They were using 

the dolls to project their dreams of their own futures as adult 

women,” she realized. But she had met with resistance from 

Mattel®’s engineers – all men – who told her that the doll would 

be too expensive to produce. Mattel®’s ad agency worried that a 

voluptuous doll might be too sexy. 9 

She insisted that Mattel®’s development team create something 

similar to Lilli, and they resolved the cost issue by having the 

doll produced in Japan. The result, after nearly three years of 

design work, was Barbie®, named after the Handler’s daughter 

Barbara. 10 The new doll was modified to look less like a street 

walker. Her body was 

made into a softer 

vinyl and her face was 

given a softer look. 

This was done by 

“rotation-molding”, a 

process where the 

mold was turned 

slowly while the vinyl 

hardened. This 

process helped to 

create finer details in 

this new doll like 

fingers and toes. 11 

Exhibit 1: 

Top Global Toy Manufacturers 

Ranked By Sales 76 

1. Mattel, Inc. (MAT) 

2. Hasbro, Inc. (HAS) 

3. Bandai Co., Ltd. 

4. Lego Company 

5. Sanrio Company, Ltd. 

6. Ty Inc. 

7. LeapFrog Enterprises, Inc. (LF) 

8. JAKKS Pacific, Inc. (JAKK) 

9. RC2 Corporation (RCRC)

At first, the dolls did not look innocent because of the heavy 

makeup on their faces. Mattel® changed this problem by 

advertising and eliminating or editing the less popular features. 

For instance, Mattel® gave Barbie® a softer skin tone and new 

hair, which was a bubble-cut. 12 The doll, officially named 

“Barbie® Teenage Fashion Model” in the false hope that 

making her a teenager desexualized her, debuted at 1959’s Toy 

Fair and was a “crashing bomb,” according to the New York 

Times. Buyers – again, all men – immediately objected to the 

doll’s breasts, which were unlike anything the industry had 

seen before. 13 A then-unprecedented $12,000 market-research 

test also found mothers hating the doll, even though girls loved 

her. The Handlers, disappointed but resigned, grudgingly 

lowered their sales projections and reduced their factory orders 

further. 14 That turned out to be a huge mistake because Ruth 

Handler had been right all along. In 1959, Mattel® sold 351,000 

Barbie dolls at $3 apiece, making the doll a smash hit. Mattel® 

added factory capacity and warehouse space and couldn’t keep 

up the demand for the next three years. 15 

Barbie® in the 1960s–1980s 

By 1961, Ken® was released and became Barbie®’s boyfriend. In 

1967, Barbie® acquired eyelashes, a rotating waist, and bent 

legs. The sixties were times of protests, marijuana smoking, 

and rebellion. Instead of showing Barbie as a negative role 

model for children, Mattel® kept her away from the rebellion, 

but up with the items. She began to dress in the mini skirts, 

wear dangle earrings, and gogo boots. Also, to keep up with the 

times on issues of racial equality, Mattel® released a black 

version of Barbie® in 1967, named “Colored Francie”. Francie 

did not do very well on the market. This could have been 

because parents were just not ready to show diversity to their 

children during that time period. 16 

In 1971, during the sexual revolution, Barbie®’s look changed. 

Until the 1970s her eyes were cast down to one side, giving her 

a pure, innocent look. They were gradually changed to eyes 

looking almost straight ahead, which gave a look of more 

confidence. Also in the 1970s, changes were needed in Barbie® 

because Mattel® was going bankrupt and the Handlers had to 

leave the company. She acquired a grin in 1975 and a 

permanent smile in 1977. 17 

In 1985, Barbie® portrayed a yuppie lifestyle with her “Day and 

Night” theme and her many accessories represented the high 

consumption lifestyle. She had her dream house, completely 

furnished, a racy sports car, and a wardrobe that expanded 

almost every day. 18 Graduate Barbie® showed that Barbie® 

now was educated. Barbie® also began not to be confined to 

just her sports car and dream house. Mattel® released 

“Astronaut Barbie®” in 1986 and “Dr. Barbie®” in 1988. In 

essence, according to her themes, she transformed and grew 


from secretary to executive. Again, Mattel® tried to break 

Barbie®’s ethnic barrier by bringing in different Barbies from 

different backgrounds, 19 including a Hispanic doll, Theresa® 

(1988), and an Asian friend, Lia® (1990). 20 

Exhibit 2: Exerpts from Mattel® Press Releases 

The Storybook Romance Comes To An End For Barbie® 

And Ken® The Break-Up of the Millennium for the “Doll” of a 

Couple 

MALIBU, Calif. (February 12, 2004) – After more than 43 

years together, Hollywood’s quintessential “doll” of a couple, 

Barbie® and Ken®, have decided to spend some time apart. 

Although Barbie® has befriended some of the world’s most 

famous celebrities, from popular boy bands to super secret 

agent spies, Ken® always remained her #1 sweetheart. 77 

The Original Cali Girl Finds A New Man From Land 

Down Under Barbie® Names Hot Australian Hunk As Her 

New Beau 

MALIBU, Calif. (June 29, 2004) – Since the Barbie® and 

Ken® February break-up, over the past few weeks, more 

than two million girls worldwide logged on to Barbie.com to 

help Barbie® choose a new beau, and Blaine doll is the 

undisputed winner78 Barbie® Announces A Surprise Bid For The 2004 

Presidency Barbie® To Represent Popular “Party of Girls” 

EL SEGUNDO, Calif. (August 12, 2004) – As the 2004 race to 

the White House heats up, the current Presidential 

candidates received an unexpected announcement today: 

Barbie® is joining the race, representing the “Party of 

Girls!” 79 

Ken® Wants Barbie® Back .Hollywood’s Insiders Spotted 

Giving Advice to America’s Beloved Leading Man, Fueling 

Rumors of a Total Makeover 

EL SEGUNDO, Calif. (October 21, 2005) – A year and a half 

after the shocking split of the world’s most quintessential 

“doll” of a couple, sources say Ken® is determined to win 

back his lifelong love, Barbie®. Single since their very public 

breakup in February 2004, America’s favorite “arm candy” 

has recently been seen in Los Angeles, talking to A-list 

celebrity stylists Phillip Bloch and Illya Knight and stoking 

speculation that he is in search of a new “look.” 

Steve Altese of Us Weekly’s Fashion Police dished, “He 

should possibly consider eyelid surgery. The Ken® I know 

hasn’t blinked in 20 years. I’m a little concerned. Maybe he 

could just have one eye worked on so he can wink at 

Barbie®.” 

To give Ken® more pointers on how he should look and what 

he should do to get Barbie® back, today, his biggest fans 

and foes – girls logged on to Barbie.com – began to voice 

their opinions. 80 

5

6 

The Influence of Barbie® Dolls on Children 

The Barbie® discourse is riddled with conflicting pedagogies. 

While Barbie® is idolized as a role model for young girls, an 

icon of American culture, a model of aesthetic perfection and a 

cultural icon of heterosexual femininity, Barbie® is on the 

other hand despised by feminists and child educators for being 

a tool of racism and sexism, and a contemporary epitome of 

the cult of thinness. 21 Barbie®’s measurements are projected as 

39-21-33 22, 39-18-33 23, 36-18-33 24, 38-18-34 25 or 33-18-31 26, 

depending on the source. Mattel® claims that Barbie® is “not 

scaled to human measurements.” 27 

Kuther (2004) 28 describes that there has been “a great deal of 

debate over the influence of Barbie® dolls on girls’ developing 

self-concept and body image.” She conducted two qualitative 

studies in the U.S. to gather information about early 

adolescents’ experiences with, and perspectives on Barbie®. 

In the first study, focus groups with twenty 6th-grade girls 

suggested that they have ambiguous feelings toward the doll 

and the feminine sexualized image Barbie® represents. The 

second study gathered essay responses from fifty 7th and 8thgrade 

boys and girls regarding their experiences with and 

opinions on Barbie® dolls. 

Participants reported both positive and negative feelings 

toward the doll and its influence on girls’ development. 

Barbie® dolls were pervasive in the experiences of both the 

young adolescent girls and boys surveyed. While girls generally 

reported imaginative play with Barbie® dolls, boys tended to 

report destructive play and the disfiguring of Barbie®. The 

girls’ reported experiences supporting the notion that play with 

Barbie® entails enacting adult social scripts, and perhaps 

shaping girls’ developing self-concept through the 

internalization of stereotyped feminine scripts (cf. Kline: 1993 

and Koste: 1995). 

During late childhood and early adolescence, imaginative play 

with Barbie® dolls became less appealing, and many girls 

reported disfiguring and damaging the dolls. Referring to 

Turkel (1998), Kuther (2004) explains that destructive play can 

function “as a means of expressing anger and fantasy deemed 

inappropriate for public expression. The disfigured Barbie® doll 

may represent girls’ views about their developing feminine self.” 

In the U.K., Nairn (2005) describes the destructive play with 

Barbie® of 7-11 year old girls as a normal rite of passage and a 

rejection of their past. When groups of junior school children 

were asked about Barbie®, the doll provoked rejection, hatred 

and violence. “The meaning of ’Barbie®’ went beyond an 

expressed antipathy; actual physical violence and torture 

towards the doll was repeatedly reported, quite gleefully, across 

age, school and gender.”“Of all of the products we asked the 


children to describe as ’cool’ or ’not cool’, Barbie® aroused the 

most complex and violent emotions.” They see Barbie® torture 

as a legitimate and cool play activity. “The types of mutilation 

are varied and creative, and range from removing the hair to 

decapitation, burning, breaking and even microwaving.” 29 

Analyses of the children’s comments indicated that Barbie® is 

hated because she is ’babyish’, ’unfashionable’, ’plastic’, has 

multiple selves and because she is a feminine icon. “The most 

readily expressed reason for rejecting Barbie® was that she was 

babyish, and girls saw her as representing their younger 

childhood out of which they felt they had now grown.” 30 

Role of other players 

Opposition 

Body Shop: Ruby, the Anti-Barbie® 

Body care retailer store The Body Shop created Ruby, “the 

Anti-Barbie®” in 1996 and launched the self-esteem campaign 

worldwide in 1997/1998 (see Exhibits 4 and 5). Her 

rubenesque figure graced windows in The Body Shop along 

with the slogan, “There are 3 billion women who don’t look 

Exhibit 3: The Mattel® Barbie® Doll 81 

First Barbie ® Doll (1959) Silken Flame (1962) 

Barbie ®’s Car (1978) World of Barbie ® (2000s)

like supermodels and only 8 who do.” The doll was intended to 

challenge stereotypes of beauty and counter the pervasive 

influence of the cosmetics industry and kick-started a 

worldwide debate about body image and self-esteem. 31 

Dove®: Campaign for Real Beauty: 

“Real Women Have Real Curves” 

In 2005, the Unilever brand Dove® created the “Campaign for 

Real Beauty” (see Exhibit 6) with “Real Women Have Real 

Curves” as its tagline. The company published The Dove® 

Report: Challenging Beauty and launched an ad campaign 

featuring six women with real bodies. They also established the 

Dove® Self-Esteem Fund. In the official Dove® Report, a “10country 

study of more than 3,200 women that Unilever 

conducted with Harvard University and the London School of 

Economics” 32,experts discussed the recent deconstruction of 

the beauty myth. 

In the 1990s, the female beauty ideal looked like Barbie®: tall, 

young, thin, blonde, Caucasian, and large-breasted. Meanwhile, 

research established that women felt a lowered sense of selfesteem 

when they read fashion magazines and saw models 

than when they did not. Recently “women’s attitudes toward 

beauty have undergone a marked, and measurable, sea change. 

Women have largely taken apart in their own minds the “ideal” 

that is imposed on them, and done some creative thinking to 

work out for themselves a comfortable, affirming new “beauty 

philosophy” that is a far cry from the rigid exclusive beauty 

ideal of the recent past 33 In the Dove® study, expert Naomi 

Wolf even launched a direct attack on Barbie®: “if I were 

betting on culture as a form of stocks, I would get out of skinny 

Barbie® and into multi-ethnic, imaginative Bratz dolls.” 34 

The first phase of the campaign consisted of a series of outdoor 

billboards and print ads that featured nontraditional beauties 

and challenged viewers to vote on each image – wrinkled or 

wonderful, fat or fit, freckled or fabulous. 35 Dove® then set out 

Exhibit 5: The Body Shop “Ruby” Campaign 82 

“Ruby” Advertisements 


to sponsor the Oprah Winfrey show and the campaign was 

endorsed by Oprah Winfrey herself: the influential talk show 

host invited “the Dove® Women” to her studio for an 

interview 36 (see Exhibit 6) In addition, The Dove® Self-Esteem 

Fund offered a variety of workshop materials to boost the selfesteem 

and body image of girls and boys aged 8–14. In the 

BodyTalk materials, an entire activity sheet was devoted to 

“Playing with beauty: Barbie® and Ken® – are they just funinspiring 

dolls?” (see Exhibit 7) 

Nike®: “What Story Does Your Body Tell?” 

The latest company to join in on the “challenge beauty” trend 

in 2005 was Nike® with its “What Story Does Your Body Tell?” 

campaign 37 ,often dubbed the “Big Butts, Thunder Thighs and 

Tomboy Knees” campaign (see Exhibit 8). The ads were 

authoritative and bold, with a bit of humor. The six different 

images represented six different parts of the body. There were 

no TV executions in the campaign, which was designed to 

drive the audience to NikeWomen.com and, ultimately, its 

fitness apparel. The Nike® Women website featured “short 

films of women discussing topics such as their bodies and 

working out..” 38 

AdiosBarbie.com: A Body Image Site for Every Body 

Numerous independent websites were created in the past years 

to boost the self-esteem and body image of girls and women. 

For instance, AdiosBarbie.com, 39 created by women who 

struggled with their body image, contains a great number of 

anti-Barbie messages. “The goal of AdiosBarbie.com is not to 

make girls who are naturally thin or blonde feel invisible. 

Barbie® is just a symbol of the quest for an impossible, plastic 

perfection.” In other words, the editors of this website blamed 

Barbie® for the beauty ideal that caused problems for the body 

image and self-esteem of many women and thus foster anti- 

Barbie feelings by encouraging people to say “Adios” to Barbie®. 

7

8 

Exhibit 5: The Body Shop “Ruby” Campaign 82 

Ruby’s profile on The Body Shop Australia website 

Activate Self Esteem Rubenesque 

Ruby is The 

Body Shop 

mascot for 

activating 

self esteem. 

Ruby Profile 

RUBENESQUE RUBY’S CV 

Date of Birth September 1996 

Place of Birth On an Apple Macintosh, Soho, 

London (Photoshop and Illustrator 

package). It was a difficult labour 

but she turned out just gorgeous. 

Spiritual Birthplace Anita Roddick’s office, The Body 

Shop International, Littlehampton, 

West Sussex 

Current Residence None. Constantly travelling. 

Education Mistress of Arts in Celebrating 

Beauty In Diversity. Professor of 

Self-Expression. Post-graduate 

Degree in World Beauty. 

Status Informed, educated, challenging 

and always speaks her mind. 

No Dependents 

Current partner Was seeing Kenneth for a while, but 

found him to be too much of a 

himbo. Now seeking plastic partner 

with brains and personality, and a 

proper package instead of a bump. 

Campaign Experience Ruby has dedicated her life towards 

the pursuit of equality and the 

celebration of all types of beauty. 

First featured in The Body Shop 

inaugural issue of Full Voice on 

body image and self-esteem; has 

recently appeared in the issue on 

Body Image and Ageing. Helps to 

personify The Body Shop 

’Redefinition of Beauty’. 

Hobbies Campaigning, late night debates 

with her slender colleagues. 

© The Body Shop 2005 

Competitors: Bratz Dolls 

Not only curve-friendly campaigns that foster anti-Barbie® 

feelings are responsible for the 30% decrease in U.S. Barbie® 

sales in 2005. In 2001, MGA Entertainment introduced the 

Bratz dolls. Bratz racked up $2.5 billion in global sales of 

dolls and related merchandise in 2004, putting it close behind 

the $3 billion Barbie® franchise, and Bratz sales are up about 

40% so far in 2005. 40 According Isaac Larian, founder of 


toymaker MGA Entertainment Inc. and father of the Bratz 

dolls, “Kids don’t want to play with Barbies® anymore.” 41 

Bratz dolls are more realistically shaped than Barbie®: 

curvier and shorter (see Exhibit 7). “If Barbie® were a real 

woman, she would stand 6 foot 2 and most likely would be 

unable to stand because of her tiny waist and large bust. By 

contrast, if Bratz were real girls, they would stand about 5 

foot 6 and sport bodies that look more like entertainers 

Beyonce Knowles and Jennifer Lopez than the Amazon stance 

of Barbie.” 42 In addition, the Bratz dolls display none of the 

“role modeling” Barbie® did for decades. “Bratz don’t have 

careers per se, or at least their clothes don’t reflect that. Instead, 

the dolls’ clothing and accessories are knockoffs of the fashions 

young girls see – and want – in the real world or on channels 

such as MTV and BET. The girls decide what they want their 

dolls to be when they grow up or if they just want to hang out 

and try on clothes. There was no rule book on what was 

appropriate for these young girls, no role model of what they 

should be or shouldn’t be.” 43 

Bratz are far more in keeping with the new worldview for 

girls and women than Barbie®, despite Mattel®’s best efforts to 

keep Barbie®’s image up with the fast-changing roles of 

women. “Barbie® did advance as women advanced. She had a 

doctor’s outfit, she went into space. But she was still blonde 

and blue-eyed when a majority of girls in the U.S. and the 

world were not. She still followed stereotypes of women. 

Where Barbie® represented the past, Bratz represents at least 

one view of the present and quite possibly some insight into 

the future of where women and girls are headed. It is a future 

where young girls don’t need their dolls to show them the 

career choices they have open to them. They already know they 

can choose any career and pursue it. It’s a future where the 

rules about the size and shape of women’s bodies, and how 

women express their sexuality, are far broader and more open.” 44 

Parody/Homage of Barbie® 

On the music scene, the Danish pop-dance group Aqua 

released a song called “Barbie® Girl” in 1997. It contained lyrics 

such as “You can brush my hair/Undress me everywhere” and 

used graphics similar to the pink Barbie® logo. Mattel® used 

this as grounds for a trademark infringement and defamation 

lawsuit filed on September 11, 1997. However, it was dismissed 

by the court as parody on May 15, 1998.” 45 

In the field of advertising, “a commercial by automobile 

company Nissan featured dolls similar to Barbie® and Ken® 

driving in a toy car was the subject of another lawsuit on 

September 18, 1997.” 46

In the fine arts (see Exhibit 11), “Thomas Forsythe, a Utahbased 

professional photographer, created photos called “Food 

Chain Barbie®” to criticize the objectification of women and 

the impossible beauty myth the Barbie® dolls represent. 

Forsythe’s photographs show the doll in various imaginative 

and often sexualized positions. Some like “Mixer Fun” depict 

Barbie® being attacked by kitchen appliances. Others like 

“Barbie® Enchiladas” show the doll wrapped in tortillas and 

covered with salsa in a casserole dish in a lit oven.” 47 

Responses by Mattel® 

Response to Reality: Decrease in Barbie® Sales 

When Mattel® realized that Barbie® was mostly being bought 

by girls aged three to seven, the company decided to purchase 

the Pleasant Company® in 1998 because Mattel® also wanted 

to stay the premier girls consumer product company for girls 

of ages seven to twelve: “The American Girl® brand is the 

Exhibit 6: The Dove® “Campaign for Real Beauty” 

Screen shot of welcome page of Dove ®’s 

“Campaign for Real Beauty” website 83 

The Dove ® Women on the Oprah Winfrey Show 84 


second largest girls brand in the world and is targeted to girls 

ages seven through twelve. Barbie®, the number one girls 

fashion doll brand, is targeted to girls ages three to seven.” 48 

Other actions used by Mattel® over the years included the 

following: In 1999, Mattel® launched a series of “Girl Power 

ads” featuring a small pink Barbie® logo and “slogans like 

“Girls rule” and “Be anything”, clearly gleaned from the 

feminist-inspired girls’ movement. 49 Also in 1999, at Barbie®’s 

40th anniversary, Mattel® announced its “Ambassadors of 

Dreams” Program and a three-year partnership with Girls Inc., 

a non-profit service organization that was formerly the Girls 

Club of America. The mission of Girls Inc., which has 350,000 

members nationwide, is to “inspire girls to be strong, smart, 

and bold young women.” 50 

A few months before the Sydney Olympic Games in 2000, 

Mattel® released Swimming Champion Barbie and let fivetime 

Olympic Gold Medal Winner Jenny Thompson launch 

her into the YMCA Pool in New York “to inspire girls, once 

again, to dream of becoming world class athletes”. 51 Also in 

2000, Mattel® released President 2000 Barbie and announced 

that Barbie® was going to run for President of the United 

States. She hit the campaign trail – exclusively at Toys “R” Us 

stores – with a nationwide movement aimed at inspiring young 

people to become educated about their right to vote and 

emphasizing the importance of women in politics in a 

partnership with Girls Incorporated and The White House 

Project. 52 

In 2001, Mattel® launched Spanish-language website 

BarbieLatina.com. 53 Also in 2001, Mattel® entered into two 

world-wide licensing agreements with interactive industry 

leaders Vivendi Universal Publishing and THQ for the 

development and publishing of gaming, educational, and 

productivity software based on Mattel®’s cache of power 

brands, including Barbie® and American Girl 54 Also in 2001, 

Barbie® starred in her first feature-length computer-generated 

imagery (CGI) production, “Barbie® in the Nutcracker”. 55 

In 2004, Mattel® announced a new strategy for Barbie®: the 

Barbie® world would come to life through storytelling. Mattel® 

had the plan of turning “the toy industry’s traditional toy 

manufacturing model on its head by writing the stories first, 

and then creating dolls and toys to play out the stories.” For 

older girls, Mattel® took a more visual approach with a 44minute 

Barbie DVD, a funky magazine, CDs and partnerships 

with hip fashion retailers like Sephora and Levi’s. For younger 

girls, Mattel® brought the stories to life with pop-up books and 

rich story “maps.” Each of these value-added content 

components was be included in the toy packages to encourage 

cross-selling and deeper purchase. 

9

10 

In talking with girls, Mattel® confirmed that girls aspire to 

different things at different ages. Younger girls aspired to a 

world of fantasy and imagination, while older girls wanted 

authentic fashion and real-world experience. For older girls, 

the MyScene dolls celebrated the key times in a teenager’s 

life, fulfilling aspirational play patterns for tween girls as they 

aspired to a realistic teen lifestyle. And, the Cali Girl dolls 

reinvented the swimsuit doll segment with Barbie® doll and 

friends living it up in California style. 56 

Two days before Valentine’s day, February 12, 2004, Mattel® 

announced the Break-Up of Barbie® and Ken®. 57 A few 

months later in the summer of 2004, Mattel® told the world 

Exhibit 7: The Dove ® “Campaign for Real Beauty” 

Activity Sheet 2.4 – “Playing with beauty 

Barbie ® and Ken ® – are they just fun-inspiring dolls?” 

• Barbies’s waist is the same diameter as her head. 

• Her neck is twice as long as an average human’s. 

Her legs are 50% longer than her arms. For an 

average woman they would be about 20% longer. 

• Keeping hip measurements constant, here is what 

young healthy adults would need to change to 

match the same proporttions as Barbie and Ken. 

Woman vs. Barbie Man vs. Ken 

Height + 61 cm + 51 cm 

Waist _ 15 cm + 25 cm 

Chest + 13 cm + 28 cm 

Neck length + 8 cm 

Neck + 20 cm 

circumference 

Source: Int. Journal of Eating Disorders, Vol. 18, No. 3, 1995 © John 

Wiley & Sons, Inc. 

Look at how Ken’s body shape has evolved. 

