OPINIONBuffet flunks crisis management 101By Richard NicolazzoCndor is one thing, but appearing outof touch with the fact set is another.How else to explain the reputational hitthat Warren E. Buffett’s BerkshireHathaway <strong>com</strong>pany has suffered in recentweeks?Buffett, known as the “Oracle ofOmaha” and one of the richest men on theplanet, may be a brilliant investor, butwhen it <strong>com</strong>es to crisismanagementskills, he probablyneeds a seriousrefresher course.By now, the storyis well-documented.On March 30, DavidL. Sokol, 54, longRichard E. Nicolazzoconsidered a leadingis managing partner of candidate to succeedNicolazzo &Associates, a strategic<strong>com</strong>munications andcrisis management firmheadquarteredBoston, Mass.inBuffett, suddenlyresigned fromBerkshire Hathaway.It seems that Sokolpurchased thousandsof shares inLubrizol, a lubricant <strong>com</strong>pany, twomonths before Berkshire announced a $9billion deal to acquire the outfit. As onemight expect, when the Berkshire dealwas announced, the shares shot up 27 percentover a two-week period. Sokol madea cool $3 million on paper.Like most alleged insider cases, the circumstancesof the stock purchases remainmurky. If we’ve learned one thing fromall the Wall Street shenanigans, it’s that ittakes time and research to unravel thetimeline and understand what really happened.This emerging crisis should haveimmediately set off an alarm for Buffett to“hold his fire” when the news storiesabout the resignation began to break. Inmy view, that is crisis management 101.Instead, what happened? In a statementthe same day, Buffett said, “Neither Davenor I feel his Lubrizol purchases were inany way unlawful. He has told me thatthey were not a factor in his decision toresign.” Buffett went on to say thatSokol’s “contributions have been extraordinary.”For a man with such acclaimed businessacumen and successful track