1960s 1970s / 1980s 1990s / 2000s 

Q1. Why do you think Barbie and Ken 

are shaped the way they are? 

Q2. Do you think we are influenced by 

the shapes of the toys we play 

with? Why do you think this? 

Evolution of Ken II © Albert Crudo 

Barbie ® and Ken ® – are they just fun-inspiring dolls?” 85 


that Barbie® found a new beau: the surfer Blaine® from 

Australia. 58 The same summer, Mattel® announced Barbie®’s 

surprise bid for the 2004 presidency: 59 (see Exhibit 2) That 

same year the Mattel® brand was extended with an increased 

emphasis on Barbie® Style, the growing apparel and accessories 

business. The company announced the releases of the first-ever 

Barbie® fragrance in a partnership with PUIG Beauty and 

Fashion Group, 60 Cali Girl Barbie® with a new pedicure 

from LA’s Hottest Mani/Pedi Salon – The Paint Shop. 61 

In 2005, Mattel® announced the introduction of Barbie Hair 

Care, a full line of salon-quality products designed for girls of 

all ages in a partnership with MZB Personal Care, 62 the 

“Barbie® Live in Fairytopia!” and Spring 2006 Live Stage 

Tour in a collaboration with Clear Channel Entertainment 

Productions, 63 the release of the My Scene Goes Hollywood 

Direct-To-Video Animated Movie 64 among other smaller 

initiatives. 

But undoubtedly the two most important announcements 

came in the fall of 2005. First, the announcement of the 

Barbie® Luxe Collection, in which top fashion designers 

partnered with the Barbie brand to launch the adult 

collection Barbie Luxe. Anna Sui, Paper Denim & Cloth, 

Citizens of Humanity and Other Designers created a Limited 

Edition Barbie inspired, adult line of apparel and Accessory 

Items. “Barbie® appeals to ‘girls’ of all ages and Barbie Luxe is 

designed for women who grew up with Barbie® and told us 

that they want to incorporate the doll’s sense of unique fashion 

and beauty in a fun way.” 65 Later in 2005, Mattel® announced 

that Ken® is getting a total makeover to win Barbie® back. (see 

Exhibit 2) 66 

Over the past years, Mattel® also released several celebrity 

Barbie® dolls such as Brandy (2001), Hillary Duff (2004) and 

Lindsay Lohan (2005) as well as dolls based on movie 

characters such as Legally Blonde’s Elle Woods (Reese 

Witherspoon) (2003) and also dolls based on the stars of 

American Idol (2004) and (2005). 

Response to Anti-Barbie® Opposition: 

The Body Shop, Dove® and Nike® 

Instead of acknowledging the critique and starting a discussion 

with the opposing campaigns, Mattel decided to either simply 

ignore the critique or take the other party to court. 

In 1997, Mattel® announced that a few Barbie doll models 

would be receiving new measurements and it seemed that 

Mattel® was giving in to the critique by eating disorder activists

and anti-Barbie crusaders, but Mattel®’s intention was for her 

to have more of a teenage physique. In order for hip-huggers, 

the doll’s debut outfit, to look right, Barbie® needed to be more 

like a teen’s body. The fashions teens were wearing didn’t fit 

properly on Barbie®’s current sculpting. 67 

In 1998, Mattel® sent The Body Shop a cease-and-desist order, 

demanding they pull the images of Ruby from American shop 

windows. “Ruby was making Barbie® look bad, presumably by 

mocking the plastic twig-like bestseller.” According to The 

Body Shop’s founder, Anita Roddick, the idea of one inanimate 

piece of molded plastic hurting another’s feelings was 

absolutely mind-blowing.” 68 

A FAQ posted on Mattel®’s consumer relations website 

acknowledged Barbie®’s measurements: 

Barbie® doll is not scaled to human measurements. The 

Barbie® doll was developed after Mattel studied the 

popularity of paper fashion dolls (which had more 

adult-like figures than the dolls of the day) among 

children. Finding the marketplace receptive to the idea, a 

team of Mattel® employees translated the paper doll 

concept into a three dimensional doll with life-like 

characteristics. 69 

Exhibit 8: Nike® 

“What Story Does Your Body Tell?” Campaign 

Screen shot of Nike ® Women Campaign Websit 86 

“My Butt is Big” Story from the Nike ® Ad Campaign 87 


As of yet, Mattel® has not officially responded to the Dove® and 

Nike® campaign ads launched in 2005. There have been no 

mentions of the campaigns in Mattel® and Barbie® press releases 

and Mattel® spokespeople have not officially commented on 

the campaigns. Mattel® has not started lawsuits either, most 

likely because the campaigns indirectly attack Barbie®’s beauty 

ideal, as opposed to The Body Shop Ruby campaign. 

Response to Competition: Bratz 

Mattel®’s initial response to Bratz was so slow and 

ineffective. This was due to the company’s internal challenges 

such as the catastrophic acquisition of the Learning Company 

distracting management as well as its disinclination to change 

its key product. Long-running successes such as the Barbie® 

doll can make managers at large companies such as Mattel® 

near-sighted: “Focused on a mainstay product, they tend to 

ignore fresh information that diverges from their accepted 

norm in three basic areas: marketplace trends, the interests of 

target consumers, and threats from competitors.” 70 

Due to Mattel®’s decisions and actions in the Barbie® – Bratz 

battle, Mattel® found itself again in a few lawsuits. On April 13, 

2005, Isaac Larian, the creator of Bratz sued Mattel® in 

federal court, accusing the world’s largest toymaker of unfair 

competition, intellectual property infringement, and “serial 

copycatting.” The suit claimed that Mattel®’s My Scene and 

Flava (see Exhibit 10) Barbie® dolls “mimic the look, themes, 

and packaging of Bratz. It also alleges that Mattel® has 

threatened retailers and licensees with retribution if they do 

business with MGA Entertainment and that Mattel® tried to 

lock up the supply of doll hair.” Suits such as these are difficult 

to win because the plaintiff has to prove that shoppers were 

confused and that its business suffered. Mattel® said it would 

vigorously defend itself and considered this suit retaliation for 

its own legal claim: that doll designer Carter Bryant came up 

with the idea for Bratz while still working at Mattel®. 71 

Response to Parody/Homage: 

Music, Advertising and Fine Arts 

Instead of engaging in a meaningful discussion about Barbie® 

in the media, it seems that Mattel® again only uses the strategy 

of taking the other party to court. In the case of the following 

three cases of parody, this strategy obviously did not work. 

First, Mattel® filed a trademark infringement and defamation 

lawsuit on September 11, 1997 against Aqua’s song “Barbie® 

Girl” in which the Danish band used lyrics such as “You can 

brush my hair/Undress me everywhere” and used graphics 

similar to the pink Barbie® logo. This lawsuit was dismissed by 

the court as parody on May 15, 1998. 72 

11

12 

Second, in the field of advertising, “a commercial by 

automobile company Nissan featured dolls similar to Barbie® 

and Ken® driving in a toy car was the subject of another lawsuit 

on September 18, 1997.” 73 Again, Mattel® lost the lawsuit. 

Most recently, Mattel® sued a photographer. Although 

Forsythe’s “Food Chain Barbie®” photos Of Barbie® generated 

only $3,600 in revenues, Mattel® sued him for copyright 

infringement but Forsythe successfully argued to the district 

court that his photographs were fair use under the Copyright 

Act. “The Ninth Circuit Court of Appeals affirmed that result. 

The court stated that “Mattel® brought objectively 

unreasonable claims against an individual artist. The court also 

found that Forsythe’s defense advanced the Copyright Act by 

more clearly defining the boundaries of fair use parodies and 

by encouraging further creative works of this kind. The court 

ordered Mattel® to pay Forsythe’s legal fees of $1.8 million and 

his court costs of $241,000. Forsythe advises that Mattel® has 

now paid in full.” 75 

Friedman’s Dilemma 


As Neil B. Friedman took on the leadership of the Mattel® 

Brand unit and the Barbie® product line in particular, he was 

faced with a dilemma: 

Would he continue on Mattel®’s defensive and conservative 

path and follow a protective approach whenever a threat 

occurred? In the recent past Mattel® had been faced with 

decreasing Barbie® sales, anti-Barbie® campaigns launched by 

The Body Shop, Dove® and Nike®, competition from other 

doll lines such as Bratz and the use of Barbie® in 

parodies/homages in music, advertising and the fine arts. 

Mattel® responded to these “threats“ in a very protective 

manner by refusing to adapt Barbie® to the new beauty ideal or 

by starting lawsuits. Mattel® saw the image and reputation of 

Barbie® as one of its biggest strengths, something the company 

and PR strategists were not willing to give up easily. 

Exhibit 9: The MGA Entertainment Bratz dolls 88 Exhibit 10: The Mattel Flava and My Scene Dolls 89 

Mattel’s Flava Dolls 

Mattel’s My Scene Dolls

Or would he decide to offer a more substantial answer to an 

anti-Barbie® climate with decreased sales, opposition, 

competition and parodies of Barbie®, a climate in which 

research described destructive play with Barbie® as a normal 

step in childhood development. If he was given the necessary 

autonomy and freedom to lead the Mattel® unit and Barbie® 

product line, Friedman could have decided to approach these 

anti-Barbie® tendencies no longer as threats but rather start 

interpreting them as opportunities for Barbie®. Opportunities 

Mattel® can learn from to adapt Barbie® to today’s trends in 

order to reverse the opinions of children and parents to 

become pro-Barbie®. 

Exhibit 11: Tom Forsythe’s “Food Chain Barbie®” 90 

Fondue for Three 

Mellow Yellow 


It is early to say which direction Friedman is going to follow 

because earlier decisions taken by Mattel® such as the Ken® 

makeover and the Barbie Luxe Fashion line have been 

realized the first months after Friedman’s promotion. Still, it is 

very likely Friedman will be forced to opt for the first option of 

continuing on the same path unless he receives sufficient 

autonomy and freedom from Mattel® to transform Barbie® 

and accordingly provide a more substantial response to the 

current anti-Barbie climate. 

Mixer Fun 

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ENDNOTES 

1. Stanley, T.L. (2005) “Barbie hits the skids.” In Advertising Age 76 no44 Front Cover, 

33 (October 31, 2005) 

2. Berry, Kate. (2004) “Turnaround whiz hits wall as Bratz take a bite out of Barbie” In 

Los Angeles Business Journal (May 31, 2004) 

3. Vincent, Roger (2005) “Barbie Chief Leaves Mattel in Shake-Up” In Los Angeles 

Times (October 11, 2005) 


33 (October 31, 2005) 


33 (October 31, 2005) 

6. Lukas, Paul. Fortune Magazine April 2003. “Mattel: Toy Story” 


7 Lord, M.G. (1994) Forever Barbie. William Morrow: New York 

8. Johnson, Kristi (1996) “The Barbie Doll as an Artifact of Suburbia” 


9. Lukas, Paul. Fortune Magazine. “Mattel: Toy Story” 


10. Ibid. 

11. Johnson, Kristi. “The Barbie Doll as an Artifact of Suburbia” 


12. Ibid. 



14. Ibid. 

15. Ibid. 

16. Johnson, Kristi. “The Barbie Doll as an Artifact of Suburbia” 


17. Ibid.

18. Ibid. 

19. Ibid. 

20. Mattel, Inc. Press Release “The Barbie® Doll Story” 


21. Bell, Mebbie (2004) “There’s Something about Barbie.” In JCT, v. 20 no2 (Summer 

2004) p.53-64 



23. Warner, Fara (2005) “Toppling Barbie: Bratz Predict the Future.” In The Power of 

the Purse: How Smart Companies are Adapting to the World's Most Important 

Consumers—Women, Chapter Eight. 

http://www.thepowerofthepurse.com/Warner_CH08.pdf 

24. O’Sickey, Ingeborg Majer. “Barbie Magazine and the Aesthetic Commodification of 

Girls’ Bodies.” On Fashion. Ed. Shari Benstock and Suzanne Ferriss. New 

Brunswick, NJ: Rutgers University Press, 1994. 21-40 

25. BBC News (November 18, 1997) http://news.bbc.co.uk/1/hi/business/32312.stm 

26. The 1997 Dubious Data Awards - STATS annual compilation of the most 

misleading, misreported, or misunderstood science and statistical stories of 1997: 

Runner-up “It’s a Barbie World”http://www.stats.org/record.jsp?type=news&ID=162 

27. Mattel Consumer Relations Answer Center – FAQ 

http://service.mattel.com/us/faq_results.asp?SearchString=&category=7&product_ 

number=H0998&faqPage=1&faq_id=52093 

28. Kuther, Tara L. (2004) “Early Adolescents' Experiences with, and Views of, Barbie.” 

In Adolescence, v. 39 (Spring 2004) p. 39-51. 

29. Nairn, Agnes (2005) “‘Babyish’ Barbie under attack from little girls, study shows” 

Press Release University of Bath (19 December 2005) 

30. Ibid. 

31. Roddick, Anita (2001) “Dispatch: Ruby, the Anti-Barbie” 


32. Daniel, Diann (2005) “Real Beauty = Real Sales?” 


33. The Dove Report: Challenging Beauty 

http://www.campaignforrealbeauty.com/uploadedFiles/challenging_beauty.pdf 

34. Ibid. The Dove Report 

35. Daniel, Diann (2005) “Real Beauty = Real Sales?” 


36. http://www2.oprah.com/tows/slide/200509/20050922/slide_20050922_ 

284_105.jhtml 

37. http://nikewomen.nike.com/nikewomen/us/index.jhtml?ref=global_home#body 

38. Adage.com (August 15, 2005) “Nike Steers Advertising Toward Reality Anatomy” 

adage.com/news.cms?newsId=45798 

39. AdiosBarbie.com A Body Image Site for Every Body 

http://www.adiosbarbie.com/journal/index.html 


33 O 31 2005 

41. Palmeri, Christopher (2005) “Hair-Pulling In The Dollhouse” In BusinessWeek 

Online, May 2, 2005. 

http://www.businessweek.com/magazine/content/05_18/b3931096.htm 

42. Warner, Fara (2005) “Toppling Barbie: Bratz Predict the Future.” In The Power of 

the Purse: How Smart Companies are Adapting to the World's Most Important 

Consumers—Women, Chapter Eight. 

http://www.thepowerofthepurse.com/Warner_CH08.pdf 

43. Ibid. 

44. Ibid. 

45. http://en.wikipedia.org/wiki/Barbie#Parodies_and_lawsuits 

46. Ibid. 

47. Berger, Andrew “The Mattel Case” EP Resources – Legal News You Can Use 

http://www.editorialphoto.com/resources/legalnews-parody.asp 

48. Mattel, Inc. “Mattel History” 


49. Edut, Ophira (1999) “Barbie Girls Rule?” 

http://www.adiosbarbie.com/bology/bology_barbiead.html 

50. Ibid. Mattel Inc. Press Release “Barbie Doll Gala Kicks off Year-Long Celebration; 

An All-Star Salute to the Barbie Doll's 40th Anniversary” 


51. Mattel Inc. Press Release “Swimming Champion® Barbie® Makes An Olympic 

Splash” http://www.shareholder.com/mattel/news/20000418-43136.cfm 

52. Mattel Inc. Press Release “Move Over Al And George, She's Running For President” 



53. Mattel Inc. Press Release “Bienvenida, BarbieLatina.com!" 


54. Mattel, Inc. “Mattel History” 


55. Ibid. 

56. Mattel Inc. Press Release “Girls Choose Barbie® ... Two To One Over Competition” 


57. Mattel Inc. Press Release “The Storybook Romance Comes To An End For Barbie 

And Ken” http://www.shareholder.com/mattel/news/20040212-128705.cfm 

58. Mattel Inc. Press Release “The Original Cali Girl Finds A New Man From Land 

Down Under” http://www.shareholder.com/mattel/news/20040629-137999.cfm 

59. Mattel Inc. Press Release “Barbie® Announces A Surprise Bid For The 2004 

Presidency” http://www.shareholder.com/mattel/news/20040812-141478.cfm 

60. Mattel Inc. Press Release “AHHHH! THE SWEET SMELL OF BARBIE® SUCCESS!” 


61. Mattel Inc. Press Release “Barbie® Doll's Toe-Tal Makeovera [sic]” 


62. Mattel Inc. Press Release “THERE'S A NEW BOUNCE TO BARBIE?” 


63. Mattel Inc. Press Release “Barbie® Takes the Stage for the First Time in "Barbie Live 

in Fairytopia!” http://www.shareholder.com/mattel/news/20050622-166745.cfm 

64. Mattel Inc. Press Release “My Scene Goes Hollywood “ 


65. Mattel Inc. Press Release “Top Fashion Designers Partner With Barbie Brand To 

Launch Adult Collection Barbie Luxe” 


66. Mattel Inc. Press Release “Ken® Wants Barbie® Back” 


67. Jervis, Lisa (1997) “Barbie's New Bod, BFD” 

http://www.motherjones.com/commentary/columns/1997/12/jervis.html 

68. Roddick, Anita (2001) “Dispatch: Ruby, the Anti-Barbie” 


69. Mattel Consumer Relations Answer Center – FAQ 

http://service.mattel.com/us/faq_results.asp?SearchString=&category=7&product_ 

number=H0998&faqPage=1&faq_id=52093 

70. Duvall, Mel and Kim S. Nash (2005) “Mattel: How Barbie Lost Her Groove” In 

Baseline, August 4, 2005. 

http://www.baselinemag.com/print_article2/0,1217,a=157196,00.asp 

71. Palmeri, Christopher (2005) “Hair-Pulling In The Dollhouse” In BusinessWeek 

Online, May 2, 2005. 

http://www.businessweek.com/magazine/content/05_18/b3931096.htm 

72. http://en.wikipedia.org/wiki/Barbie#Parodies_and_lawsuits 

73. Ibid. 

74. http://www.omm.com/webcode/navigate.asp?nodehandle=31&idContent=1760 

75. Berger, Andrew “The Mattel Case” EP Resources – Legal News You Can Use 

http://www.editorialphoto.com/resources/legalnews-parody.asp 

76. Yahoo! Finance “Toys & Games Industry Profile” 

http://biz.yahoo.com/ic/profile/740_1207.html 

77. Mattel Inc. Press Release “The Storybook Romance Comes To An End For Barbie 

And Ken” http://www.shareholder.com/mattel/news/20040212-128705.cfm 

78. Mattel Inc. Press Release “The Original Cali Girl Finds A New Man From Land 

Down Under” http://www.shareholder.com/mattel/news/20040629-137999.cfm 

79. Mattel Inc. Press Release “Barbie® Announces A Surprise Bid For The 2004 

Presidency” http://www.shareholder.com/mattel/news/20040812-141478.cfm 

80. Mattel Inc. Press Release “Ken® Wants Barbie® Back” 


81. http://www.world-of-barbie.de/presse.htm 

82. http://www.thebodyshop.com.au/ourValues.cfm?pageID=29 

83. http://campaignforrealbeauty.com 

84. http://www2.oprah.com/tows/slide/200509/20050922/slide_20050922_284_105.jhtml 

85. http://www.campaignforrealbeauty.com/dsef/pdfs/BodyTalk_Excerpt.pdf 

86. http://nikewomen.nike.com/nikewomen/us/index.jhtml?ref=global_home#body 

87. Traister, Rebecca (2005) “Thigh the Beloved Country” 

http://www.salon.com/mwt/feature/2005/08/18/nike_ads/ 

88. “New Dolls Appeal to Irresponsible Parents” 

http://www.slyskunk.com/Bratz,%20Flavas,%20MyScene%20Dolls.htm 

89. Ibid. 

90. http://www.ncac.org/store/forsythephotos.htm 

15

16 

WINNING ENTRIES – BUSINESS SCHOOLS 

first place 

Daniel J. Pozen 

Faculty Adviser: Paul Argenti 

Tuck School of Business 

Dartmouth College 

Managing a Crisis in Financial Services: 

Putnam Investments 2003-2004 

On November 3, 2003 Charles “Ed” Haldeman sat in his 

office at Putnam Investments’ downtown Boston 

headquarters considering the scope of what would 

undoubtedly be the biggest challenge of his 30-year career in 

money-management. Haldeman had earned a reputation as 

a turnaround specialist among industry insiders for his work 

as CEO of Delaware Investments between 1999 and 2002 by 

engineering a dramatic improvement in the relative 

performance of Delaware funds in just two years. But, 

Putnam was managing $272 billion, almost three times as 

much as Delaware, and its problems ran much deeper than 

simply investment performance. 

Earlier that Monday, Haldeman was promoted from co-Chief 

Investment Officer to CEO. He replaced Lawrence Lasser, one 

of the industry’s highest profile executives. Lasser’s 18-year 

tenure at Putnam came to an abrupt end just days earlier as 

the firm faced allegations by the SEC and the Massachusetts 

Secretary of State that some of Putnam’s portfolio managers 

engaged in market timing: a rapid-fire trading scheme 

designed to profit from stale mutual fund prices. In the week 

between the allegations becoming public and Lasser’s dismissal, 

Putnam fired two senior portfolio managers and public 

pension funds withdrew $4 billion from Putnam funds. 

A market-timing scandal, if handled improperly, could 

exacerbate Putnam’s recent sub-standard investment 

performance by causing a devastating outflow of assets and 

irreparable damage to its corporate image, far beyond what 

had already taken place. Haldeman strongly believed that 

reputation was the single most important determinant of 

success in the money management business. Moreover, the 

trust Putnam had built with individual and institutional 

investors over decades could be destroyed instantly by a 


scandal involving legal and ethical violations. 1 Sensing that his 

company’s future depended on his immediate course of action, 

Haldeman set out to restore Putnam’s image as a trustworthy 

money manager that deserved to return to its familiar position 

among the leaders of the mutual fund industry. 

Putnam Investments 

Background 

Putnam Investments was founded in 1937 by the greatgrandson 

of the Massachusetts Supreme Court Justice, 

Samuel Putnam, who helped establish the legal framework 

for the money management industry. George Putnam based 

the firm’s investment philosophy on his great-grandfather’s 

legacy –The Prudent Man Rule – and its edict that “those with 

the responsibility to invest money for others should act with 

prudence, discretion, intelligence, and regard for the safety of 

capital as well as for income.” 2 In 1970, Putnam became a 

wholly-owned subsidiary of Marsh & McLennan, a global 

insurance company with annual revenues in excess of $12 

billion. 

Putnam’s investment products were sold to individual 

investors through brokers and other financial intermediaries 

that recommend Putnam funds based on past performance 

and reputation. In contrast, other fund companies such as 

Fidelity sell their funds directly to individual investors and do 

not rely on a middle-man to assist in the sales and marketing 

effort. “The people who put their money into Putnam’s 

funds are not the firm’s real customers.” 3 Putnam’s funds 

span the style (growth & value), cap (large & small) and 

geographic (domestic & international) spectrum. 

The views and conclusions expressed in this case study are solely those of the author based on the author’s review of the cited materials and the 

interviews conducted by the author, and are not necessarily the views of the author’s academic institution or those of Putnam investments.

The Lasser Years 

Prior to Lasser’s stewardship which began in 1985, Putnam 

was regarded as stodgy and conservative in its approach to 

money management. Under Lasser, however, the firm 

experienced tremendous growth. Between 1993 and 1999 

alone, assets under management grew 33% compounded 

annually from $90 billion to $391 billion, outpacing the S&P 

500 which grew 26% compounded over the same time 

period. “Truth in labeling,” the firm’s rallying cry, affirmed a 

commitment to style specific products (i.e., growth funds 

only investing in growth stocks, small cap funds in small 

stocks etc.) that resonated strongly with investors 

and investment advisors. In the late 1990’s, the 

firm also rode the Internet bubble, betting 

heavily on technology and telecommunications 

stocks in many of its funds. Portfolio managers 

of popular growth funds like OTC Emerging 

Growth became Wall St. celebrities because of 

their spectacular performance (+127% in 1999) 

and received gaudy compensation packages. 

Lasser himself was routinely one of the best paid 

executives in the industry, taking home over $100 million 

between 1998 and 2003. Critics viewed the compensation of 

Lasser and others as emblematic of a much broader problem 

– a developing culture of corporate greed that came at the 

expense of individual investors. According to a December 

2003 article in Money magazine: 

“The firm embraced one of Wall Street’s oldest and 

most cynical sayings: ‘When the ducks quack, feed ‘em.’ 

Putnam began selling any fund that gave – or appeared 

to give – investors what they wanted, regardless of 

whether it was a prudent, intelligent or safe way to 

invest. The firm pandered to the worst instincts of 

investors – and to the brokers who are supposed to 

help those investors.” 4 

Post-Technology Boom Problems 

When the technology bubble burst in 2000, Putnam fell hard. 

Assets under management were cut by 36%, far worse than 

the 14% decline in the S&P during that time period. The 

move from $391 billion at the end of 1999 to $250 billion at 

the end of 2002 prompted the firing of the very portfolio 

managers whose bets on technology fueled the firm’s growth 

just two years prior. Even Lasser’s compensation package 

was slashed –declining from $30 million in 2001 to $10 

million in 2002. 5 While Putnam remained the nation’s fifth 

largest mutual fund manager, the company’s revered run had 

come to an end. The more the negative consequences of 


such aggressive growth tactics became evident, the more 

Putnam’s credibility within the investment community was 

called into question. 

Ed Haldeman, formerly CEO of Delaware Investments, was 

hired as co-Chief Investment Officer in 2002 to right the ship. 

He was charged with the responsibility of overhauling the 

investment division, getting performance back on track and 

restoring Putnam’s image as a prudent, trust-worthy 

investment manager. Both inside and outside the company, it 

was commonly assumed that Haldeman would eventually 

succeed Lasser as the CEO of Putnam. 

Company Position Dates 

Putnam Investments Chief Executive Officer 2003–present 

Putnam Investments Chief Investment Officer 2002–2003 

Delaware Investments Chief Executive Officer 2000–2002 

United Asset Management President & Chief Operating Officer 1998–2000 

Cooke & Bieler Inc. Partner and Director 1974–1998 

Market Timing in Mutual Funds 

Mutual Fund Pricing 

The price of a mutual fund measures the value of the assets 

(stocks or bonds) that it owns. Unlike stocks, whose prices 

are continuously updated, a mutual fund’s price is updated 

once per day, at 4pm in New York, to capture the day’s 

movements up or down of the securities owned in that fund. 

Because many international markets close well ahead of 4pm 

EST, the value the international securities are assigned in that 

fund will not reflect the latest US market activity. Insofar as 

the prices of international stocks are affected by movements 

in the US stock market, investors can profit from this “stale 

pricing” in mutual funds holding a significant number of 

international securities. 

International Fund A owns exclusively shares of 

Japanese electronics companies whose performance can 

be largely predicted by sales of Intel microprocessors. 

On Tuesday at 9am EST, Intel reports that its 4th 

Quarter sales were well above expectations. Based on 

these results, market timers buy International Fund A 

because they expect the Japanese stocks it owns will 

react favorably when the Tokyo market opens on 

Wednesday. This favorable reaction, however, will not 

be captured in the price of International Fund A on 

Tuesday, but will be captured when the US market 

closes on Wednesday. 

17

18 

Defining Market Timing 

Mutual funds are required to file semi-annual reports that 

disclose, within 45-days of the reporting date, their top-ten 

holdings as well as their weightings in various countries and 

sectors. Based on this information, common investors can 

market time mutual funds by performing simple regression 

analyses. Portfolio managers know more than the public – 

the exact composition of their portfolios at any given time. 

It is not clear whether this non-public information allows 

portfolio managers to be better market-timers than the 

public. In either case, however, portfolio managers have the 

ability to market time mutual funds in an attempt to secure 

profits at artificially low risk levels. 

This market timing affects common shareholders in multiple 

ways. First, mutual funds must have sufficient cash reserves 

to fund liquidations when they arise. Funds that are 

frequently market-timed, therefore, must have artificially 

high cash balances. This cash will be a “drag” on the fund’s 

performance in a rising stock market. Second, there are 

transaction costs every time a portfolio buys or sells stocks. 

These transactions costs are borne by all shareholders. If a 

manager is forced to buy and sell stocks to respond to a 

market timer’s buying and selling, transaction costs of a fund 

will increase and its total return will decrease. 6 Finally, the 

profits of a market-timer come directly out of the pockets of 

the fund’s other investors. A market-timer, if successful, is 

buying securities from the fund investors when they are 

underpriced and selling securities to the fund investors when 

they are overpriced. 

Regulating Market Timing 

Although the negative effects of market-timing have become 

better understood, the SEC does not provide a specific 

definition of market-timing and it is not technically illegal.* 

Portfolio managers are allowed, and often encouraged, to 

invest money in their own mutual funds to align their 

interests with common investors and demonstrate conviction 

in their product. Prior to 2003, virtually all mutual fund 

prospectuses addressed excessive trading. Putnam 

International Voyager fund’s prospectus, since renamed 

International Capital Opportunities, for instance, said the 

fund ‘is not intended as a vehicle for short-term trading. 

Excessive exchange activity may interfere with portfolio 

management and have an adverse effect on all shareholders.’” 7 


Market Timing Across the 

Mutual Fund Industry 

Putnam was one of many firms with market-timing issues. 

Other prominent fund companies including Alliance Capital, 

Janus Capital and Massachusetts Financial Services were also 

alleged to have participated in some variation of markettiming. 

In all, Morningstar, the fund research firm, listed 22 

fund companies as having market-timing issues over a three 

year period. 8 Each of these firms, like Putnam, stated in their 

respective fund prospectuses that market-timing or excessive 

trading was inconsistent with the funds’ long-term 

investment objectives. 

Alliance Capital 

Alliance Capital, a New-York based investment firm, 

managed approximately $440 billion in the fall of 2003. 

“At their height in 2003, Alliance Capital arranged over $600 

million in market timing in its mutual funds. Its single 

biggest timer, Daniel Calugar, peaked at $220 million of 

timing capacity in certain mutual funds; in exchange, Mr. 

Calugar invested in hedge funds run by some of the same 

portfolio managers overseeing the mutual funds. For 

example, Alliance Capital granted Calugar $150 million 

timing capacity (the right to make multiple roundtrip trades 

up to $150 million each) in the AllianceBernstein Technology 

Fund in return for a $30 million investment – a 5:1 ratio – in 

a hedge fund managed by the same portfolio managers.” 9 

Janus Capital Management (JCM) 

Janus Capital, a Denver-based investment firm, managed 

approximately $140 billion in the fall of 2003. “Between 

November 2001 and September 2003, JCM entered into or 

maintained agreements with 12 Market Timers that allowed 

those entities to “market time” mutual funds for which JCM 

was the investment adviser. These agreements permitted the 

Market Timers to trade far more frequently than other 

shareholders and, in some cases, to make frequent trades of 

up to tens of millions of dollars each in the mutual funds. 

JCM usually negotiated a certain number of “round trips” 

allowed within a given time frame and a maximum dollar 

amount for each exchange.” 10 

*Market timing should not be confused with late trading which, in contrast to market timing, is illegal. Late trading occurs when fund 

investors are allowed to buy and sell mutual funds after 4pm EST at the prior day’s closing price. Late traders, if successful, are able trade 

funds at stale prices no longer available to the public or reflective of the value of the fund and earn profits at artificially low risk levels.

Massachusetts Financial Services (MFS) 

MFS, a Boston-based firm, managed approximately $140 

billion as of 2003. “Beginning at least as early as July 2001, 

MFS routinely provided certain broker-dealers with its 

internal policy allowing market timing in the Unrestricted 

Funds, and routinely directed known market timers to the 

Unrestricted Funds.” 11 

Allegations of Market Timing at Putnam 

In November 2003, the SEC and the State of Massachusetts 

filed formal complaints alleging market timing at Putnam. 

“At least six Putnam employees who worked as 

investment management professionals engaged in 

excessive short-term trading of Putnam mutual funds 

in their personal accounts. Four of those employees 

engaged in such trading in funds over which they had 

information regarding, among other things, portfolio 

holdings, valuations and transactions not readily 

available to all fund shareholders.” 

These allegations focused on two key portfolio managers–one 

who was the head of international equities and the other who 

was a chief investment officer on the international team. 

Between 1998 and 2003, these portfolio managers executed 

numerous individual trades, often worth hundreds of 

thousands of dollars. In total, the managers were each 

accused of having made more than 30 “round-trip” trades, 

many of which involved sales on days immediately following 

buys. In all, the six employees (the two portfolio managers 

and four of their subordinates) were thought to have 

generated more than $1 million in profit from short-term 

trading Putnam funds. 

The SEC and the State of Massachusetts believe that Putnam 

learned of this trading activity in early 2000, but failed to take 

proper steps to address the misconduct. Most importantly, 

sufficient monitoring and control systems were not 

implemented to fully prevent employees from market timing 

Putnam funds. Evidence presented suggests that the 

aforementioned portfolio managers continued to rapidly 

move large sums of money in and out of their own funds 

through 2003 despite being admonished about the ethicality 

of such actions in 2000. These portfolio managers, both of 

whom earned in excess of $5million on an annual basis, were 

neither reprimanded for their actions nor made to return the 

profits they had earned through market timing. Tim Cahill, 

the Treasurer of Massachusetts recalls being particularly 


troubled because the head of international equities had 

received a promotion during the time period in question. 

This promotion was alarming because it took place after he 

was explicitly warned about his market timing activity. 12 

In separate charges, the State of Massachusetts also accused 

Putnam of allowing certain members of a large 401(k) plan 

to engage in excessive short-term trading of Putnam funds. 

Ten individuals were thought to have earned more than $1 

million in profit by taking advantage of stale mutual fund 

prices. After being made aware of this activity, Putnam 

allegedly took two-years to install measures that would 

prevent these clients from market timing Putnam funds. 

These charges arguably put Putnam on par with its industry 

peers like Janus and Alliance who had also permitted market 

timing. Putnam allegedly tried to stop this type of client 

transaction whereas Janus and Alliance allegedly agreed with 

clients to market timing arrangements. But, “what 

distinguishes this case [Putnam] from other market-timing 

cases is that Putnam breached its fiduciary duty, by failing to 

disclose potentially self-dealing trading by its own portfolio 

managers.” 12 

Dealing with an Investigation 

Learning of the Problem 

On or about September 11, 2003, the SEC made its first 

request for documents (i.e., trading records) from Putnam 

regarding market timing by its own portfolio managers. 

“On September 16, the company’s nine most senior 

executives gathered in the late morning in a windowless 

eighth-floor conference room…Toward the end of the 

meeting, when the subject of money managers’ 

frequent trading in 2000 came up, Haldeman shoved 

his chair back from the table in disgust, according to 

several witnesses. ’Maybe I’m just naïve, but I can’t 

imagine anyone in the investment management 

business would ever do something like this,’ he yelled. 

’These people have to be fired.’” 14 

“When Putnam dug deeper into the employees’ trading 

record, it became clear that as far back as 2000, four 

money managers had taken advantage of big moves in 

US stock markets to profitably trade in and out of the 

very international mutual funds that they supervised. 

Their profits came directly at the expense of long-term 

investors. Putnam at the time had ordered them to 

stop trading.” 15 

19

20 

Facing Complex Decisions 

After learning of the investigation, senior management faced 

a difficult decision. John Brown, Putnam’s head of 

institutional sales at the time, reflected on the complexity of 

the situation: 

“We were looking down the barrel of a gun. We could 

go to the market and our clients with our hands on our 

heart and tell them what we did was wrong. But, we 

did not have a clear understanding of what market 

timing was and the SEC offers no official definition. It 

was uncertain how many people were involved, how far 

back we should be looking or where these actions fell 

on both the legal and the ethical spectrum of right and 

wrong. We couldn’t just ruin peoples’ lives [by firing 

them] for something we had yet to fully make sense of. 

If we were going to admit guilt, we had to at least know 

what we were admitting to.” 16 

Recommendations varied widely. One person close to the 

firm called Putnam “crazy for addressing the issue 

publicly…this is a storm in a teacup that will disappear 

quickly.” Others, like Haldeman, were adamant about 

coming forward. 

For six weeks, Putnam’s senior management gathered 

information and wrestled both with how to handle the 

problem internally and manage external communications. 

They considered the potential fallout from a business 

perspective. How much money would be pulled from 

Putnam funds if clients found out from the press rather than 

Putnam themselves? The answer was clear – the outflow 

would be devastating. 

Putnam tried hard to separate economics from ethics when it 

came to making a decision. 18 It was difficult to ignore, 

however, that Putnam had a heavy orientation toward growth 

stocks at the time, and growth was tanking. The international 

funds were among the only Putnam products that were 

performing reasonably well and it was the managers of these 

successful funds who were doing the market timing. 

Resolution 

Under Lasser’s leadership, Putnam’s initial attempt to resolve 

its market timing problem lacked decisiveness. Lasser asked 

Haldeman and his co-chief investment officer to negotiate 

with the portfolio managers and convince them to leave 

voluntarily. This directive, however, lacked urgency and the 

negotiations dragged. In a more certain declaration, 

Putnam’s board of trustees, in their monthly meeting in early 

October, determined that the portfolio managers should be 


fired immediately and that investors be compensated for their 

losses. But, in relaying their message to Putnam executives, 

Lasser did not indicate any sense of immediacy. 19 

Finally, on October 23, when it was clear that SEC and MA 

complaints would be filed and the world would soon know of 

the alleged wrongdoings, Putnam issued a statement saying it 

would be firing four of the six money managers involved in 

the market timing. 20 But, the opportunity to communicate 

with investors proactively had been lost. The next morning, 

October 24th, a Boston Globe article read “6 At Putnam Tied 

to Prohibited Trades, 4 Money Managers Forced From Jobs.” 

In the week that followed, Putnam cleaned house. Lasser was 

asked to resign and Haldeman replaced him as CEO. AJC 

“Ian” Smith, former CEO of Marsh & McLennan, was 

appointed to chairman, a newly created position, in what 

many perceived as a move to help the parent company 

maintain a close eye on its prized but troubled subsidiary. In 

addition to Haldeman and Smith, Steven Spiegel, formerly 

Putnam’s head of global distribution, was named vice 

chairman – also a new position. 

Working with the Institutional Client Base 

Heading into the fall of 2003, Putnam had approximately 

$101 billion of institutional assets under management. 

Broadly, these assets fell into one of three categories: 

1) Public funds (state pension plans) 

2) Sophisticated private funds (IBM, GM) 

3) Consultant-advised private funds (small companies) 

Public Funds 

Public fund assets are typically run by popularly elected state 

treasurers whose expertise is generally not in portfolio 

management or asset allocation. Rather, treasurers are 

politicians – cost conscious, wary of expensive searches for 

investment managers and above all, concerned with 

re-election. On one hand, slow bureaucratic decision making 

and cost consciousness tend to make public fund assets 

relatively sticky. In a normal environment, frequent largescale 

movements of public fund assets are not common. On 

the other hand, re-election concerns create a hyper-sensitivity 

to issues of legality and ethicality. At the first sniff of 

wrongdoing, public fund assets move in droves as state 

treasurers try to avoid accusations of breaching their 

fiduciary responsibility. 

On October 31, 2003, the Massachusetts state pension fund 

withdrew approximately $1.8 billion from Putnam 

international and small cap portfolios. 21 Some of these assets

were already on a watch list for performance at the time, but 

the market timing scandal was the final catalyst to Putnam’s 

dismissal. State treasurers from around the country looked to 

the Massachusetts decision as an important benchmark 

because Putnam was a Boston-based company. When 

deciding to fire Putnam, MA state Treasurer Tim Cahill 

considered four key questions: 22 

1) Was Putnam’s investment performance satisfactory? 

2) Did they have a clear understanding of all ethically 

questionable trading activity that had taken place at 

the firm? 

3) Had they done enough to ensure that such actions 

would not take place in the future? 

4) Did they come clean and fully admit their wrongdoing? 

From Cahill’s perspective, there was no decision to be made 

about the $1 billion invested in the international portfolios 

where market timing took place. It had to be pulled. But, the 

state also had $800 million invested in small cap portfolios 

managed by Putnam that were not directly implicated in the 

trading scandal. If the questions regarding Putnam’s 

knowledge, response and accountability could be answered 

satisfactorily, perhaps these assets could remain with the 

company. 

At the time of the firing, Cahill also thought carefully about 

what criteria he would use to decide whether to rehire 

Putnam in the future. “If I was going to fire Putnam for 

issues surrounding performance, trust and accountability, I 

had to be willing to re-hire them for the same reasons. It was 

not fair to punish them forever.” 23 For Cahill, it was critical 

that Putnam not only improve its performance and protect 

against future wrongdoing, but also that the company make 

strides in changing their culture. He agreed with the critics 

who perceived Putnam’s “greed-oriented” culture as a 

contributor to both the market timing activity itself and the 

firm’s inability to handle it effectively. “I needed to see that 

they got it.” 24 

Sophisticated Private Funds 

Putnam regarded their large private fund clients as thought 

leaders in money management and asset allocation. 

Managers of these assets were focused on investment 

performance and, by the end of 2003, readily understood why 

market timing by portfolio managers was both unethical and 


costly to fund shareholders. IBM, the first major private 

institution to pull its money from Putnam, regarded the 

firing decision as inevitable once the facts of the scandal 

became public. There was little downside to moving their 

money to index funds while Putnam’s conduct was evaluated 

by regulators and the court of public opinion. 25 

The very largest plans (IBM, GM etc.) rarely used investment 

consultants* because they had large enough in-house staffs to 

do the investment work themselves. Nonetheless, they 

frequently leaned on the ratings of independent research 

firms like Wilshire and Russell. Because investments in buyrated 

funds stand up to scrutiny during times of substandard 

performance, these ratings served as an important 

guide-post for even the savviest of institutional managers. 

These ratings are largely formulaic and they can be 

unforgiving. The departure of a senior investment 

professional results in an automatic ratings downgrade (i.e., 

from “buy” to “hold”) in both the Wilshire and Russell 

measurement systems. The departure of two senior 

professionals, as was the case with Putnam, doubled the 

magnitude of the downgrade (i.e., from “buy” to “sell”). 

Therefore, Putnam’s assets under management at 

sophisticated private funds were in serious jeopardy regardless 

of how forthrightly they addressed the market timing issue 

with their clients. “They were going to leave us anyway. Our 

approach to communicating with them would only impact 

future fund flows, but the damage had been done.” 26 

Consultant-Advised Private Funds 

Many private funds use third party advisors such as 

Cambridge Associates to determine where to invest their 

money. Cambridge, much like the managers of large private 

funds, is focused on the mechanics of the investment process 

as an important indicator of quality in rating different 

mutual funds and managers. Accordingly, the departure of 

two senior portfolio managers will significantly impact 

Cambridge’s assessment of a particular mutual fund or fund 

company. Moreover, advisors are vulnerable to being sued 

for putting clients’ money into funds where legal violations 

have taken place. Therefore, the near-term fallout would 

likely be severe in consultant advised funds regardless of 

Putnam’s handling of the crisis. Longer-term, consultants’ 

assessment of Putnam funds would, at least in part, be 

determined by how they dealt with the market timing scandal. 

*Investment consultants act as independent third party advisors to assist institutions in the 

allocation of their investments. Consultants rate fund managers and suggest where their clients 

should invest their money (i.e., Putnam vs. Fidelity, stocks vs. bonds, domestic vs. international). 

21

22 

Working with the Retail Client Base 

In the fall of 2003, Putnam had approximately $171 billion in 

retail assets under management. This money was invested for 

individuals and small businesses primarily through 

independent brokers and advisors who managed their clients’ 

money for a fee. Most of Putnam’s funds sold to individual 

investors at the time had significant front or back-end loads. 

Load funds charged a fee, often up to 7%, to purchase the 

mutual fund. Therefore, most individuals moving their 

money out of the Putnam fund complex would suffer a 

significant financial penalty. This penalty should have made 

individuals less inclined to change mutual funds with great 

frequency. 

By definition, retail assets are distributed among a highly 

fragmented base of individual investors. As a result, retail 

asset flows will react to a scandal, but not in a one-time wave 

like on the institutional side. Don Phillips, Managing 

Director at Morningstar remarked on this dynamic -“While 

institutional assets exhibit a herd-like mentality, retail 

outflows can be like death by pin-prick.” 27 

Putnam’s poor investment performance between 2000 and 

2003 made it possible for the market timing scandal to have a 

substantial negative effect on the company’s retail asset base. 

With some funds losing 85% of their value from peak to 

trough, the Putnam name “had become mud with financial 

planners.” 28 Not surprisingly, this performance created a bad 

investment experience for individuals who, as a result, were 

more willing to think negatively about Putnam once the 

market timing scandal hit. 29 

For Roger Kalar, an independent investment advisor and 

long-time advocate of Putnam, trust was the most important 

variable in determining how to allocate his clients’ $60 

million. In his view, recovering assets lost as a result of the 

scandal was difficult and typically required 3–5 years (or truly 

great performance), but capturing a percentage of new 

money flows depended heavily on how a company responded 

to crisis. 30 

“I will give business to companies that realize they are 

in the customer service industry. Doing what is right 

for the customer never hurts anyone. What programs 

is Putnam putting in place to make sure this never 

happens again? Have they reached out to me to tell me 

how they are different? Have they cut their fees? Have 

they fallen on their sword, opened their kimono and 

righted the ship?” 31 


In contrast to a state treasurer or the head of IBM’s pension 

plan, individual investors were not burdened by public 

opinion or fiduciary responsibility in justifying their 

investment decisions. Rather, performance and image were 

all that mattered. “Individual investors love to forgive and for 

them, the regulatory issues were all about image. Putnam still 

had one of the great names in the industry – it was and is a 

proven franchise. But, image is the biggest asset in the money 

management business and getting the spin right is key.” 32 

Working with Regulators 

By early November, both the SEC and the state of 

Massachusetts were conducting investigations into market 

timing at Putnam. Secretary of State William Galvin was in 

charge of how the state of Massachusetts responded to 

Putnam’s actions. “Our investigation yielded three key 

findings. First, market timing took place. Second, the 

company knew about it and did not do enough to stop it. 

Third, it was fairly pervasive throughout the firm.” 33 Galvin 

wanted to ensure that the size of the fine levied by the state 

reflected the seriousness of the firm’s conduct. Putnam’s level 

of cooperation in the investigation and demonstration of 

remorse for their actions was only marginally relevant in 

determining the outcome of whatever settlement would be 

reached. 34 

The SEC investigation undertook a very similar dynamic to 

that of the state of Massachusetts. On both the federal and 

state levels, the size of the fine and the language used in 

public documents were almost always the two most 

contentious issues in reaching a settlement with regulators. 

Specifically, how much would Putnam pay to atone for their 

sins and how would regulators characterize the activity that 

took place inside the Boston firm? 

Working with the Media 

By the time Haldeman took over as CEO on November 3rd, 

he had lost the opportunity to communicate proactively with 

the media. All future communications would be heavily 

informed by the company’s silence between when its 

executives were notified of the market timing in early 

September and when the story broke in the Boston Globe on 

October 24th. Andrew Caffrey, the Boston Globe’s lead 

finance reporter commented on this dynamic: “They lost the 

ability to get out in front of this. They were now 

communicating on a stage set by someone else.” 35 

In the media, Putnam had become a money-making 

bureaucracy, personalized only by Larry Lasser, its lavishly 

paid CEO. Their initial response to the market timing 

scandal exacerbated Putnam’s “corporate” persona. The $1

million in profits made by the portfolio managers was 

relatively minor on the corporate scale for a company that 

managed hundreds of billions. It was clear, however, that a 

deeper appreciation for how this would look to the world and 

to the average retiree needed to be a central consideration in 

determining how to communicate going forward. “Putnam 

needed to reconcile the difference between the human scale 

and the corporate scale.” 36 

Haldeman’s Dilemma 

Ed Haldeman was acutely aware of the urgency of the crisis 

at-hand. His first actions as Putnam’s new CEO would have a 

profound impact on the future of the company. He 

understood the legal and logistical complexity of dealing with 

market timing, both internally and with regulators. At the 

same time, however, he had seen first hand how institutional 

and retail investors would pull money from Putnam based 

solely on image rather than some deep understanding of 

arcane trading strategies by a couple of international 

portfolio managers. The bottom line, Haldeman knew, was 

that Putnam stood to lose tens of billions of dollars before 

Christmas if he did not pull the right levers. 

Exhibit 1: Putnam Performance 


A savvy industry veteran and turnaround specialist, 

Haldeman also considered the market timing scandal from a 

broader, more opportunistic perspective. Was there an 

opportunity to repair an investment division that had 

significantly underperformed its competitors over the last 2 

years? Could Putnam fundamentally change the culture of 

greed that had contributed to the current crisis? How could 

Putnam use the market timing scandal to position itself at the 

forefront of a mutual fund industry that would undoubtedly 

undergo major reform in the coming years? Haldeman knew 

that the best strategic and communications initiatives would 

both mitigate asset outflows in the near-term and restore the 

company to its leadership position over the long-term. 

Case Questions 

Putnam Investments: Assets Under Management 1994–2004 

Source: Fund Prospectus 

1. What are the key short and long-term problems 

Haldeman faces? 

2. What should Putnam’s communication strategy be going 

forward? 

3. How could Putnam have avoided this crisis and what 

could they have done to be better prepared for it in the 

future? 

4. How should Haldeman prioritize his communications and 

strategic initiatives? What specifically should Haldeman 

do in his first few days as CEO? 

23

24 

Exhibit 1: (continued) Putnam Performance 

Source: Fund Prospectus 

Putnam OTC Emerging Growth Vs. Benchmark 1997–2003 

OTC Emerging Growth OTC Emerging GrowthRussell Mid-Cap Growth 

Putnam International New Opprtunities Vs. Benchmark 1997–2003 

International New Opportunities Citigroup World Ex - US Growth 

arthur w. page society

Exhibit 2: Mutual Fund Industry Watch 

Fund Industry Investigation Update* 

Company Synopsis Company Synopsis 

*As of 11/22/2005 

Source: Morningstar Research 

Exhibit 3: Potential Solutions to Market Timing 

Source: Case-writer analysis 

Structural Measures to Prevent Market Timing 

Action Description Potential Impact 


25

26 

Exhibit 4: Putnam Advertisements 



27

28 

BIBLIOGRAPHY 

Interviews: 

John Brown, Former Head of Institutional Sales–Putnam Investments, Hanover NH, 

October 20, 2005 

Andrew Caffrey, Boston Globe Finance Reporter, Hanover NH, October 7, 2005 

Tim Cahill, Treasurer of Massachusetts, Hanover NH, November 10, 2005 

William Galvin, Secretary of State – Massachusetts, Hanover NH, October 27, 2005 

Ed Haldeman, CEO–Putnam Investments, Hanover NH, October 14, 2005 

Roger Kalar, Independent Investment Advisor–Mutual Service Associates, Hanover NH, 

November 3, 2005 

Don Phillips, Managing–Morningstar, Hanover NH, October 25, 2005 

8. 22 November 2005, www.morningstar.com 

9 SEC Settlement Document, 18 December 2003 

10. SEC Settlement Document, 18 August 2004 

11. SEC Settlement Document, 5 February 2004 

12. Tim Cahill, Interview by the author, 10 November 2005 

13. Beth Healy, “Putnam Agrees to $110m Settlement,” Boston Globe, 9 April 2004: D1 

14. Caffrey, Boston Globe, 24 October 2003 


16. John Brown, Interview by the author, Hanover, NH, 20 October 2005 

17. Brown Interview, 20 October 2005 


19. Andrew Caffrey, “Deliberative Style was Chief’s Undoing,” Boston Globe, 30 

December 2003: A1 

20. Caffrey, “ Probe Raises Many Questions,” Boston Globe, 30 December 2003 

21. Andrew Caffrey, Boston Globe, 31 October 2003 

22. Cahill Interview, 10 November 2005 





27. Don Phillips, Interview by the author, 25 October 2005 

28. Phillips Interview, 25 October 2005 

2.9 Phillips Interview, 25 October 2005 

30. Roger Kalar, Interview by the author, 3 November 2005 

31. Kalar Interview, 3 November 2005 


33. William Galvin, Interview by the author, 27 October 2005 

34. Galvin Interview, 27 October 2005 

35. Andrew Caffrey, Interview by the author, 7 October 2005 

36. Caffrey Interview, 7 October 2005 


ENDNOTES 

1. Ed Haldeman, Interview by the author, Hanover, NH, 14 October 2005. 

2. Prudent Investor Act, Samuel Putnam, 1830 

3. Adrienne Carter, Amy Feldman and Jason Zweig, “Greed Machine,” Money, 1 

December 2003. 

4. Carter, Feldman and Zweig, “Greed Machine” 

5. Marsh Maclennan Annual Filings, 2000-2003 

6. Roberto Braceras, “Late Trading and Market Timing,” Review of Securities and 

Commodities Regulation, 14 April 2004 

7. Andrew Caffrey, “6 At Putnam Tied to Prohibited Trades,” Boston Globe, 24 October 

2003: A1 

8. 22 November 2005, www.morningstar.com 

9. SEC Settlement Document, 18 December 2003 

10. SEC Settlement Document, 18 August 2004 

11. SEC Settlement Document, 5 February 2004 

12. Tim Cahill, Interview by the author, 10 November 2005 

13. Beth Healy, “Putnam Agrees to $110m Settlement,” Boston Globe, 9 April 2004: D1 



16. John Brown, Interview by the author, Hanover, NH, 20 October 2005 



19. Andrew Caffrey, “Deliberative Style was Chief’s Undoing,” Boston Globe, 30 

December 2003: A1 

20. Caffrey, “ Probe Raises Many Questions,” Boston Globe, 30 December 2003 

21. Andrew Caffrey, Boston Globe, 31 October 2003 






27. Don Phillips, Interview by the author, 25 October 2005 



30. Roger Kalar, Interview by the author, 3 November 2005 

31. Kalar Interview, 3 November 2005 


33. William Galvin, Interview by the author, 27 October 2005 

34. Galvin Interview, 27 October 2005 

35. Andrew Caffrey, Interview by the author, 7 October 2005 

36. Caffrey Interview, 7 October 2005

second place 

Quinn Bailey, Benjamin Gilfillan 

James O’Rourke, faculty adviser 

Mendoza College of Business 

University of Notre Dame 

ChoicePoint: 

Personal Data and a Loss of Privacy 

On September 27, 2004, ChoicePoint, a company that stores 

and sells critical personal information, discovered possible 

fraudulent activity within their network of databases. 1 Upon 

further inquiry, ChoicePoint security officials realized that 

they may have allowed identity thieves in the Los Angeles 

area, who acted as legitimate business clients, to access 

people’s personal information. In mid-October the company 

began working with the Los Angeles Sheriff’s Department 

(LASD) and soon discovered that an identity theft ring had 

set up over 50 fake companies that posed as legitimate 

business clients. The illegitimate companies inquired and 

received everything from social security numbers to credit 

reports, more than enough information to steal someone’s 

identity. The security breach effectively put 35,000 

Californians and 110,000 people across the country at an 

increased risk of identity theft. 2 

An Arrest is Made 

The LASD, working with ChoicePoint, were able to set up a 

successful sting operation which resulted in the arrest of one 

of the data thieves. On October 26, 2004, Olutunji 

Oluwatosin was arrested after receiving a fax from 

ChoicePoint requesting an additional signature for one of the 

illegitimate companies the thieves had previously set up. The 

contact information for the fake company was that of a local 

Kinkos and when Mr. Oluwatosin arrived to pick up the fax 

he was apprehended by the LASD. 

Instructions from LASD to Delay Announcement of Breach. 

The LASD originally instructed ChoicePoint to delay any 

public announcement of the security breach because it would 

have hindered an ongoing investigation. However, there are 

some inconsistencies with regard to how long ChoicePoint 

was told to wait. Company officials maintain that they were 

told to hold off any announcement until January while a 

representative of the LASD has said that they instructed 

ChoicePoint to start disclosing problems in November. 3 At 

any rate, ChoicePoint will have to disclose the security breach 

at some time in the near future. California state law 


mandates that its citizens be informed when their personal 

information is compromised. 

A Questionably Timed Executive Stock Sale. On November 

3, whether or not the security breach was known at the time 

to ChoicePoint executives, Derek Smith, CEO, and Douglas 

Curling, President and COO, adopted plans for prearranged 

stock sales over a six month period. 4 The plans, which had 

previously been approved by the board of directors, call for 

the sale of 24% of the executives combined stock in the 

company. The executives started to sell their ChoicePoint 

shares on November 9, before any public announcement of 

the security breach. 

ChoicePoint 

ChoicePoint was founded in 1997 by Equifax, an information 

management company, when it spinned-off its insurance 

services group. Former Equifax Vice President and Senior 

Vice President of Finance and Administration Derek Smith 

and Doug Curling, respectively, joined ChoicePoint at its 

inception and have helped evolve the company into being the 

premier provider of decision-making intelligence to 

businesses and government. 5 ChoicePoint now stores private 

information such as social security numbers, credit ratings, 

and criminal history reports on its databases and makes this 

information available to qualified clients. 

After the events of September 11, 2001, the United States 

government’s need for background information increased 

exponentially as did ChoicePoint’s services to various 

government agencies. The acquisitions of Templar Corp. 

which employs an information sharing system originally 

envisioned by the departments of Defense and Justice and 

IMapData Inc., an information gathering company whose 

clients include intelligence and homeland security agencies, 

further enabled ChoicePoint to increase business with the 

federal government. 6 Through their strategic acquisitions, 

over 60 in all, and the increased use of data brokers by the 

federal government and businesses, ChoicePoint has 

29

30 

experienced rapid growth. ChoicePoint now employs 5,500 

people and is listed on the New York Stock Exchange under 

the symbol CPS. The company registered record annual 

revenue in 2004 of over 884 million dollars. 7 

Corporate Communications at ChoicePoint. The 

communications team at ChoicePoint is relatively small and 

has had no experience with situations such as this. The team 

is made up of James Lee, Chief Marketing Officer, who is in 

charge of all internal and external messaging, and three other 

persons, two of which are dedicated to employee 

communications. 8 The fraudulent activity coupled with a 

questionably timed stock sale by company executives 

agreeably puts the communications team at ChoicePoint in a 

crisis situation. 

Derek Smith and Douglas Curling. Derek Smith joined 

ChoicePoint as CEO after its spin off from Equifax in 1997 

and became Chairman in 1999. Mr. Smith is seen by many in 

the industry as being on the leading edge of information 

technology. 9 He has written several books including: A 

Survival Guide in the Information Age, a book that contains 

ways to safeguard you and your family from identity theft, 

and Risk Revolution; The Threats Facing America & 

Technology’s Promise for a Safer Tomorrow. 10 Derek Smith is 

an advocate for using technology to combat terrorists and 

criminals and he believes it is possible to make our nation 

more secure while protecting civil liberties. 11 Smith serves on 

the board of the Society of International Business Fellows and 

The Educational Foundation of Georgia State University and 

is an honor graduate of Pennsylvania State University. 12 

Douglas Curling, like Derek Smith, joined ChoicePoint at its 

inception. He has held the positions of Chief Financial 

Officer, Chief Operating Officer, and is now President Chief 

Operating Officer and Director. Mr. Curling has been 

responsible for ChoicePoint’s acquisitions which successfully 

diversified revenue sources. Douglas Curling emphasizes 

efficient internal organization in the ever changing 

technology industry. 13 

The Data Brokerage Industry 

The data brokerage industry is a relatively new industry. The 

technological advances of the past decade have paved the way 

for new kinds of companies such as ChoicePoint and Lexis 

Nexis, a rival firm, to exist. Through the increased power of 

computers, lowered costs of data storage, and the ever 

increasing speed of the Internet, these companies are able to 

aggregate, store, and retrieve large amounts of information in 

a quick manner. The information collected by these firms 

range from as detailed as someone’s social security number, 

driving, criminal, and credit records to as general as one’s 


college alma mater. 14 However, for a business opportunity to 

exist for these firms there must be customers who would like 

to purchase this information. 

Fortunately for data-brokers, there are more than enough 

potential businesses and governmental agencies that would 

like to get their hands on such data. Businesses use 

information such as criminal records and social security 

numbers to help in wise hiring decisions and credit reports 

are used when contemplating whether or not to grant credit. 

Governmental and law enforcement agencies rely on data 

brokers to compile and use information to solve crimes and 

protect the nation from terrorists. Data brokers are able to 

provide the agencies with information that would otherwise 

be non accessible due to several privacy laws that restrict the 

government’s ability to obtain personal information. 15 

Technology breakthroughs and large customer bases have 

allowed data brokers to experience large profits and growth, a 

trend that is likely to continue in the future. Today the data 

brokerage stands as a 5 billion dollar industry. 16 

Current Regulation 

The data brokerage industry is, more or less, unregulated. 

There are certain laws such as the Fair Credit Reporting Act 

(FCRA) which regulates companies that issue consumer 

credit reports but their main objective is to make sure credit 

reports are not distributed for marketing purposes. 17 In 1997, 

the Federal Trade Commission issued a set of principles for 

data brokerage firms in an effort to set up acceptable best 

practices for the industry. Nevertheless, these principles 

mostly deal with certain types of information not to be used 

for marketing purposes. California disclosure law, Senate Bill 

1386, is the only law of its kind that requires data brokers like 

ChoicePoint to report any potential release of their personally 

identifiable information. 18 Any other federal or state 

disclosure laws regarding breaches of data security are limited 

to certain types of businesses such as financial institutions. 19 

Privacy and Identity Theft in 

Today’s High Tech World 

Individual privacy today is at an all time low. The 

technological advances of the computer and Internet have 

allowed for virtually anyone to collect data on people. 

Internet companies have devised ways to track internet users 

as they travel through the internet (devices known as 

cookies), grocery stores issue discount cards that track what 

people buy and when they buy it, and federal and state 

governments have put an increasingly amount of public 

information on the internet. 20

Arguments can be made on both sides of the issue. The quick 

accessibility of information on the Internet in many cases has 

allowed for an easier and more efficient lifestyle. Businesses 

that track our buying behavior are more capable of pointing 

us in the direction of other items we may want and often 

offer us discounts on frequently purchased products. And as 

more records are put online by government the faster we can 

get a hold of duplicate records such as birth certificates and 

voter registration cards when we need them. Companies like 

ChoicePoint have provided many benefits to society as they 

have actively participated in finding many abducted children, 

have helped track down numerous deadbeat dads, and have 

provided information to law enforcement agencies that has 

led to the arrest of criminals. 21 

On the other hand, privacy advocacy groups such as Privacy 

Rights Clearinghouse point out that this enhanced 

accessibility to personal information makes us vulnerable to 

not only identity theft but also incorrect data profiles. One of 

the biggest problems with aggregating information from a 

variety of sources is errors and omissions in the data. These 

mistakes and holes in someone’s profile create opportunity 

for misunderstandings between the party using the 

information and the individual that is portrayed. This can 

especially be a problem when the incorrect profiles are used 

in the hiring and credit granting decisions, as the individual 

does not get a chance to review their information. Privacy 

Rights Clearinghouse quotes The Unwanted Gaze: The 

Destruction of Privacy in America by Jeffrey Rosen. 

“Privacy protects us from being misdefined and judged 

out of context in a world of short attention spans, a 

world in which information can easily be confused with 

knowledge.” 22 

One thing known for sure is that personal information that 

gets into the hands of the wrong people can prove harmful to 

both our pocket books and our reputations. Identity theft is 

one of the fastest growing crimes in the United States. 

According to a Federal Bureau of Investigation report, in 

upwards of 900,000 people are victims of credit theft in this 

nation each year. 23 At an average cost of $1,000 for victims to 

repair the destruction done by identity theft, this delinquency 

is costly to the individual and at an average cost to financial 

institutions of $6,767 per crime, it puts a toll on the 

economy. 24 To make matters worse, a survey done by The 

Privacy Rights Clearinghouse showed that 12% of identity 

theft victims suffered damage done to their good names and 

were left with unjust criminal records due to the thieves’ 

activity. 25 


ChoicePoint’s Actions 

A public announcement by ChoicePoint is inevitable. With 

the arrest of one of the identity thieves, the LASD’s 

investigations will begin to wrap up soon. Whether 

instructions were to start disclosing the security breach in 

November or January, it remains clear that at some point 

ChoicePoint will have to go public with the problem. How 

should ChoicePoint come out with the information? Should 

ChoicePoint inform only those Californians that may be 

affected by the breach? Which individuals or groups should 

ChoicePoint be concerned with as they make the 

announcement? What changes, if any, should ChoicePoint 

make in the future? As they get closer and closer to the public 

announcement, these questions and more will have to be 

answered by James Lee and the communications team at 

ChoicePoint. 

Public Disclosure, Finally 

On February 14, 2005, ChoicePoint, Inc., the Alpharetta, Ga.based 

data collection giant who suffered a security breach in 

late September of 2004, finally disclosed the problem to the 

public. As letters were sent out, by law, to the 35,000 

California residents who were potential victims of identity 

theft, ChoicePoint made the internal decision to also send 

letters of notification to 110,000 additional Americans who 

were potential victims. Of the 145,000 potential victims, 

authorities were certain that at least 750 had become victims 

of identity theft. 26 ChoicePoint was not required by law to 

notify the potential victims in the other 49 states, but it made 

the internal decision to do so because ChoicePoint knew that 

the moment the California letters were sent out the spotlight 

was going to turn quickly and brightly to every aspect of their 

operations for the foreseeable future. And ChoicePoint was 

right. Public disgust, media fire, and, as a result of the two, 

heat from legislators are now just a few of the very difficult 

obstacles facing ChoicePoint as the debate over privacy 

becomes a central issue in American society and American 

politics. 

What Went Wrong Inside ChoicePoint 

More than fifty phony businesses were created by identity 

thefts to exploit ChoicePoint’s systems and commit identity 

theft. Posing as legitimate insurance agencies, check-cashing 

companies, and other outfits that would have normally been 

allowed to subscribe to ChoicePoint’s services, the identity 

thefts gained access to the 19 billion data files that 

ChoicePoint has complied in its databases. 27 Once inside a 

thief has access to seemingly endless amounts of personal 

information on nearly every American adult. Current and 

former addresses, credit information, employment history, 

31

32 

motor vehicle records, police and criminal records, assets and 

property, insurance claims, and family history make up just a 

portion of the list of information that can literally be pulled 

up in minutes for anyone with access to ChoicePoint’s files. 

Mark Noeldner, a leading banking professional in the South 

Bend, IN area and an adjunct professor at the University of 

Notre Dame states, “There is virtually no limit to the amount 

of personal information that you can gather about other 

individuals if you subscribe to one of the data brokers.” 28 

Clearly, access to such personal information would not make 

it a difficult task for a criminal to steal an individual’s identity 

and create fraudulent bank accounts and credit cards, 

robbing individuals of thousands of dollars. 

But ChoicePoint is Good for America 

Chairman and CEO of ChoicePoint, Derek Smith, the 

charismatic, 50-year-old company founder, privacy expert, 

and author of books on how to protect one’s family from 

identity theft in today’s high-technology world, has his and 

ChoicePoint’s reputation, entirely at stake. Building 

ChoicePoint over the last 8 years – spinning off a small unit 

of Equifax that stored information to help insurers and banks 

tell if customers were creditworthy – Smith, along with 

friend, colleague, and ChoicePoint President and COO, Doug 

Curling, crafted an image for ChoicePoint and a message 

about privacy that both centered around the fact that 

broadening the ability to check backgrounds can reduce 

crime and make the U.S. economy more efficient. “The way 

to protect society is to restore the very best of small-town 

life,” Derek Smith wrote in “Risk Revolution,” which was 

published in July 2004, just a couple months before the 

security breach at ChoicePoint. He continued, “Technology, 

responsibly used…can rekindle the sense of community, 

security, and safety.” In a March 2005 interview, Derek Smith 

further emphasized the importance of ChoicePoint and other 

data collection firms, warning of the problem today “that 

Americans have more and more relationships with people we 

know less and less about.” 29 Identity theft through a security 

breach at Smith’s own firm certainly calls into question just 

how “beneficial” or “good for America” such easy access to so 

much personal information is for families and individuals 

across America. 


Not a Rotten Apple, But a Rotten Barrel 

“We’re going to see this over and over. This is not about a 

rotten apple. It’s about a rotten barrel. And it’s only because 

of California’s law that we’re beginning to see it and smell it,” 

says Chris Jay Hoofnagle, associate director of the Electronic 

Privacy Information Center, a digital-rights group in 

Washington D.C. 30 Such are the claims made by many privacy 

activists as more and more security breaches at massive data 

collectors result in identity theft for innocent Americans. 

Only in the last decade have credit reporting agencies that 

cater to specific clients, like banks or potential employers, 

been surpassed by firms like ChoicePoint and Lexus-Nexus 

that are essentially one-stop shops for nearly any party that 

needs and is able to purchase the endless amounts of 

consumer information. As the data collection industry grew 

exponentially, with firms like ChoicePoint completing 60+ 

acquisitions in the last seven years, regulations have not been 

put in place at the same speed to protect all parties involved, 

particularly American consumers. Quite simply, it was not 

entirely possible to foresee how much information these 

firms were collecting and, even if that was possible, to see 

what problems could arise from the emergence of these firms. 

Public Attitude Turns Sour 

Clearly, as the firms have grown in both breadth and depth, 

individuals, like Hoofnagle, and groups, like the Electronic 

Privacy Information Center, have been calling for some rules 

to govern these new-age firms. Hoofnagle points out a 

seemingly obvious, but still very important fact, that the 

sheer size and scope of what the data brokers are able to offer 

is largely unknown to many of the ordinary consumers whose 

information these firms buy and sell. He makes another 

strong point about the likely reaction of the American 

consumer, “When individuals understand the amount and 

detail in the information that these companies are selling, 

their attitudes are likely to sour.” Attitudes have soured, as 

evidenced by a class-action lawsuit led by Eileen Goldberg, 

one of the recipients of the 34,000 letters ChoicePoint sent 

out to California residents on February 14th, 2005, and the 

increased pressure on legislators and regulators to take action 

concerning the data collection firms and the security 

breaches. 31

ChoicePoint as Poster Child 

As Steve Harris, former Senior Vice President for Corporate 

Communication at General Motors noted, the data collection 

security breach is “not a ChoicePoint specific issue, it’s an 

industry issue”, but “ChoicePoint has become the poster child 

for the issue.” 32 With the security breach and identity theft at 

ChoicePoint being covered tirelessly by the media, 

ChoicePoint faces difficult Corporate Communication issues. 

Moving forward, ChoicePoint must convince the public and 

regulators that increased security measures and new 

regulation will prevent such theft from happening again and 

that, in fact, massive data collection firms do bring more 

benefit to society than they do harm. 

Stock Plummets 

Prior to the public disclosure of the security breach, 

ChoicePoint shares were trading, on February 4, at the 

company’s 52-week high of $47.95. Following the release of 

the news of possible identity theft on February 14, 2005, the 

stock plummeted over the next three weeks from $45.49 on 

February 14 to $37.97 on March 8, a decline of nearly 17%. 33 

Fueled by the fact that at least 750 cases of identity theft were 

confirmed on February 14 and that, according to testimony 

from L.A. County Sheriff’s Department Detective Duane 

Decker, the personal information of as many as 4 million 

people could have been downloaded, this sharp decline 

indicates that ChoicePoint needs to act fast to reassure 

investors, the public, regulators, and all potential victims that 

the problem can be resolved and that the firm can rebound 

strongly from the problem that ChoicePoint spokesman 

James Lee says, “We never saw getting this big.” 34 


Didn’t Know Until January 

Another alarming issue for ChoicePoint as a whole, but also 

personally for executives Smith and Curling, concerns the 

millions in stock sales, specifically $16 million in profits, 

made by the two executives in the three month period leading 

up to the public disclosure of the security breach. On 

October 26, the day before the sting operation to catch 

Olatunji Oluwatosin, the only member of the identity theft 

ring caught to date, Smith and Curling cleared large 

prearranged stock sales with ChoicePoint directors. 35 Set in 

motion shortly thereafter, the stock sale programs were set to 

last six months and would result in Smith selling up to 11% 

of his stake in the company and Curling 13% of his stake. 36 

Halted in March, the two executive stock sale programs have 

come under very close investigation by the Securities and 

Exchange Commission. Millions of dollars of stock sales 

prior to the announcement of guaranteed negative news 

certainly provides grounds for investigation, although Smith 

has said that the two executives did not know about the 

October database breach until January. The SEC will 

certainly investigate Smith’s claims in depth, and in the 

meantime, ChoicePoint’s Corporate Communications team 

must be prepared to tackle the very probing, challenging 

questions that will inevitably come its way concerning the 

stock sales. 

Corporate Communication 

Issues Moving Forward 

ChoicePoint’s Corporate Communication team has very 

complex issues lying ahead in dealing with an alarmed public, 

an outraged victims pool, a prying media, and a ready-to-act 

legislature. ChoicePoint is in the limelight and has every 

opportunity to turn all the negative occurrences into positive 

lessons learned that could solidify the firm’s place and 

importance in American society. On the other hand, 

ChoicePoint has every opportunity to lose complete control 

of the situation, make excuses, point fingers, and crash and 

burn in a corporate era filled by scandal, mistrust, and 

corporate malfeasance. ChoicePoint’s future will be 

predicted by the ability of the firm’s current and future 

Corporate Communications department to respond 

effectively and accurately to the many challenging questions 

ahead concerning the security breach, proper future 

legislation and regulation, internal security controls, 

executive stock sales, and future business strategy. 

33

34 

REFERENCES 

1. Gasparino, Charles and Kathryn Williams. “When Secrets Get Out,” Newsweek. 

March 14, 2005. 

2. Sullivan Bob. “Data Theft Affects 145,000 Nationwide,” MSNBC. February 18, 2005. 

3. Gasparino, Charles and Kathryn Williams. “When Secrets Get Out,” Newsweek. 

March 14, 2005. 

4. Weber, Harry R. “ChoicePoint’s top two execs sold shares before breach made 

public,” Associated Press. February 25, 2005. 

5. http://www.choicepoint.com/about/overview.html 

6. O’Harrow Jr., Robert. “ChoicePoint finds wealth in information,” The Washington 

Post. January 20, 2005. 

7http://www.choicepoint.com/choicepoint/news.nsf/1e81a178107b63b18525687f00549 

3a7/e865631fe8b8db338525 6f94007b77cb?OpenDocument 

8. Interview with James Lee, Chief Marketing Officer at ChoicePoint Inc., April 18, 

2005. 

9. Interview with Steve Harris, former Vice President of Communications at General 

Motors Inc., April 11, 2005. 

10. http://www.amazon.com/exec/obidos/search-handle-url/index=books&fieldauthor=Derek%20Smith/104- 

0206806-9081573 

11. http://choicepoint.com/about/senior.html 

12. http://ceoleadership.com/institute/director_bio/smith.html 

13. http://choicepoint.com/about/senior.html 

14. Baker, William B. “What You Need to Know About ChoicePoint,” Privacy in Focus. 

March 2005. 

15. O’Harrow Jr., Robert. “ ChoicePoint finds wealth in information,” The Washington 

Post. January 20, 2005. 

16. Rigby, Bill and Theo Kolker. “Continuing and Growing Consumer Fraud,” TBR 

News. April 12, 2005. 


March 2005. 

18. “The ChoicePoint incident” Red Herring. February 23, 2005. 



March 2005. 

20. http://www.privacyrights.org/ar/Privacy-IssuesList.htm#F 


Motors Inc. April 11, 2005. 

22. Rosen, Jeffrey. The Unwanted Gaze: The Destruction of Privacy in America. Vintage, 

June 

23. http://www.fbi.gov/publications/leb/2002/june2002/june02leb.htm 

24. http://www.identity-theft-protection.com/stats.html 

25. http://www.privacyrights.org/ar/Privacy-IssuesList.htm#F 

26. Zeller Jr, Tom. “ChoicePoint Suffers Fall in Share Price,” The New York Times. 

February 23, 2005. 

27. Holland, Jesse J “Senate Panel to Discuss Identity Thefts,” Associated Press, February 

25, 2005. 

28. Interview with Mark Noeldner, local banking professional in South Bend, IN and 

adjunct professor at the University of Notre Dame April 22, 2005. 

29. Perez, Evan and Rick Brooks “For ChoicePoint, a theft lays bare the downside,” The 

Wall Street Journal. May 3, 2005. 

30. Zeller Jr, Tom. “ChoicePoint Suffers Fall in Share Price,” The New York Times. 

February 24, 2005. 

31. Zetter, Kim “California Woman Sues ChoicePoint,” Wired. February 24, 2005. 


Motors Inc April 11, 2005. 

33. Yahoo! Finance Historical Prices, CPS, ChoicePoint. 

34. Interview with James Lee, Chief Marketing Officer at ChoicePoint Inc April 18, 

2005. 

35. Sullivan, Bob “ Data Theft Affects 145,000 Nationwide” MSNBC. February 18, 

2005. 

36. Perez, Evan and Rick Brooks “For ChoicePoint, a theft lays bare the downside,” The 

Wall Street Journal. May 3, 2005.

third place 

David Lee, Julie Ratliff 

Faculty Adviser: James O’Rourke 

Mendoza College of Business 


Citigroup: 

Restoring Ethics and Image Before Growth 

Charles Prince, CEO of Citigroup, is facing a daunting 

challenge as the head of the largest financial services 

organization in world. He has joined a company that has 

experienced significant regulatory scrutiny and that has been 

linked to the biggest scandals in corporate history. 

Unfortunately for Prince, the problems are pervasive 

throughout most of Citigroup’s diverse service offerings. 

In March 2005, Prince announced his strategy to transform 

the financial giant and to provide a new direction for the 

future. He called it the “Five Point Ethics Plan” to: improve 

training, enhance focus on talent and development, balance 

performance appraisals and compensation, improve 

communications, and strengthen controls. Due to the size 

and complexity of the organization, there were significant 

unresolved questions. How could the plan be effectively 

revealed? Would the plan be strong enough to change the 

culture of the entire organization? How should the corporate 

communications department handle both the initial and 

long-term communication of this plan to major stakeholders? 

About Citigroup 

Incorporated in 1998, Citigroup Inc. is a diversified global 

financial services holding company providing services to 

consumer and corporate customers. The company has 

approximately 141,000 full-time and 7,000 part-time 

employees in the United States and 146,000 full-time 

employees in more than 100 countries outside the United 

States. All of Citigroup’s services can be grouped in 3 main 

areas: Global Consumer, Corporate and Investment Banking, 

and Global Wealth Management. Citigroup also has two 

stand-alone businesses, Citigroup Asset Management and 

Citigroup Alternative Investments. Global Consumer Group 

was 72% of income in 2004, with Investment Banking 

coming in second at 13%. 1 

The Citigroup umbrella covers several brands including 

Citibank, Citifinancial, Citistreet, Citi, Primerica, Banamex, 

and Solomon Smith Barney (SSB). Citigroup has a 200 year 


old legacy of innovation and achievement. The City Bank of 

New York is Citigroup’s earliest ancestor, establishing a credit 

union for merchant-owners in 1812. Many of the rest of 

Citigroup’s ancestors originated in the late 19th century, 

including Travelers, Smith Barney, Bank Hadlowly, and 

Banamex. In the 20th century, acquisitions included IBC, 

Salomon Brothers, and The Associates. Sandy Weill, former 

CEO, was recognized as bringing it all together under the one 

red umbrella of Citigroup in 1998. 2 

Sandy Weill: The Man Who 

Shattered the Glass-Steagall 

“Everything about Weill is big, including his ambition” 

Charles Gasparino, Blood on the Street 

Congress passed the Glass-Steagall Act in 1933, which 

established what was known as the Chinese Wall between 

commercial banking and investment banking. That same 

year, the man who would influence the repeal of that act in 

1999 was born. Sandy Weill later became one of Wall Street’s 

most influential men as the Citigroup CEO in 1998. He ran 

the one-stop financial supermarket until 2003. 3 

In the 1960s, Weill grew Shearson Loeb Rhodes brokerage 

from a mid-sized business into an empire that he sold to 

American Express Corporation in 1981. After being bounced 

from Amex, he had one of the most notable comebacks on 

Wall Street. He merged his insurance company, The 

Traveler’s Group, with the Salomon Smith Barney brokerage 

and the Citicorp banking empire. This merger made Weill a 

very rich and powerful man, but the fame also brought a lot 

of negative publicity. During Weill’s era as CEO, Citigroup 

was associated with numerous corporate scandals, regulatory 

investigations and legal settlements. 

In an interview with the New York Times on September 11, 

2005, Weill still defended what he built, saying “I don’t think 

it’s too big to manage or govern at all. I’m sure there would 

have been things that would have been tweaked this way or 

35

36 

that way, but when you look at the results of what happened, 

you have to say it was a great success.” 

Charles Prince became the next Citigroup CEO after Weill. 

His advice for Prince, “Don’t screw (the legacy) up.” 4 

Charles Prince – Maintaining the Legacy 

Charles Prince became the chief executive officer with 

Citigroup in 2003 and has been an employee with the 

company for 24 years. He began his career in 1975 as an 

attorney with U.S. Steel Corporation. In 1979 he joined 

Commercial Credit Company, which Sandy Weill took over in 

1986. At that point, Prince became what Fortune’s Carol 

Loomis called, “an absolute Weill loyalist, who has promptly 

accepted whatever assignments Sandy has wanted him to take 

on.” 5 He served as main counsel until 2003, when Weill chose 

him as CEO. Since 2003, Prince has been a fireman, cleaning 

up the scandals and improprieties that have been building 

since the late 1990s. Much of that cleaning has meant 

removing companies and executives that helped build Weill’s 

legacy, including the sale of Traveler’s Insurance. 

Prince has been described as “a smart, logical thinker who’s 

big in frame, in laugh, and in capacity for work.” One longtime 

analyst notes, “I believe that non-charismatic Prince is 

going to be a more positive force at Citigroup than the other 

three charismatic CEOs going back to the 1960s.” 6 

Distributing Biased Research 

In 2001, the Office of New York State Attorney General Eliot 

Spitzer began an investigation into possible conflict of 

interest problems with Citigroup’s investment banking 

practice. This joint investigation between state and federal 

regulators was resolved and settled in April 2003. In addition 

to payment of $400 million, Solomon Smith Barney (SSB) 

was required to adopt a series of reforms and measures. This 

payment was larger than any other financial institution 

included in the investigation. The financial impact is even 

larger due to additional private litigation arising from the 

settlement. Citigroup took a $1.5 billion charge primarily for 

litigation reserves in the quarter of the findings. 7 

There were multiple findings from the investigation 

concerning Citigroup’s internal operating practices and 

communications with clients. The investigation found that 

the research analysis and correlating ratings were not 

performed with independence and integrity. SSB business 

practices encouraged research analysts to provide favorable 

coverage of companies that were also investment banking 

clients. A portion of each analyst’s compensation was based 

on revenues from the investment banking unit and 


investment banking evaluations. The investigation found 

incidents of fraudulent and misleading research reports. SSB 

also practiced spinning activities that allocated lucrative 

shares of IPO stocks to executives at investment banking 

clients. 8 

One of the most notable reforms required as part of the 

settlement was to separate the investment banking operations 

from the research operations of the company. Senior 

investment banking executives working for a client were 

forbidden from directly communicating with the research 

analysts covering the same client. The reforms also required 

the CEO of SSB’s research unit to periodically report to the 

Citigroup board of directors concerning the quality and 

independence of the research products. 

The Star Telecom Analyst 

Jack Grubman was a notorious telecommunications analyst 

for Solomon Smith Barney. He touted his relationships 

throughout the industry and earned an estimated $20 million 

per year. In 10 different deals, he helped SSB earn $24 million 

in fees from investment banking with WinStar 

Communications. 9 

In January 2001, Grubman assigned a $50 price target and 

classified WinStar with a “Buy” rating. With the stock 

subsequently trading at $13, Grubman’s assistant e-mailed a 

large investor stating, “Buy here and sell in the low $20’s.” 

However, Grubman did not change his price target or rating 

in public. In fact, he maintained the status quo even when 

WinStar shares were trading at less than one dollar and the 

company was on the eve of bankruptcy. He later noted in email, 

“we support our banking clients too well and for too 

long.” 10 

The National Association of Securities Dealers alleged that 

SSB’s research was materially misleading after investigating 

the WinStar incident. SSB agreed to pay $5 million to settle 

the charges. 

Deceptive Lending Practices 

Citigroup acquired Associates First Capital Corporation and 

Associates Corporation of North America in November 2000. 

They subsequently merged the acquired entity into the 

Citifinancial Credit Company division. The Associates were 

one of the nation’s largest subprime lenders. Subprime 

lending serves borrowers who cannot obtain credit in the 

prime market. The loans carry higher costs due to the 

additional risk taken by the lender and are frequently held by 

low-income families.

In March 2001, the Federal Trade Commission filed suit 

against Associates for deceptively inducing consumers to 

refinance existing debts into home loans with high interest 

rates and fees. They also alleged that Associates tricked 

borrowers into purchasing high cost credit insurance without 

their knowledge. In some cases, the fees were included in 

monthly payments and added thousands of dollars in 

additional cost. When consumers noticed the fees, the 

employees of Associates employed various tactics to 

discourage them from removing the insurance. The FTC 

described the activities as, “systematic and widespread 

deceptive and abusing lending practices.” The result was the 

largest consumer protection settlement in FTC history and 

required Citigroup to pay $215 million. 11 

Helping Enron Corporation Commit Fraud 

On December 2, 2001, Enron filed for bankruptcy protection 

from its creditors. Investors later found that the company 

used highly complex special purpose entities and 

partnerships to keep $500 million off of the consolidated 

balance sheet and to mask significant deficiencies in cash 

flow. Citigroup was one of the financial institutions that 

helped Enron design these transactions. 

The Securities and Exchange Commission initiated 

enforcement proceedings with Citigroup for assisting Enron 

in producing misleading financial statements. The 

Commission alleged that loans to Enron were disguised as 

commodity trades. The transactions were essentially loans 

because they eliminated the commodity price risk. Under 

these transactions, commodity price risk was passed from 

Enron to Citigroup and back to Enron. Without regard for 

the change in price of the underlying commodity, Enron was 

required to make repayments of principal and interest. The 

commission also alleged that Citigroup helped Enron design 

transactions that transferred cash flow from financing into 

cash flow from operations. There was further evidence of 

similar deceptive transactions with Dynegy. Citigroup agreed 

to pay $120 million to settle the allegations that it helped 

Enron and Dynegy commit fraud. 12 

Spinning WorldCom Executives 

In May 2004, Citigroup agreed to pay $2.65 billion to settle 

class action suits related its role in the collapse of WorldCom. 

Plaintiffs in the suit alleged that SSB wrongfully provided 

favorable ratings on the company. Telecom analyst, Jack 

Grubman, provided the coverage. WorldCom was not 

downgraded to “neutral” until WorldCom lost 90% of its 

value. The U.S. House of Representatives Financial Services 

Committee additionally found that Grubman warned 


WorldCom executives, in advance of public disclosure, that 

Citigroup was dropping the stock from the recommended list. 13 

A former U.S. Attorney General appointed examiner alleged 

that Bernard Ebbers, WorldCom’s chief executive officer, 

violated his fiduciary duties by passing over $100 million of 

investment banking business to SSB in exchange for 

allotments of IPO stock shares. Ebbers was the chief 

executive during the time when massive accounting fraud 

and questionable personal loans were discovered. WorldCom 

subsequently restated earnings by $17.1 billion in 2001 and 

$53.1 billion in 2000. 14 

The End of Japanese Private Banking 

Citigroup is the largest and oldest foreign-owned bank in 

Japan. The history of their operations dates back to 1902. The 

operations in Japan are some of the largest outside of the U.S. 

for Citigroup. Bank officials at Japan’s Financial Services 

Agency began investigating Citigroup transactions linked to 

money laundering, as well as loans that were used to 

manipulate publicly traded stocks. The FSA warned 

Citigroup in 2001, but little corrective action was performed. 

In December 2004, Citigroup was handed the damaging news 

that the FSA would terminate all private banking operations 

in Japan. This included a requirement to close over five 

thousand bank accounts. The FSA cited the corporate culture 

and governance for the infractions. Citigroup executives 

blamed the problem on the unclear reporting structure for 

key executives in Japan. Heads of divisions reported to 

different bosses in New York. In addition to the lost earnings, 

the closing of the bank accounts represents a challenging 

blow to Citigroup’s image in Japan and threatens the consumer 

and corporate banking units still operating in the country. 15 

Financial Effects of the Corporate Scandals 

By the end of 2002, the effects of the various allegations were 

weighing heavily on Citigroup. The SEC, FTC, NASD, the 

New York State Attorney General and other agencies had 

performed investigations. The reserves set aside for still 

outstanding legal liability grew by billions because of the 

costs of regulatory and private litigation. 

During 2002, the year that many of these issues were 

discovered, the company lost over 30% of its market value. In 

May 2003, Citigroup dropped coverage of 117 firms and fired 

seven of its top analysts. There was an increasing number of 

analyst layoffs up and down Wall Street. J.P. Morgan, 

Goldman Sachs and Morgan Stanley cut up to 25% of their 

research staffs. 16 

37

38 

In 2005, the Federal Reserve publicly announced that it would 

not approve any major Citigroup Mergers and Acquisitions 

until the company resolved these various issues. This unusual 

warning from the Federal Reserve was especially restrictive to 

Citigroup because some analysts believed that big acquisitions 

were the only way to continue the aggressive growth. 17 

Changing Citigroup’s Reputation 

One of the initial steps Prince took to clean up Citigroup was 

hiring Sally Krawcheck as chief financial officer and head of 

strategy. Krawcheck was known at Smith Barney as “The 

Queen of Clean,” and Prince hoped that she would continue 

this trend as Citigroup pushes to clean up its image. 18 

On February 16, 2005, Prince announced his Five Point 

Ethics Plan in a group memo to his employees as part of his 

goal to make Citigroup the world’s most respected financial 

institution. While this is the most important goal Prince gave 

in his public plan, there are other benefits that will, hopefully, 

come with this ethical improvement. Prince hopes to grow 

the consumer and international business, and to make the 

corporate and investment bank the best in its class. 

The four-page ethical document listed a series of initiatives 

that employees would start to see implemented in twelve-toeighteen 

months, beginning March 1, 2005. 

Details of the Five Point Plan 

• Expanded Training. This point is designed to instill an 

appreciation for Citigroup legacy. The ethics program was 

kicked off with a company-wide broadcast of The 

Company We Want To Be to relate the main three 

responsibilities within the company: the responsibility to 

clients, to each other, and to the franchise. Annual 

training the about history and the culture of the Citigroup 

franchise will be required for all levels of management. 

Additionally, all employees will receive Annual 

Ethics/Code of Conduct training. 

• Enhanced Focus on Talent and Development. A new 

initiative will be launched, focusing on flexibility, 360 

degree reviews, manager surveys, and business leadership 

seminars for senior managers. New jobs will be 

communicated and posted internally to encourage those 

with outstanding talent to stay within the company. 


• Balanced Performance Appraisals & Compensation. 

Standardized performance appraisals and evaluations of 

all managers will be conducted annually. All 

compensation for business heads will be based on how 

Citigroup performs, not just how individual managers 

perform. Employees will be paid bonuses on the basis of 

how well they participate in training and ethics program. 

• Improved Communications. Charles Prince 

demonstrated that takes this initiative very seriously, as he 

has traveled around, meeting with and visiting managers 

and employers. Citigroup wants to improve the consistent 

communication of values and goals. Results of any issues 

reported to Ethics Hotline will be discussed, and more 

conferences will be planned for Senior Managers. 

• Strengthened Controls. Such control includes compliance 

training, risk control self-assessments, and the creation of 

the Independent Global Compliance function that will be 

responsible for ensuring Citigroup’s compliance with rules 

and regulations.* 

Prince Hires Administrative Ethics Officer 

Additionally, on September 26, 2005, Lewis B. Kaden joined 

Citigroup as Vice Chairman and Chief Administrative 

Officer. Kaden served as a moderator for the PBS’s Media 

and Society seminar, including the Ethics in America series 

which won a Peabody Award. Kaden was a lawyer from Davis 

Polk & Wadwell, where he handled issues of corporate 

governance, mergers and acquisitions, and advised major 

corporations such as Citigroup on significant issues. Prince 

said of Kaden, “Lew’s deep experience, insight, and integrity 

will be of great value as we pursue our ambitious agenda to 

build the most respected global financial services company. 

We look forward to his contributions.” 19 

Reaction to the Plan 

“Ethics is something you learn as a child; teaching it doesn’t 

make you an ethical person,” said Prof. Charles Elson, 

director of the Weinburg Center for Corporate Governance at 

the University of Delaware. He did say, however, that “if 

(Prince’s plan) can clarify blurry issues and help instill a 

culture of compliance to a code, I applaud it. But to teach 

ethics to make people ethical, that’s a bit strained.” 20 Elson 

went on to suggest, “The acid test is going to be sort of a notolerance 

policy for ethical violations, not just legal 

violations.... If the company demonstrates to its employees 

that it will not tolerate violations of its code of ethics... then 

you begin to affect a change in culture.” Elson further stated

that Prince’s efforts were a “good start” but that he would 

need to distance himself from former administration that did 

not put compliance first. “Rethinking his board, bringing in 

new blood would be quite helpful,” said Elson. He added that 

Sandy Weill must go, “I think that Mr. Weill’s complete 

retirement from the company would go a long way to 

distance Mr. Prince from the earlier regime.” 21 

The Departure of Weill’s Army 

A few months after Prince’s plan was announced, Robert B. 

Willumstad, Citigroup’s President, COO and Director 

announced that he was going to leave to become a chief 

executive of a public company. Willumstad had a key role in 

creating Citigroup in 1998 with the combination of Travelers 

Group and Citicorp. During his tenure as Chairman and 

CEO of the Global Consumer Group at Citigroup, the 

company witnessed strong profit growth and several 

successful acquisitions. Willumstad worked closely with 

Charles Prince and Sandy Weill for years, and was very 

disappointed when he was not chosen as CEO. 22 

In the same month, Weill stated that he wanted to end his 

contract early, and launch a private-equity fund. There are 

reports that he is frustrated by Prince’s Five Point Plan and 

the Traveler’s Group transaction. One bank analyst stated, 

“Sandy always told me he preferred to fix things as opposed 

to sell them.... I’m sure he hated (the Traveler’s Group) 

sale.” 23 Weill has decided to stay on until April of 2006 due to 

conflicts of interest and information access. 

A month after the announcements about Willumstad and 

Weill, Marjorie Magner announced her plans to leave as well. 

Marjorie was the chairman and chief executive of the Global 

Consumer Group segment of Citigroup. Magner plans to 

pursue a career change outside the financial services 

industry. 24 She was among the highest-ranking women at 

Citigroup, and her group contributed more than half of the 

bank’s income over the last several years. Executives at 

Citigroup knew that Magner disagreed with Prince’s plan and 

major changes. Prince responded to Magner’s announcement 

by saying that she was one of the “legends who built 

Citigroup,” and that he is “most proud” of the people she is 

developing, including her successors. 25 

On a more positive note, Saudi Prince Alwaleed bin Talal, 

Citigroup Inc’s biggest investor, said chief executive Charles 

Prince would need more time to prove himself as head of 

world’s largest financial-services firm. “This company is a 

giant,” Alwaleed said, “You have to give him time to institute his 

culture and way of thinking. I’m backing them all the way.” 26 

Prince’s Response 


Charles Prince said of all these initiatives, “The real question 

is, can we execute it in a way that becomes more embedded? 

The systems are designed to provide sticks. This will all tie to 

how you pay people. People who don’t complete the required 

training, for example, won’t receive bonuses. If we don’t pay 

people the right way, the initiatives risk becoming no more 

than cynical happy-talk.” 27 Prince acknowledged that he has 

to own this program. He said, “If we delegate this to the 

(human-resources) department, it’s not going to work”. 28 

Discussion Questions 

1. Has Citigroup grown too large to enforce corporate 

governance or internal controls? What effect has the 

organization’s size and complexity had on the continued 

problems? 

2. What effect will the new plans have on Citigroup’s 

investors? What can Citigroup do to mitigate negative 

responses? 

3. How can Citigroup continually communicate the 

reformed organizational culture to the public? 

4. How would you react if you were the corporate 

communications officer of a Citigroup competitor? 

5. Do you believe it is possible to enforce an ethics program 

with this or any other organization? 

6. As a corporation communications officer, what would be 

your method to communicate the plan to Citigroup 

employees and inspire change? 

7. Is Prince’s plan sufficient given the magnitude of the 

problems facing Citigroup? 

8. Who are the critical stakeholders? How should Prince 

handle the stakeholders’ responses and concerns? 

39

40 

REFERENCES 

1. Citigroup, “Annual Report 2004,” http://www.citigroup.com 

2. Citigroup, “Annual Report 2004” http://www.citigroup.com 

3vChris Suellentrop, “Sandy Weill, How Citigroup’s CEO rewrote the rules so he could 

live richly,” http://www.slate.msn.com , November 20, 2002. 

4. “Laughing all the way from the bank/Citigroup’s mastermind is still defending his 

grand design,” New York Times, September 11, 2005. 

5. Wikipedia, the Free Encyclopedia Online, “Charles Prince,” 

http://en.wikipedia.org/wiki/Prince 

6. “For Citi, This Prince is a Charm: CEO Chuck Prince is no Sandy Weill when it 

comes to style, and that has proven to be just what the scandal plagued giant needs,” 

BusinessWeek Online, January 28, 2005. 

7. “Spitzer settlement to cost Citigroup $1.3bn”. Financial Times, December 23, 2002. 

8. Office of the New York State Attorney General Eliot Spitzer, “Conflict Probes 

Resolved at Citigroup and Morgan Stanley”. http://www.oag.state.ny.us, April 28, 

2003. 

9. “Solomon Agrees to NASD Fine”, The Asian Wall Street Journal, September 25, 2002. 

10. “Citigroup to pay $5 million fine to NASD to settle charges it issued misleading 

research to protect an investment banking client with a focus on Jack Grubman”, 

CNBC Business Center. September 23, 2002. 

11. Federal Trade Commission, “Citigroup Settles FTC Charges Against the Associates 

Record-Setting $215 Million for Subprime Lending Victims”. http://www.ftc.gov, 

September 19, 2002. 

12. “The Falls of Enron: Citigroup Settles Suit Over Credit Insurance”, Houston 

Chronicle, September 20, 2002. 

13. “WorldCom Files Largest Bankruptcy Ever”, Money, July 22, 2002. 

14. “Citigroup to Pay $2.6 Billion to Settle WorldCom-Related Suit”, TR Daily, May 10, 

2004. 

15. “Citigroup’s Misstep In Japan May Bruise Bank’s Global Image” The Wall Street 

Journal, September 22, 2004. 

16v“Citigroup ceases coverage of 117 firms: Seven analysts fired: Research cutbacks 

mirror rivals’ in wake of Spitzer deal” Financial Post, May 24, 2003. 


17. “US Fed Puts Check On Citigroup Deals” Financial Times, March 17, 2005 

18. “Citigroup swaps top jobs” The Guardian, September 28, 2004. 

* Found online at www.citigroup.com 

19. “Lewis B. Kaden to join Citigroup as Chief Administrative Officer.” Business Wire, 

June 15, 2005. 

20. “Citigroup goes to ethics class” New York Post, February 17, 2005. 

21“Films and Forums teach value of ethics” The Times, March 26, 2005 

22. “Citigroup Announces Departure of Robert B. Willumstad” Business Wire, July 14, 

2005. “Citigroup’s No. 2 Will Leave, Seek a Firm to Lead” Wall Street Journal, July 

15, 2005. 

23. “Frustrations of a Deal-Maker” The New York Times, July 21, 2005. 

24. “Citigroup’s Marjorie Magner to Leave” AP, August 22, 2005. 

25. “Citigroup’s Prince Remakes Empire, As Magner Leaves” Business Week, September 

5, 2005. 

26. “Citigroup’s chief needs time, says Saudi Prince” Calgary Herald, September 7, 

2005. 

27. “Citigroup Works on Its Reputation” Wall Street Journal, February 16, 2005. 

28. “After Scandals, Citigroup Moves to Beef Up Ethics” Wall Street Journal, February 

17, 2005, “Exclusive Interview with Citigroup,” 

http://welcome.corpedia.com/index.php?id=236s=news&c=news August 31, 2005.

Abstract 

WINNING ENTRIES – COMMUNICATIONS/JOURNALISM SCHOOLS 

first place 

Yuliya Melnyk, Moushumi Anand 

Faculty Adviser: María Len-Ríos 

University of Missouri-Columbia 

How the Russian Company Pallet Trucks Used 

Public Relations Strategies to Protect its Business 

and the German Brand Pfaff-silberblau in Russia in 2001 

This case shows how crises can occur in a global economy. It 

describes how two companies, a German manufacturer and 

Russian retailer, partnered to combat a crisis when 

competitors started selling fake copies of the manufacturer’s 

“brand” equipment. Pfaff-silberblau is an established 

international company, headquartered in Germany, that 

manufactures lifting and handling equipment. Pallet Trucks, 

at the time, was its exclusive Russian vendor. 

While it is thought that smaller products such as make-up 

and electronic goods are easier to reproduce as fakes, it is 

assumed that heavy equipment like Jeeps or industrial goods 

cannot be easily duplicated. This case proves otherwise. Fake 

lifting and handling equipment was produced in a Chinese 

factory and sold in Russia under the Pfaff-silberblau brand 

name. As the counterfeit equipment began to cause profit 

losses and decreased consumer confidence in their brands, 

the companies worked together proactively, learned from the 

experience of their predecessors in new markets, and 

protected their brands. Specifically, this case highlights how 

public relations techniques can be used to address brand 

piracy in developing economies and New Independent 

Countries, when legal avenues are not feasible. 

A Short History of Branding 

It is an ancient practice to put markings on products to 

indicate who owned or made an item. For instance, the 

paintings on the walls of the Lascaux Caves in southern 

France contain marks that scholars say indicate ownership. 

These paintings were made 5,000 years ago. Artisans used 

stone seals to indicate the manufacturer, and some found in 

the Middle East date back to 3500 B.C. (Infoplease Web site, 

2005). Not only did the marks indicate quality, but they also 


let people know whom to blame if there was a problem with 

the product. A trademark can be found on the bottom of a 

sandal dated from 200 BC (Barlow & Stewart, 2004, p. 24). 

During the Middle Ages, trade guilds also began using marks 

to indicate who made a specific product. Bell makers were 

among the first to adopt the practice, followed by other 

manufacturers including paper makers. They added 

watermarks so people would know who made a particular 

sheet. 

In 1266, the Bakers Marking Law, which governed the use of 

stamps or pinpricks on loaves of bread, was passed on. It is 

one of the earliest known laws on trademarks. Silversmiths 

were required to mark their products in 1363. Bottle makers 

and manufacturers followed suit, possibly influenced by 

Chinese porcelain, which bore markings indicating origin. 

One of the earliest court cases involving the improper use of 

a trademark occurred in England in 1618. The manufacturer 

of high-quality cloth sued a competitor who produced lowerquality 

cloth, but used the marking reserved for top-quality 

cloth. The case Southern v. How is considered the first case of 

actual trademark infringement. In 1876 England, the Bass 

Red Triangle was the first trademark to be registered 

(Feldwick, 1991, p. 19). 

Trademark Laws in the U.S. 

In the U.S., Thomas Jefferson urged the adoption of laws 

governing trademarks because of a 1791 dispute over sail 

cloth marks. While federal legislation was not forthcoming, 

some states passed their own laws. For instance, in 1842, 

Michigan required marks to indicate the origin of timber. 

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Federal trademark legislation was passed in 1870. Averill 

Paints received a trademark under this law in 1870, making it 

the first modern trademark issued in the United States. 

A trademark includes any word, name, symbol, or device, or 

any combination, used, or intended to be used, in commerce 

to identify and distinguish the goods of one manufacturer or 

seller from goods manufactured or sold by others, and to 

indicate the source of the goods. In short, a trademark is a 

brand name. 

A service mark is any word, name, symbol, device, or any 

combination, used, or intended to be used, in commerce to 

identify and distinguish the services of one provider from 

services provided by others and to indicate the source of the 

services. 

Brand Names Today 

Today a huge body of law has developed around trademarks 

and patents. The number of trade-marked items has 

skyrocketed. The Brand Names Education Foundation 

(BNEF) estimates that the average supermarket carries 45,000 

separate items, most of which are brand names. This figure is 

up from 12,000 to 15,000 items only 10 years ago, an 

indication of the explosive growth in brand names. 

Brand names, which are registered with the government, have 

become an important part of business. Non-brand names, 

known as “generic” products, are usually less expensive. Yet 

brand names remain popular because they offer a guarantee 

of quality that generic products often cannot match. Some 

common household words – aspirin, cellophane, nylon, 

thermos, escalator – all started out as names for specific 

products but gradually became so common that they became 

generic names. 

It is a difficult time for brands nowadays. Premium product 

and service brands are under continuous attack from lowerpriced 

competition (Upshaw, 1995, p. 316). Customers who 

are not informed well enough about quality frequently choose 

the less expensive offer. Both rapid growth in developing 

nations and New Independent States (former USSR) and 

slower growth in developed economies force businesses to 

look for new opportunities in new territories. However, 

publics there realize very quickly that they have many choices 

and become savvy. “A BRAND used to be a promise but as we 

move forward, a brand is a relationship, a living thing,” Kyle 

Shannon, chief creative officer of AGENCY.COM says (Clifton 

& Maughan, 2000, p. 61). Building the relationship becomes 

extremely important nowadays. 


Government Protection and Violation 

The U.S. Patent and Trademark Office, a branch of the 

Department of Commerce, keeps track of patent law. 

Currently, more than 2.3 million separate patents are in 

existence. In 2004, more than 298,000 trademarks came up 

for registration. Despite this, imitations, or counterfeits are 

widespread. The BNEF estimates that counterfeiting is $60 

billion industry worldwide, costing legitimate manufacturers 

130,000 jobs annually. In 2004, a total of 2,900 notices of suits 

for trademarks were filed in various U.S. courts. 

Germany’s economy loses 30 billion euro ($36.20 billion) a 

year due to counterfeited products, patents and design rights, 

according to the German action group against product and 

brand piracy. Global losses were evaluated at 300 billion euro 

($362.04 billion) (German News Digest, June 2005). 

From November 2004 to March 2005 China arrested 419 

suspects for trademark infringement crimes (State Office of 

Intellectual Property Protection). The one-year campaign 

against trademark infringement launched by the Ministry of 

Public Security has led to more than 340 cases involving 100 

million yuan (US $12 million). Of these, 280 cases have been 

closed and 30 million yuan ($3.62 million) of economic 

losses recovered (Chinese News, 2005). 

The anti-piracy campaign, dubbed “Operation Eagle," has 

rooted out 81 major cases. In central China’s Henan province, 

local police smashed five criminal gangs illegally 

manufacturing and selling fake medicine and equipment 

totaling 50 million yuan (US $6 million). Various types of 

commodities were involved in the campaign, ranging from 

fake Toyota, Nissan and Mazda accessories, counterfeit 

Chanel and Boss cosmetics, household electronic appliances, 

medicine, clothing, tobacco, and alcohol. 

Co-Branding 

Co-branding can be a very successful strategy if “the resultant 

entity has a value greater than the value of the component 

parts” (Co-Branding, 1999, p. 9). Co-branding is a term that 

applies to many types of marketing activities involving at 

least two brand names. If the partners are well matched, the 

product or service becomes better and the both brands 

benefit. According to Tom Blackett and Nick Russel, cobranding 

is one type of co-operative arrangements, where 

others might be in the form of promotions, alliances, and 

joint ventures (Co-Branding, 1999, p. 7). Co-branding is 

often used to assist a brand owner entering new markets. For 

example, when Yum! Brands Inc. decided to expand KFC 

restaurants in Russia, it partnered with the Russian chicken 

chain Rostik’s to develop co-branded restaurants (Garber,

2005). There is a special advantage to co-branding for some 

brand owners who would otherwise have a low profile for 

their brand. 

History of Pfaff and Pallet Trucks 

PFAFF SILBERBLAU: (http://www.pfaff-silberblau.de/) 

The company Pfaff has existed since the 19th century. 

For many years it has been famous in the world with its 

sewing, embroidery, over-lock, and quilting machines 

(http://www.pfaff.com/global/). After World War II, a new 

trend of lifting and material handling equipment emerged. 

So, Pfaff branched out into this new business. Today the two 

business lines are completely independent companies (Pfaff 

and Pfaff-silberblau) and have different owners. Heinrich 

Pfaff is the President of Pfaff-silberblau. The plants of the 

company are headquartered in Friedberg / Derching and 

Heilbronn, Germany. According to the company’s official 

Web site, international offices are located in Austria, France, 

Hungary, United Kingdom, The Netherlands, Switzerland, 

and Poland. There are also 44 associated representatives 

around the world. The company also provides repair engineer 

training programs and courses dedicated to demonstrating 

the correct operation of material handling devices, crane 

hoists, and lifting equipment. The company’s regular press 

releases can be downloaded from: http://www.pfaffsilberblau.de/en/presse_frame/. 

PALLET TRUCKS: (http://www.telezhka.ru/) 

“Pallet Trucks” was created in Ekaterinburg, Russia, in 1996. 

It was established not long after business became legal in 

Russia following Perestroika. By September 2001, when the 

crisis occurred, Pallet Trucks had moved its main office to 

Moscow. It had also set up 53 offices all across Russia and 

managed to acquire 27% of the market share in lifting and 

handling equipment (Shchepilova, 2005). The partnership 

with Pfaff-silberblau was finalized in 1999, which gave Pallet 

Trucks exclusive representation of the “Pfaff-silberblau” in 

Russia (Kurdyukov, 2001). Pallet Trucks is the biggest 

company in the lifting and material handling segment in 

Russia, both in terms of the volume of sales and its 

geographic reach. 

Human Resources at Pallet Trucks 

Integral to the company’s business performance was its values 

and emphasis on human resources. Human resources issues 

were considered very important because only if all workers 

do their best can the company’s development be stable. Pallet 

Trucks values its employees highly and invests in their 

development. Each person hired is trained (this western 


technology is still not typical in Russia) in technology driven 

functions. In addition, they study marketing, management 

and advertising techniques. Each new employee has to train 

at one of the branches and study client databases, prices, 

catalogues, negotiation, and delivery. 

The company is setting up a specialized Learning Center for 

employee training. Currently, two employees are pursuing 

MBA degrees and 27 people study at the university. In 

general, 73% of employees have university degrees 

(Shchepilova, 2005). 

All branches of the company are connected via Internet. All 

transactions are sent via the Internet to the corporate office in 

Moscow. Information is analyzed daily. On the basis of such 

analysis, plans are made for new purchases of equipment 

abroad. The company also has the Internet store 

(http://www.telezhka.ru/.) 

Pallet Trucks not only sells the equipment, but also offers 

customer service to its clients. The company has highlyqualified 

personnel who repair the equipment. The delivery is 

free for customers. 

The company is trying to prepare a “brand new store” 

package – to offer all of the equipment necessary for the new 

store in one package, not only a number of different items, as 

was previously typical in Russia. There are two alternatives in 

this process: either cooperate with other companies or 

increase the selection of products. 

Pallet Trucks is the biggest company in Russia in the lifting 

and material-handling segment, both in terms of the volume 

of sales and its geographic reach. 

Western Investments and Economic 

Development in Russia in 2001 

In Russian industry, its trade and public catering sectors 

evoke the most foreign investor interest, drawing in 39.7% 

and 37.1% of investment, respectively (Novecon, 2001). By 

the end of 2001, the country had received $35.6b in foreign 

investments, which had come from 109 countries. 

According to the Russian Ministry of Economic Development 

and Trade, “Russia over the past two years, has overcome the 

severe consequences of the 1998 financial and economic crisis 

(Interfax International, 2001, April 5). The accumulated 

potential of positive trends that developed in the post-crisis 

period, favorable world economic trends, and domestic social 

and economic stability have maintained the upward trend in 

the most important economic indicators. Industry plays a 

deciding role in achieving growth.” 

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The leading foreign investors were Germany with 17.1% of 

total investments, the United States with 15.8%, Cyprus 

with 14.9%, Britain with 10.7%, France with 9.2%, The 

Netherlands with 7.1% and Italy with 4.2%. New 

Independent States invested $32m in the Russian economy 

in 2001, representing 0.23% of the total invested. 

Industry Background: The Main Business 

Models for Selling Lifting and Material 

Handling Equipment in Russia 

Lifting and material handling equipment (used mostly in 

retail stores when delivery occurs) comprises machinery such 

as shifting skates, Kingmate material elevators, etc, most of 

which are imported. Russia imports these from Bulgaria, the 

Czech Republic, Holland, Finland, Italy, Germany, and China. 

Russian companies producing this equipment have a 

comparatively insignificant market share. The size of 

production for lifting and handling equipment is small, but 

the demand is “booming” in the Russian market, especially in 

the retail segment. Current domestic manufacturing in Russia 

produces poor quality equipment, which does not satisfy 

customers who have gotten used to western standards of 

quality. When the equipment is produced legally in China 

under the western brand, western specialists certify the 

factory, and the product has all necessary certificates, for 

example, ISO and others. However, the top managers of the 

major manufacturer “Uralgidravlika” has promised to 

introduce a new model that will include both Russian 

specifications and German details. This model, the manufacturer 

assured, would guarantee high quality at low prices. 

According to Vasiliy Kurdyukov, a journalist from the trade 

magazine Tekhnika dlya sklada (Store Equipment), the most 

traditional lifting and material handling equipment sold in 

Russia is produced in Bulgaria. It is famous, and customers 

were already familiar with it even before business became 

legal in Russia when Perestroika followed 70 years of 

Communism. Colloquially, customers call this kind of heavy 

equipment “bolgarka.” In fact, people do not distinguish 

between different types of brands or products. Every type of 

heavy equipment is termed “bolgarka.” 

At the end of 1990s Bulgarian equipment manufacturers held 

about 30% of the Russia’s market share. The product’s price 

from the Bulgarian factory was $140–180 and it was sold in 

Russia for $320 (Shchepilova, 2005). Thus the profit margins 

were very high. Bulgarian businessmen did not demand predetermined 

prices in the Russian market. 

More than 1,000 items of Bulgarian equipment were sold in 

Russia every month (see Appendix A, Model 1). “Pallet Trax,” 


“TFN,”“Stella-Technik,”“Gortorgsnab,”“RIF,” and “Kartreid” 

were the major sellers of these products (Kurdyukov, 2001). 

There were also many smaller companies that either bought 

from “Pallet Trucks” and other big companies, or directly 

from manufacturers in Bulgaria. The sale of this Bulgarian 

“bolgarka” type of lifting and handling equipment is not as 

profitable as it once was, although the price in Bulgaria 

remains the same. Increased competition from Western 

European manufacturers has caused vendors to drop their 

prices from $320 for equipment to $240. It has now become 

more profitable to sell equipment from other countries. 

However, because customers are used to “bolgarkas,” each 

dealer still offers it among its array of products. 

With the introduction of Western equipment, new business 

models were formed (see Appendix A, Model 2). Western 

companies began partnering with local players to market 

their products in Russia. These local players were their 

exclusive representatives in the territory of Russia. In fact, all 

deals were to be conducted through the local representative. 

For instance, the Russian company “TFN” sells equipment 

exclusively for “Bellet.” Through this joint venture, the local 

representatives earn the largest share in profits. 

In 2000, the German company Pfaff-silberblau introduced its 

products into the Russian market. Within a year and a half, it 

seized a market share equivalent to the early Bulgarian 

equipment manufacturers. It accomplished this by entering 

into a business venture with the Russian company Pallet 

Trucks. At the time, Pallet Trucks had 3 branches in Moscow 

and 26 in other Russian cities and towns. Pallet Trucks was the 

exclusive representative of Pfaff-silberblau (Shchepilova, 

2005). 

In 2002 German executives decided to open the Hubwagen 

und Rader company that became the official representative of 

Pfaff-silberblau in Russia. The German executives continued 

to cooperate with Pallet Trucks, but wanted other 

representatives to sell their product too (Shchepilova, 2005; 

see Appendix A, Model 3). 

Hubwagen und Rader aimed to coordinate the delivery, price 

control, level of service, and other aspects of sale in the 

country. This was to guarantee the same price policy and 

stable development of the brand in Russia. In this third 

model, the company planned to build multiple partnerships 

with Russian sellers, so Pallet Trucks was no longer the 

exclusive representative. 

There was another business model that was being followed in 

Russia, where European companies set up their own regional 

companies in the country (see Appendix A, Model 4). This 

was done by companies such as “BT,”“Jungheinrich,”“Still,”

and “Linde.” These regional companies monitor Russian 

dealers stringently. Therefore, under these arrangements, 

Russian sellers’ profit margins have fallen. The local 

representatives of the parent companies are very active in 

offering their product directly to customers. However, they 

consider only those customers who buy the whole “package” 

of equipment for the huge store or supermarket. In return 

the customers get hefty discounts and special offers. 

Currently, European representatives possess a relatively small 

proportion of the market. However, they are very active and 

are trying to capture the larger, more lucrative customers. 

Pallet Trucks 

Creation of the Business Structure 

The business structure of Pallet Trucks aided it in handling 

the crisis that unfolded in 2001. In 2001, Pallet Trucks had an 

exclusive sales relationship with Pfaff-silberblau to sell its 

lifting and handling equipment in Russia. At the time, the 

business structure of Pallet was created to: 

1. Bring the product closer to customers. New branches of 

Pallet Trucks were set up in cities and towns where many 

new retail outlets were being opened. 

2. Increase sales volume by setting up this extensive network. 

Increasing volume would give the company the 

opportunity to lower prices. In effect, this led the company 

to capture 27% of the market share. 

Crisis 

In September 2001, the young Russian company Pallet Trucks 

(formed in 1996) discovered that the market was flooded 

with fake copies of the lifting and handling equipment of its 

German partner Pfaff-silberblau.Uncertified factories in China 

were producing these machines and small Russian firms were 

selling them at 30% lower prices to Russian customers. 

Pallet Trucks, as a result of its environment scanning, realized 

the Pfaff brand was being pirated after certain firms 

advertised sales of Pfaff-silberblau’s equipment. Pallet Trucks 

was, at the time, the exclusive representative of Pfaffsilberblau 

equipment. It knew very well that the advertised 

equipment was either acquired through dubious means or 

had to be fake. To determine which was the case, 

representatives of Pallet Trucks bought samples of the 

counterfeit equipment to determine its quality. The findings 

of the experts were clear: the equipment was fake. The 

reduced quality of the fake equipment was described in the 

official documents and the information was used at the press 

conference announcing the problem. 


Although it is considered unusual to see counterfeit lifting 

and handling equipment on the market, in practice it turned 

out that production was not difficult to organize in China. 

The Pallet Trucks and Pfaff-silberblau CEOs made the decision 

to use public relations strategies instead of filing lawsuits 

against several Russian firms selling the fake equipment. In 

Russia, the situation is that the official law can take a long 

time to resolve cases and appeals. Even having proof that 

competitors were selling counterfeit equipment might not be 

enough to win the case. Legal cases can be drawn out, are 

expensive, and the outcome not assured. 

The Business Problem 

The immediate problem facing the two partners was profit 

loss. But an even bigger challenge was the blot on their 

reputations. A company’s brand image affords it market 

credibility and quality assurance. Negative word-of-mouth 

about equipment quality was causing serious harm to sales. 

Users of the products were telling potential customers about 

the product’s failure. 

Although we cannot illustrate how the crisis financially 

affected the company, as the Russian stock market is not yet 

formed and profit information is officially confidential, this 

case study is based on the analysis of Russian and German Web 

sites, trade magazines, an interview with Galina Shchepilova, 

the public relations director of Pallet Trucks, Moscow, and 

copies of the corporate newsletter of Pallet Trucks. 

The Main Elements of the PR 

Campaign: The Response 

During the public relations campaign, the main decisions 

were: 1) to respond quickly to the situation at hand; 2) to 

change the attitude of the market participants; 3) to 

successfully segment editors and journalists (trade magazines, 

information agencies, business editions); 4) to invite 

Heinrich Pfaff and Otto Muller to Moscow and organize a 

press conference; 5) to continue to develop a brand image of 

Pallet Trucks after solving the problem. 

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The Main Objectives were: 

1. To let people know that fake products were being sold. 

2. To describe the value of the genuine brand. 

3. To protect the brands and reputations of Pfaff and Pallet 

Trucks. 

To achieve these objectives, the following sequences of events 

unfolded (also see Timeline Table): 

1. Top managers, together with public relations specialists of 

the company “Pallet Trucks,” decided to organize a press 

conference at the fall exhibition in Expo-Centre, Moscow, 

Russia, in November 2001. This is the biggest annual 

exhibition of equipment in Russia. The representatives of 

all serious companies that deal with equipment and 

interested customers attend. The idea to organize the press 

conference about the fake equipment was a new strategy in 

Russia at that time. 

2. The company decided to find partners to jointly enter the 

exhibition. It selected companies that were its indirect 

competitors in the market. It was done in order to create a 

trade group, or non-commercial partnership, in the future. 

Timetable 

Environmental Scanning 

Discovery of Fake Equipment 

Technical Expertise 

Executive Round Table 

Decision to Use PR Strategies 

Press Release Program 

Press-conference in Moscow 

Journalists Visit Germany 

Creation of Non-Commercial Partnership 


3. The President of the German company Pfaff-silberblau 

Heinrich Pfaff arrived at the exhibition and made a 

presentation about the company and its product. 

4. Otto Miller, the main engineer of Pfaff-silberblau with 30 

years of experience, made a presentation at the conference. 

5. A documentary about the product was shown. It included 

information about changes in the product delivered 

specifically to Russia and tailored to Russian needs. 

6. A presentation of the new model of a King-mate material 

elevator was organized. 

7. Partners, potential clients and reporters were invited to the 

presentation. 

8. It was decided to organize a “working presentation” for the 

next exhibition. Representatives of the company would 

demonstrate how different types of equipment operate. 

9. Six Russian journalists were invited to visit the Pfaffsilberblau 

plants, one of the main German exhibitions of 

equipment in Hanover, Germany (Hannover Messe, April, 

2002) and attend the exhibition in Frankfurt, Germany 

(Frankfurt Messe, April, 2002). 

2001 2002 

Sep Oct Nov Dec Jan Feb Mar Apr May Jun

The more specific overall strategies and tactics were: 

1. To transform the attitude of its publics, Pallet Trucks 

invited journalists from different media organizations and 

market participants (customers and non-direct 

competitors) at the trade show. The journalists were 

invited from: 

a. Specialized trade magazines that wrote about lifting and 

handling equipment: Sovremennyi Sklad (Contemporary 

Store), Expert-Oborudovanie (Expert – Equipment), 

Tekhnika dlya Sklada (Technology for the Store). 

b. Information Agencies: e.g., Interfax International. 

c. Business Editions: Kommersant, Vedomosti. 

2. To create its market position. 

a. Participants of the market began to help solidify the 

company’s leadership position. 

b. Further develop integration marketing communication 

capabilities. 

3. To present guest speakers from Germany. Heinrich Pfaff 

and Otto Miller presented the company’s case in Moscow. 

4. To build the image of Pallet Trucks company following the 

crisis. This further led to Pallet Trucks opening subsidiaries 

that manufactured lifting and handling equipment in 

Russia (“Tura”), Poland (“Lema”), and Germany (“Otto 

Kurdbach”). 

5. To create an understanding of its brand so potential 

customers know what the brand stands for, the value it 

provides and “the benefits they can accrue” (Davis & 

Dann, 2002, p. 204). Pallet Trucks achieved this using 

opportunities at exhibitions, trade magazines (magazines 

about lifting and material handling equipment), and 

presentations. 

6. To develop the opportunity for Russian journalists from 

selected segments of media to see the main European 

exhibitions of equipment in Hanover and Frankfurt, 

Germany. 

7. To prepare and plan for future marketplace and industry 

challenges by creating the trade group “Business for 

Business” as a long-term goal. 


Protecting the Future of the Industry: 

Creation of the Trade Group “Business for 

Business” 

To be proactive and address future situations, the top 

managers of Pallet Trucks decided to create a trade group 

(called non-commercial partnerships in Russian) in 

cooperation with two other companies. The goal of the trade 

group is to cooperate with other market participants in order 

to reach non-official agreements and rules on the market 

segment of lifting and handling equipment. 

The “Business for Business” trade group has worked in several 

directions: market research and analysis, educational 

programs, advertising and public relations, organization of 

mutual actions, informational and legal support, lobbying, etc. 

Trade Group Activities 

Market Research and Analysis 

1. Analysis of the market, writing analytical reviews 

including evaluation of market size, selection of product, 

positions of the main players and development of 

perspectives. 

2. Monitoring the advertising activities of the firms working 

in the market segment. 

3. Monitoring articles on market development problems 

published in trade and general interest publications. 

The report on above activities was scheduled monthly in 

cooperation with the magazine Loginfo and the Agency of 

Business Communication. 

Educational Programs 

1. Organization of seminars and training sessions for both 

industry members and the public. 

2. Information support of educational events organized by 

other providers. 

3. Recommendations on the development of qualifications 

for employees of trade group members. 

4. Information support on the new textbooks and a book on 

marketing, management, advertising, human resources, 

etc. 

The report on the above activities was scheduled to be done 

monthly, together with the Agency of the Humanitarian 

Technologies. 

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Advertising and Public Relations 

1. Advertising and PR support of the companies of the 

trade group. 

2. Information support on new directions in advertising, 

prices and condition changes. 

3. Publication of articles about issues related to the market 

segment, with a goal to influence public opinion in general 

and business sector participants in particular. 

4. Design of advertising strategies for firms within the 

trade group. 

5. Participation in the “Brand of the Year,”“Company of the 

Year,”“Golden Businessman” competitions, as well as 

providing information about the contests and preparing 

the application packages of members. 

The report on above activities was scheduled for completion 

every three months in cooperation with the editions 

specialized in lifting and material handling equipment. 

Appendix A Business Sales Models (According to Shchepilova, 2005) 

Model 1. Everybody Who Wants to Sell Sells (“Bulgarian Model”) 1996–1999 


Organization of the Mutual Actions 

1. Participation and cooperation in exhibits, renting 

exhibition space, program design, and participation in 

collateral events (press-conferences, seminars). 

2. Creation and development of databases. 

3. Organization of mutual advertising companies. 

4. Mutual sending of direct mail. 

5. Organization of cross-advertising actions with the 

companies out of the trade group. 

6. Organization of mutual promotions. 

7. Publications of mutual catalogues. 

All events are planned and designed according to the interests 

of the particular companies within the trade. The trade group 

is the organizer and coordinator of mutual actions.

Informational Support 

1. Creation of and information support for the trade group’s 

Web site. 

2. Publication of periodicals about market problems and 

issues. 

3. Information support for specialized exhibitions, new 

editions, advertising services, books, seminars, etc. 

4. Information about partnership members about planned 

company offerings. 

Members of the group receive 50% discount for placing their 

ads in trade group publications or advertising on its Web site. 

Model 2. Manufacturers Partner with 

Exclusive Sales Representatives: 1999–2001 

Legal Support 


1. Brand protection. 

2. Document preparation for the courtroom. 

3. Support new brands and registration of brand symbols 

and licenses. 

The activities were planned in cooperation with the Russian 

legal services “Gorodnitskiy and Co.” 

Lobbying Information 

1. Applications on behalf of the trade group to the official local 

and governmental authorities on company-partners issues. 

2. Participation in the work of other non-profit 

organizations and trade groups discussing issues 

connected with the activities of the group. 

3. Preparation of the necessary documents, analytical review, 

etc., when necessary to explain the activities of the group. 

The activities were connected with Moscow Town Hall, 

Russian Duma, and regional authorities. 

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Consulting 

1. Regular consulting on the issues of: 

• Marketing and advertising 

• Legal support 

• Business planning 

• Accounting and Revenue information 

2. Highly specialized counseling targeting specific enquiries. 

The above activities were scheduled monthly (number two – 

according to the agreements) and in cooperation with 

publications: Glavnyi Bukhgalter (Chief Accountant), 

Konsultant-Plus. 

The outcome in such a situation depends a lot on the public 

relations personalities. During the research of the case we 

conducted the interview with the PR Department Manager of 

Pallet Trucks, Galina Shchepilova. She has working experience 

as Public Relations Department Manager for Interfax 

(Russian news agency), Detskiy Mir (large store chain), 

associate professor at the Moscow University, and owner of a 

consultancy. 

Conclusion 

Model 3. Manufacturers Allow Everybody Who Wants to Sell to Sell, but According to the Rules: Since 2002. 


According to the interview with Artem Virronen, president of 

Pallet Trucks, the company now has 30 to 35 percent of the 

Russian market for lifting and handling equipment. The 

branches of the company are located throughout Russia: 

Moscow, St. Petersburg, Tver’, Yaroslavl’, Ryazan’, Nizhniy 

Novgorod, Voronezh, Saratov, Saransk, Kazan’, Naberezhnye 

Chelny, Izhevsk, Perm’, Tolyatti, Samara, Ufa, Chelyabinsk, 

Kirov, Ekaterinburg, Tyumen’, Barnaul, Kemerovo, 

Kransoyarsk, Irkutsk. Branches in Poland and Germany have 

been opened. According to the interview with Lev Vashchuk, 

director of the Pallet Trucks (Available on the Web site of Pallet 

Trucks), the list of customers includes big store clients such as 

Perekrestok, Komus, Mir, Ramstore, Ashan, Danon, MosMart, 

Pepsi plants, Oriflame, and big Moscow printing services.

Also of note is that The Department of Public Relations and 

Advertising has gained more influence since the crisis. It has 

grown from a staff of just 5 people to 38 in the last four years 

(Shchepilova, 2005), and the attitude of the management 

towards public relations has changed; management no longer 

tells the department what to do to, but listens carefully to 

public relations suggestions. 

The Pallet Trucks company not only addressed the problem 

by using PR techniques but also used the crisis as an 

opportunity to attract new customers. The company is now 

considering participating in the U.S. stock market. 

Model 4. Western Companies Open Offices in Russia. 


Key Takeaway Points 

1. Recognize the value of strategic communications. 

2. Remember that public relations not only creates the brand 

but also protects it, especially when legal avenues are not a 

viable option. 

3. Understand that reputation is a form of property, and it is 

important to keep in mind how “reputational capital” can 

be built. 

4. Keep a crisis plan ready. 

5. Know that problems can be turned into opportunities. 

6. Find experienced partners, especially in a new 

environment. 

7. Consider co-branding with an established company for 

improving your brand’s image as you enter a new market. 

“Public relations is the least often used but potentially most 

powerful communications tool at your disposal,” states Scott 

Davis (Davis, 2000, 165). The case of Pallet Trucks /Pfaffsilberblau 

shows an effective, efficient, and economical way to 

protect the brand. 

51

52 

Appendix B Chart of Activities of the Trade Group “Business for Business” 

(Presented by Galina Shchepilova and translated from Russian by Authors) 

Goals 

Research and 

Analysis of the 

Market 

Educational 

Programs 

Advertising and 

Public relations 

Organization 

of the Mutual 

Actions 

Activities 

1. Analysis of the market: writing analytical reviews including evaluation of 

the size of the market, selection of product, positions of the main players 

and perspectives of development. 

2. Monitoring of the advertising activities of the firms working in the 

segment of the market. 

3. Monitoring of the articles on the problems of the development of the 

market published in the specialized and non-specialized (general 

interest) editions. 

1. Organization of seminars and training “round tables” for both partners 

and the public. 

2. Information support of educational events organized by other providers. 

3. Recommendations on the development of the qualifications of the 

employees of the firms partners. 

4. Information support on the new textbooks and the book on marketing, 

management, advertising, human resources, etc. 

1. Advertising and public relations support trade group members. 

2. Information support on new directions in advertising, prices and 

condition changes. 

3. Publication of articles about problems of the market segment, with a goal 

to influence public opinion in general and segment participants. 

4. Design of the advertising strategies of the firms within the trade group. 

5. Participation in the “Brand of the Year”, “Company of the Year”, “Golden 

Businessman,” competitions providing information about the 

competitions and preparation of the application package. 

1. Participation in organization of the exhibitions, renting the space at the 

exhibitions, design of the program of participation, cooperative events 

(press-conferences, seminars). 

2. Creation and development of databases. 

3. Organization of mutual advertising companies. 

4. Sending sponsored direct mail pieces. 

5. Organization of cross-advertising actions with the companies out of the 

trade group. 

6. Organization of mutual promotions. 

7. Publishing of mutual catalogues. 


Frequency 

Every three months, both in 

paper and electronic versions. 

Every three months, both in 

paper and electronic versions. 

Clippings – once a month. 

Once every three months 

Monthly 

Every three months 


Conducted with the Agency of 

Humanitarian Technologies 

According to the agreement. 



One or two articles a month. 

Cooperation: specialized 

editions. 

All events are planned and 

designed according to the 

interests of the certain 

companies within the 

Partnership. The Partnership is 

the organizer and coordinator of 

mutual actions. 

Cooperation: top managers of 

the specialized exhibitions, 

promotion agencies.

Goals 

Informational 

Support 

Legal Support 

Lobbying 

Consulting 

Activities 

1. Creation and informational support for the group’s Web site. 

2. Publish periodicals about market issues. 

3. Information support of the specialized exhibits, advertising services, 

books, seminars, etc. 

4. Information from trade group members about 

planned tenders. 

1. Brand protection. 

2. Document preparation for the courtroom. 

3. Support of new brand and registration of brand symbols and licenses. 

1. Applications on behalf of trade group to the official local and 

governmental authorities on the issues of the companies-partners. 

2. Participation in the work of other nonprofit organizations and trade 

groups to discuss issues connected with the activities of the group. 

3. Preparation with the necessary documents, analytical reviews, etc., 

when necessary to explain the activities of the group. 

1. Regular consulting on the issues 

• Marketing and advertising 

• Legal support 

• Business planning 

• Accounting and Revenue information 

2. Highly qualified specialized consulting. 

REFERENCES 

Barlow, Janelle and Stewart, Paul. (2004). Branded Customer Service: The New 

Competitive Edge. San Francisco: Berrett-Koehler Publisher, Inc. 

Chinese News (2005). Available from 

http://www1.cei.gov.cn/ce/doc/cep1/200504151438.htm/. 

Clifton, Rita and Maughan, Esther. (2000). The Future of Brands. New York: New York 

University Press. 

Co-Branding: The Science of Alliance. (1999). Ed. Blacket, Tom & Boad, Bob. New York: 

St.Martin’s Press. 

Corporate newsletter of the company Pallet Trucks. 2000-2005. 

Expert oborudovanie. In Russian. Available from http://www.expert.ru/. 

Davis, Scott, M. (2000). Brand Asset Management: Driving Profitable Growth Through 

Your Brands. San Francisco: Jossey-Bass. 

Davis, Scott, M. & Dunn, Michael. (2002). Building the Brand-Driven Business. San 

Francisco: Jossey-Bass. 

Department of Commerce. Available from: http://home.doc.gov/. 

Feldwick, Paul. (1991). Defining a Brand. In: Understanding Brands, ed. by Don Cowley. 

London: Kogan Page. 

Garber, Amy. (2005, July 4). KFC, Russia’s Rostik’s become comrades in wings. Nation’s 

Restaurant News, 39(27), p. 1+. 


Activities 

Daily 

Monthly 

Monthly 

Members of the trade have 

50% discount publishing their 

advertising on the web site and 

in the periodicals. 

The trade group solves 

organizational problems. 

In cooperation with the legal 

services of “Gorodnitskiy and Co” 

If necessary 

Constantly 

If necessary Contacts: Town 

Hall, Duma, regional authorities. 

Monthly 

According to the agreements. 

Cooperation with editions: 

Glavnyi Bukhgalter (Chief 

Accountant), Konsultant-Plus. 

Infoplease Website (2005). Available from 

http://www.infoplease.com/spot/trademarks1.html/. 

Interview with Artem Virronen, President of the Council of Directors of Pallet Trucks. 

In Russian. [cited November 2 2005]. Available from 

http://www.telezhka.ru/news/single/?286/. 

Interview with Galina Shchepilova, Public Relations Director of Pallet Trucks. 

September 26, 2005. Unpublished. 

Interview with Lev Vashchuk, Director of Pallet Trucks. In Russian. [cited November 2 

2005]. Available from http://www.telezhka.ru/news/single/?283/. 

Kurdyukov, Vasiliy. The Main Schemes of the Selling of Lifting and Handling equipment 

in Russia. Tekhnika dlya sklada. October, 2001. 

Pallet Trucks Web Site. Available from http://www.telezhka.ru/. 

Pfaff-silberblau Web Site. Available from: http://www.pfaff-silberblau.de/. 

Russian Economy in 2001. Novecon web site. March 7, 2002. 

Sekret firmy. In Russian. Available from http://www.cfin.ru/press/sf/. 

Sklad i Ttekhnika. Available from http://www.sitmag.ru/. 

U.S. Patent and Trademark Office. Available from: http://www.uspto.gov/. 

Upshaw, Lynn. (1995). Business Brand Identity: A Strategy for Success in a Hostile 

Marketplace. New York: John Wiley & Sons, Inc. 

53

54 

Background 

second place 

Anna Strahs 

Faculty Adviser: Dr. Yan Jin 

School of Mass Communications 

Virginia Commonwealth University 

Court of Public Opinion Points Finger at Wendy’s 

On Tuesday, March 22, it is “business-as-usual” 1 for the 

Wendy’s located on 1405 Monterey Road in San Jose, 

California. A forty-ish looking woman with curly black hair 

orders a cup of chili, and takes a seat to enjoy her dinner. A 

few minutes later, she jumps up screaming and runs to the 

bathroom. She emerges, and proclaims loudly that she has 

just found a human finger in her food. 

On Wednesday, March 23, it is again “business-as-usual” for 

the Wendy’s located on 1405 Monterey Road in San Jose, 

California. Gary Grant, a customer of the Monterey Road 

restaurant, is disappointed. “We come here all the time,’’ 

Grant said. “We just ate here today, and nobody said a thing. 

There were no signs up. How can you trust somebody like 

that? You’re still serving food. Which basically means you 

don’t care.’’ 2 

Fernando Anaya, another Wendy’s customer, was a bit more 

optimistic. He orders a salad, joking, “Where’s the finger at?” 3 

In the following weeks, the “Chili Crisis” unfolded to a court 

of public opinion. 

“#$&!” 

First, health officials hastened to assure the public that “the 

finger had been cooked at a high enough temperature to kill 

any viruses, including hepatitis or HIV, and that it” 4 is very 

unlikely the victim would suffer physical health effects from 

the contamination. Baseline viral testing was recommended 

for the victim, but only to provide for comparison if a foodborne 

illness arose 5. 

After the initial shock, a crazed media began to take on the 

Chili Crisis case. “Woman Bites Off More Than She Can 

Chew,” read the Montreal Gazette, and “Finger Food Leaves 

Diner with Really Bad Taste; Chili Had To Much of A Human 

Touch,” proclaimed the Salt Lake Tribune. 6 


Officials checked Wendy’s employees and all the factories that 

the chili came from to try and locate the owner of the missing 

finger. All employees passed a visual inspection, and within 

days the parent company Wendy’s was able to say that the 

finger did not come from within – it had to have come from 

an outside source. 

But It’s Not Just Wendy’s! 

Other companies have also had to deal with consumer 

tampering. In 1987 two California men carved a finger out of 

tripe, and claimed they ’found’ it in their can of Juanita’s 

Menudo soup. 7 In 2000 it was the “Chicken McNoggin.” A 

woman from Virginia claimed she found a fried chicken head 

in her box of chicken wings from McDonalds. She 

immediately contacted the media and “lawyered up.” 

Although reporters said it looked like it had been fried with 

the other wings, the woman refused to give up the chicken 

head for examination. 8 

There was the “Clam Condom” found in seafood at 

McCormick and Schmick’s seafood restaurant in Irvine, CA; 

and the dead mouse found in vegetable soup at the Cracker 

Barrel. Cracker Barrel had an autopsy performed to discover 

that the mouse had died from skull fracture, not from 

drowning. The woman was arrested and Cracker Barrel 

moved on. 9 

Food tampering is nothing new. So why did the Chili Finger 

consume the media for months? The “Clam Condom” had 

hardly made headlines. Where did Wendy’s go wrong? Other 

companies have dealt with and recovered from product 

tampering without having to lay off any employees. 

In this case, the blame rests entirely on an external party.

Why This Case Matters – A Fast Look at Fast Food 

The chili crisis is interesting from a manager’s perspective 

because it involves factors that are out of a manager’s control. 

Nothing Wendy’s could have done internally would have 

prevented an external factor from tampering with Wendy’s 

product. 

What should Wendy’s have done to assure the public that 

every course of appropriate action had been taken; and that 

the entire incident was a hoax? Perhaps most importantly, 

what actions should management take to handle an 

unforeseen crisis? 

For corporate decision makers, examinations of the above 

questions will shed light on how to optimize crisis 

management decision-making when confronted by 

unexpected external threats so as to communicate with the 

publics in effective and ethical manners. 

Unwrapping the Crisis 

“Where’d that sucker come from?” 

The finger came from a man named Brian Rossiter. 

On December 20, 2004 James Placencia approached Rossiter, 

a co-worker at Lamp Asphalt, who owed him $50 in gambling 

debt. 

The two men discussed the finger that Rossiter had recently 

lost in an industrial accident, and it was agreed that Placencia 

would forgive the debt if Rossiter forked over the finger. 

Three months later, Placencia’s wife, Anna Ayala put the 

finger in her chili and hired a lawyer to sue Wendy’s. What 

followed was a very closely watched public crisis for Wendy’s 

management, employees and customers alike. 

What Once Was, Is No Longer 

Corporate culture and history can be described as “feelings, 

underlying beliefs, values, history, and assumptions about an 

organization.” 10 These traits take root in experiences, stories, 

and behavior patterns. Culture is difficult to develop or 

change, and is important because it “tells people what is and 

is not okay.” 11 

Dave Thomas, Wendy’s founder, recognized the need for 

culture. He “dreamed of building a place where families 

would come together to enjoy delicious meals in a 

comfortable and friendly environment.” 12 He wanted to run 

the best restaurant in the world. He believed that honesty, 


quality, and integrity would help him achieve his dream. He 

believed in this so strongly that he made “Quality is Our 

Recipe” a permanent part of the Wendy’s logo. 13 

Thomas urged others to “do the right thing,” and live life with 

honesty and integrity. Personal integrity, he used to say, was 

the most important value a person could have. 

Thomas became Wendy’s spokesman, and Americans quickly 

came to love him for his down-to-earth, homey style. 14 Over 

800 commercials later, Thomas was one of the nation’s most 

recognizable spokesmen. “Because of his honesty and oldfashioned 

values, Dave emerged from Wendy’s advertising 

campaign as an American folk hero.” 15 

Wendy’s President and CEO Jack Schuessler said, “Dave kept 

reminding us that he was just a hamburger cook.” This 

behind-the-scenes modesty and family oriented atmosphere 

kept Wendy’s at the top, with employees who cared and 

customers to cater to. 16 Thomas passed away in 2002, but his 

legacy lived on. 

Two years later, that same legacy and image of quality and 

sterile reputation was questioned overnight. Just hours after 

Ayala’s claim, the No. 3 burger chain in the country 17 became 

the laughingstock of newspapers and late night TV shows as 

their consumers stopped eating at Wendy’s in disgust. 

Threat Assessment 

Behind the Scenes 

Unable to deal with the drop in business, Wendy’s began to 

lay off their employees. Wendy’s spokesman Denny Lynch 

said that employee hours and wages were cut as stock and 

sales slumped because of the publicity from the event. The 

impact it had on sales caused the decrease in employee hours. 

“It has been devastating. The impact in sales has been 

significant,” he said of the layoffs. 18 

In the Hands of a Critical Public 

Wendy’s had no previous experience in crisis management. 

As a company able to boast a solid and reputable background, 

consumers had flocked to the restaurant with no prior 

problems. This consistent, reliable, and reputable 

organization had no idea how to handle the situation they 

found themselves in. 

“They completely lost sight of the actual crisis,” Crisis 

Manager Steven Fink said. “This is a common mistake for 

companies inexperienced in crisis management. The finger in 

the chili was not the keystone crisis: it was an event that 

55

56 

caused a massive crisis of confidence in the public’s mind 

having to do with the safety and cleanliness and quality of 

Wendy’s food. In short: A crisis of perception. This is why 

sales plummeted by a reported 50 percent. At no time did the 

company take any proactive steps to assure customers that it 

was safe to eat at Wendy’s, nor did it offer up any outside food 

or health experts to speak to the news media on its behalf.” 19 

With no crisis management plan in place in advance, Wendy’s 

was forced to try and muster up an off-the-cuff strategy to 

combat the crisis. 20 

Key Players in the Conflict 

[See Appendixes I and II] 

Although Ayala initiated the crisis, there are others who 

played significant roles in the aftermath of the incident. James 

Placencia, her husband, got the finger from Brian Rossiter, 

who lost the finger in an industrial accident at Lamp Asphalt, 

where the two men worked. 

CEO Jack Schuessler was the main line of communication 

during the incident between the company and the public. 

Other members of Wendy’s were not seen by the public 

during the crisis. 

Of all internal and external players, Anna Ayala and James 

Placencia were the two main figures associated with the crisis. 

Consumers 

Anna Ayala and James Placencia 

Both Anna Ayala and James Placencia have had previous runins 

with the law. Ayala has a history of numerous extortion 

schemes gone awry, and Placencia was a “deadbeat dad” 

behind on his bills and was wanted for owed child support. 

Court, Lawsuits… 

Wendy’s did not file a lawsuit against Placencia and Ayala; nor 

did any other external rights’ or consumers groups. San Jose 

law enforcement took the responsibility of prosecution, as 

that is where the incident occurred. 

Bob Parsons of Hot Points – A blog by Bob Parsons – wrote 

on Sunday, April 24, 2005 that “Ms. Ayala’s false claim 

brought many copycats out of the woodwork…It seems that 

Ms. Ayala’s stunt inspired no less than 20 others…to file 

copycat claims against Wendy’s. Keep in mind that there are 

usually no claims of this nature filed against the chain.” 21 No 

record could be found pertaining to what became of the 

claims. 


Although many blogs and stories surfaced on the Internet’s 

search engines, other than the individual copycat lawsuits, 

there is no record of any general consumer groups that 

attempted legal action. 

COUNT ’EM ON ONE HAND…Wendy’s Troops 

March 23, 2005, the day after the crisis began, CBS, USA 

Today and numerous other news organizations had flooded 

the media with headlines like “Human Finger Found in Fast 

Food Chili” and “Sales drop at Wendy’s.” By the end of 

March, it was “Woman Files Lawsuit Over Finger in Chili.” In 

early April, speculation of who the finger belonged to had 

taken over, and Ayala was accused of planting the finger. She 

began to appear in court the first week of May 2005; by May 

14, 2005 ABC declared, “Police Solve Case of Missing Finger,” 

and CBS announced “Wendy’s Off Hook in Finger Case.” 

This synopsis of media events was perceived and handled 

differently by two other publics – Wendy’s and the legal side 

of the crisis. 

[See Appendix III for a detailed timeline followed headlines 

and events pertinent to the case.] 

Further discussion of players and publics can be found below. 

Public Relations 

“It seemed to take the Wendy’s PR machine forever to gear 

up,” 22 said Doug Albertson, principal of Albertson Consulting 

Group and an Adjunct Marketing Instructor at the University 

of Portland in Portland, Oregon. 

First, Wendy’s investigated the franchise that dished out the 

chili. Then it investigated the surrounding franchises. Then 

it inspected the data logs and time sheets of all the Wendy’s in 

America. “Then they spent countless, precious, agonizing 

days trying to figure out if the finger had been cooked (for 

some reason). All the while, Wendy’s was virtually silent.” 23 

Legal 

When asked, “What will you do about the woman in 

question?” Wendy’s CEO Jack Schuessler explains, “It’s not 

we who are going to prosecute; it’s going to be San Jose 

(Calif.). So we’ll let the courts take over and let American 

justice take place.” 25 

Marketing 

The marketing committee has not been reviewed by external 

publics or media.

Consequence of the Conflict 

Media coverage of the publics’ opinion of the incident was 

not favorable. Clever headlines, such as “Woman Bites Off 

More Than She Can Chew” 26 and “Wendy’s ’Finger’ Has Chili 

Effect On Sales” 27 hit newspaper stands the morning after, 

and bloggers took their frustrations online. The majority did 

not seem to be hankered with Wendy’s – but rather, annoyed 

with Ayala. 

The online population seemed to agree that there should be 

consequences for Ayala and Placencia. “Society will punish 

her, but they need some idea of the magnitude of the 

crime,” 28 read one blog. Another posted “I have heard of 

giving the finger! But this is ridiculous... This brings on an 

entirely different connotation!” 29 Such blithe comments 

suggest the public came to realize that it was not the fault of 

the franchise. 

On the other hand, and even with such knowledge, some 

consumers were not entirely convinced to eat out – or eat 

chili at all. “Well, no more Wendy’s for me anymore... you’ve 

successfully killed my desire ever to go there again...whoever 

said ignorance is bliss was really on to something.” 30 

The media jumped over the story of a human finger in a 

consumer’s food, which led consumers to balk at the idea of a 

foreign object in food they trusted to be safe to eat. 

As early as the day after the chili crisis, many loyal patrons 

continued to support the Wendy’s where Ayala made her 

claim. Tom McCready, a regular Wendy’s customer, 

continued to order chili (and a baked potato with chili on it) 

from the San Jose chain where the incident occurred. He 

figured, “If they’ve got 10 fingers, it’s OK with me.” 31 He 

always thought that Ayala’s claim was “a crock” and made 

sure he and his wife frequented Wendy’s more often to order 

chili and show their support. 32 Others weren’t so sure. “I love 

Wendy’s chili,” posted Danielle on a blog TalkLeft: the politics 

of crime, “But I haven’t [eaten any] since the story ran. 

Weak me.” 33 

Implications 

After the crisis has been dealt with and consumers appeased, 

Wendy’s management has the opportunity to review the crisis 

handling so as to gain more experience in crisis and conflict 

management. 


This case highlights that both internal and external factors 

interact with each other in a public crisis such as the chili 

finger case. Another look at the challenges in corporate 

crisis can assist other corporations in the handling of a 

company crisis. 

Companies should learn from this case that, if innocent, they 

should take a firm stand in defending themselves and have 

unbiased, unrelated third parties take a stand in defending 

them and speaking to the public on the company’s behalf. 

Solid defense covers all bases – including background of the 

company and its goodwill with its publics and addresses how 

these publics may be left feeling after a crisis of any sort occurs. 

It is important to have someone skilled in crisis management 

on board any Public Relations or Human Resources Team. 

Outlines and plans for how to handle a crisis that can occur 

should be drawn up, reviewed often, and discussed in depth 

in advance, so a company is not left floundering if such a 

crisis were to occur. 

Honesty and straightforwardness are always the only best 

policies. The public isn’t stupid: they know when a company 

is trying to ’dupe’ them. They will also be able to tell if a 

company is dancing around the issue. If a company is 

innocent, say so and have professionals back up the claim of 

innocence. Declare that the company has been wronged, and 

prove it. Recognize that the crisis itself has passed, a there is a 

new crisis of image control and recovery that needs to be 

addressed. 

It is never good policy to underestimate the public and the 

power that it holds. Companies are only around because the 

public patrons them; and it will do any manager or director 

well to realize it. 

If a company has done wrong, they need to admit it, rectify it, 

and move on. Although some mistakes are more serious and 

hold greater ramifications, the public will know if a scandal is 

being covered up. Often a company can bounce back and 

redeem itself (sometimes even with greater profits) by 

admitting its mistake, taking steps to fix it, then moving on. 

With technology and accessibility of publics rapidly 

advancing, companies in today’s day and age face unique 

challenges as they never have before. Companies must plan, 

research, and be aware of what is happening in the world. 

Only then will they be able to handle crisis with grace and 

recover in a timely and effective manner. 

57

58 

Appendix I: Key Players 

Source: case writer 

derived from news stories 

Appendix II: Key Players 

Source: case writer 

derived from news stories 


Appendix III: Timeline 

*Note: All dates correspond to the source provided. Sources were selected on a basis of variety, accuracy, and objectivity. 

2005 Media Reaction Wendy’s Reaction Legal Issues 

December 20, 2004: Placencia obtains Rossiter’s finger to clear a $50 gambling debt – San Francisco Chronicle 

22-March Anna Ayala claims she bit 

into finger – NNDP 

23-March Human Finger Found in Fast 

Food Chili – CBS News 

25-March Sales drop at Wendy’s – 

USA Today 

28-March Woman Files Lawsuit Over 

Finger in Chili – CBS News 

7-April Finger Could Belong to Dead 

Aunt – San Francisco Chronicle 

14-April Police Visit Home of Woman In 

Finger Case – San Jose, 

California Timeline 

21-April Woman Who Found Finger 

Arrested / Wendy’s Tries to Win 

Back Customers – CBS News 

22-April Police Say Report is Case of 

Hoax and Fraud – San Jose 

24-April Witnesses Say Woman Planned 

Incident – ABC News 

28-April Cops deny raid tied to finger 

case – Sfgate.com 


“We haven’t found anything 

to support allegations 

Wendy’s or our supply chain 

were the source of the 

object in question” – 

Bob Bertin – USA Today 

25-March “Wendy’s is confident the finger 

did not come from one of its 

suppliers because of product 

coding that allows the company 

to trace where a product comes 

from, the day it was produced, 

when it was shipped and when 

it arrived at the restaurant” – 

Denny Lynch – USA Today 

13-April “Chili Finger” Woman Drops 

Case – “...this has caused her 

great emotional distress.” 

– Rich Ehler 

– KVOA Tucson News 

US arrest over chili finger case 

(suspicion of attempted grand 

theft / grand larceny) – BBC News 

Ayala’s in-laws home raided – 

Sfgate.com 

4-May Police get tip about man losing 

finger in accident – USA Today 

4-May Placencia arrested at Lamb 

Asphalt – Central Valley Online 

continued next page 

59

60 

Appendix III: Timeline (continued) 

*Note: All dates correspond to the source provided. Sources were selected on a basis of variety, accuracy, and objectivity. 


9-May Ayala’s First Appearance in 

Court – San Jose Timeline 

10-May Free Frosty Giveaway Friday 

through Sunday “Our customers 

stood by us and now we are 

showing our appreciation.” – 

Tom Mueller 

10-May CNN Money predicts that 

approximately 14 million free 

frosty’s would be given away. 

14-May Police Solve Case of Missing 

Finger – ABC News 

14-May Wendy’s Off Hook in Finger 

Case – CBS News 

18-May Ayala – New Charges Added 

Conspiracy to Theft 

– Central Valley Online 

19-May Husband of Finger Suspect 

Extradited– MSNBC 

20-May Placencia – First Court 

Appearance 

– San Jose Timeline 


Police confirm finger was 

Rossiter’s – San Francisco 

Chronicle 

25-May Conspiracy charges filed 

– Science Daily 

3-June Finger Case Back to Court – 

Mayor Gonzales to Have Lunch 

With Owner of Wendy’s 

Restaurant – San Jose Timeline 

29-June Couple Delays Plea – Defense 

Wants More Time to Examine 

Evidence – Associated Press 

28-July Defense Gets More Time To 

Prepare – San Jose Timeline 

18-August Chili Finger Couple Expected To 

Enter Plea – CBS News 

25-August Possible Plea Agreement in 

Finger Case 

– San Jose Timeline 

Ayala and Placencia in Santa 

Clara County jail. Ayala has a 

$500,000 bail and Placencia a 

$450,000 bail. 

– DefenseSupplier.com 

9:30a.m. Ehler tells Nadler that 

it’s a not guilty plea – spoke to 

lawyers – done by 11a.m. 

– Mercury News


25-August Judge Jerome Nadler (who 

oversaw early legal motions) 

assigned case to Davila to see if 

it could be resolved before trial. 

– Mercury News 

25-August “Prosecutors and defense met 

privately with a judge Thursday 

morning in an apparent effort to 

reach a plea arrangement. But 

none was produced.” The talks 

stopped because they had 

other obligations, DA considers 

next move. – Mercury News 

26-August “Prosecutors and defense meet 

with Davila at 10 a.m. 

– Mercury News 

9-September Couple Pleads Guilty to All 

Charges in Finger Chili Scam 

– CBS News 

21-September Casey complains Wendy’s is too 

slow with reward money – 

United Press International 

27-September Wendy’s – Two To Share Chili 

Finger Reward – CBS News 


Lynch says Wendy’s is sorting 

through the tip line to make 

sure the right person gets 

the reward money 

– United Press International 

Wendy’s awarded Mike Casey 

and anonymous person 

$100,000 for the tip leading to 

the owner of the finger 

– CBS News 

Both Plead Guilty to conspiring 

to plant finger – Wikinews 

2-November Sentencing – Ayala up 

to 10 years in prison, 

Placencia up to 13 (he had 

other deadbeat dad charges) – 

United Press International 

61

62 

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. 

Associated Press. Police Call Wendy’s Chili Finger Case A Hoax. 24 April 2005. 

. 

Bernstein, Jonathan. Bernstein Crisis Management LLC. 15 June 2005. 

. 

Emery, David. Top 10 Actual Headlines in Wendy’s Finger-In–Chili Coverage. 16 April 

2005. < http://urbanlegends.about.com/b/a/162772.htm>. 

Face. Wendy’s Diner Finds Human Finger In Her Chili. 25 March 2005. < 

http://forum.gorillamask.net/archive/index.php/t-868.html>. 

Factory. Wendy’s Finger, Planter’s Penalty. 14 May 2005. 

. 

Fink, Steven. Changing Management Culture: Models and Strategies to Make It Happen. 

. 

Gaura, Alicia and Murphy, Dave. Wendy’s diner finds human finger in her chili. 24 March 

2005. . 

Haynes, Brian. LV Woman Arrested In Finger Case. 22 April 2005. 

. 

LaPrete, Jay. Wendy’s knew from start story was a hoax. 6 June 2005. 

. 

Museum of Hoaxes. 6 November 2005. 

. 

Parsons, Bob. Hot Points With Bob Parsons. 24 April 2005. . 

Steiner, Ina. Dave Thomas, Wendy’s Founder and American Folk Here, Dies from Cancer. 

. 

TalkLeft: The Politics of Crime. 22 April 2005. 

. 

Wendy’s. 21 December 2005. http://www.wendys.com/dave/flash.html 

Wendy’s Founder Dead at 69. 8 January 2002. 

s. 


ENDNOTES 

1. Gaura 

2. Gaura 

3. Gaura 

4. Gaura 

5. Gaura 

6. Emery 

7. Museum of Hoaxes 



10. Fink 

11. Fink 

12. http://www.wendys.com/dave/flash.html 

13. http://www.wendys.com/dave/flash.html 

14. Steiner 

15. Steiner 

16. http://money.cnn.com/2002/01/08/companies/wendys_obit/ 

17. http://money.cnn.com/2002/01/08/companies/wendys_obit/ 

18. Haynes 

19. Fink 

20. Bernstein 

21. Parsons 

22. Albertson 

23. Albertson 

24. LaPrete 

25. LaPrete 

26. Montreal Gazette 

27.ProFindPages.com 

28. Factory 

29. Zsa Zsa 

30. Face 

31. http://www.ktvu.com/news/4404295/detail.html 

32. http://www.ktvu.com/news/4404295/detail.html 

33. http://talkleft.com/new_archives/010450.html

the arthur w. page society officers and trustees 

OFFICERS 

President 

J. Roger Bolton 

Aetna Inc. 

Vice Presidents 

Angela A. Buonocore 

The Pepsi Bottling Group 

Peter D. Debreceny 

Allstate Insurance Company 

Maril Gagen MacDonald 

Gagen MacDonald, LLC 

William G. Margaritis 

FedEx Corporation 

Thomas R. Martin 

ITT Industries 

Anne M. McCarthy 

SAP AG 

Secretary 

Richard D. Jernstedt 

Fleishman-Hillard, Inc. 

Treasurer 

Nancy A. Hobor 

Grainger 

TRUSTEES 

Paul A. Argenti 

Tuck School of Business at Dartmouth 

Catherine V. Babington 

Abbott Laboratories 

Ann H. Barkelew 

Fleishman-Hillard, Inc. (Retired) 

Paul Capelli 

Staples 

Valerie Di Maria 

Motorola 

Harris Diamond 

Weber Shandwick 

David R. Drobis 

Ketchum (Retired) 

Gregory Elliott 

International Truck and Engine Corporation 

Matthew P. Gonring 

Rockwell Automation 

Kimberley Crews Goode 

Visteon Corporation 

Harvey W. Greisman 

MasterCard International 

Thomas J. Kowaleski 

General Motors Corporation 


John F. Manfredi 

Gillette Company 

Judith A. Mühlberg 

Sprint Nextel 

James E. Murphy 

Accenture 

W. D. (Bill) Nielsen 

Johnson & Johnson 

James Scofield O'Rourke, IV, Ph.D. 


Helen Ostrowski 

Porter Novelli 

Ellen Robinson 

Tennessee Valley Authority 

Kenneth B. Sternad 

UPS 

Joan H. Walker 

Allstate Insurance Company 

Donald K. Wright, Ph.D. 

University of South Alabama 

Executive Director 

Paul Basista, CAE 

63

64 

contributors to the 2006 development fund 

We are grateful to the following companies and individuals for their generous support: 

Diamond ($10,000 +) 

Abbott Laboratories 

Allstate Insurance 

AT&T 

Nationwide Insurance Companies 

Wal-Mart Stores, Inc. 

Platinum ($7,500 +) 

FedEx Corporation 

Gold ($5,000 +) 

Gillette Company 

John F. Manfredi 

Prudential Financial, Inc. 

Silver ($3,000 +) 

Accenture 

Korn Ferry International 

Qwest Communications 

Bronze ($2,500 +) 

Lawrence G. Foster 

General Motors Corporation 

International Truck and 

Engine Corporation 

TIAA-CREF 

Individual ($500 +) 

Best Buy Company 

Harold Burson 

Eastman Chemical Company 

Harvey W. Greisman 

Donald P. Kirchoffner 

Makovsky & Company, Inc. 

Thomas and Wanda Martin 

Anne M. McCarthy 

Ellen Robinson 

Tennessee Valley Authority 

Tyco 

Donald K. Wright 


Gala Table Sponsors ($3,500) 

Accenture 

AT&T 

Edelman 

GCI Group 

Ketchum 

Manning, Selvage & Lee 

Porter Novelli (Two Tables) 

Prudential Financial, Inc. 

Rockwell Automation

the page philosophy 

Arthur W. Page viewed public relations as the art of 

developing, understanding and communicating character – 

both corporate and individual. 

This vision was a natural outgrowth of his belief in 

humanism and freedom as America’s guiding characteristics 

and as preconditions for capitalism. 

the page principles 

Page practiced seven principles of public relations 

management as a means of implementing his philosophy. 

• Tell the truth. Let the public know what's happening and 

provide an accurate picture of the company's character, 

ideals and practices. 

• Prove it with action. Public perception of an organization 

is determined 90 percent by what it does and ten percent 

by talking. 

• Listen to the customer. To serve the company well, 

understand what the public wants and needs. Keep top 

decision makers and other employees informed about 

public reaction to company products, policies and 

practices. 

• Manage for tomorrow. Anticipate public reaction and 

eliminate practices that create difficulties. Generate 

goodwill. 

The successful corporation, Page believed, must shape its 

character in concert with the nations. It must operate in the 

public interest, manage for the long run and make customer 

satisfaction its primary goal. He described the dynamic 

this way: 

“Real success, both for big business and the public, lies in 

large enterprise conducting itself in the public interest and in 

such a way that the public will give it sufficient freedom to 

serve effectively.” 

• Conduct public relations as if the whole company depends 

on it. Corporate relations is a management function. 

No corporate strategy should be implemented without 

considering its impact on the public. The public relations 

professional is a policy maker capable of handling a wide 

range of corporate communications activities. 

• Realize a company’s true character is expressed by its 

people. The strongest opinions – good or bad – about a 

company are shaped by the words and deeds of its 

employees. As a result, every employee – active or retired – 

is involved with public relations. It is the responsibility of 

corporate communications to support each employee’s 

capability and desire to be an honest, knowledgeable 

ambassador to customers, friends, shareowners and 

public officials. 

• Remain calm, patient and good-humored. Lay the 

groundwork for public relations miracles with consistent, 

calm and reasoned attention to information and contacts. 

When a crisis arises, remember that cool heads 

communicate best.

Arthur W. Page Society 

317 Madison Avenue – Suite 2320 

New York NY 10017–5205 

Phone 212/400-7959 

Fax 212/922-9198 

www.awpagesociety.com 

Paul Basista, CAE 

Executive Director 

Karen Arnold 

Communications Director 

Susan S. Chin 

Executive Assistant 

Arthur W. Page Society Journal 

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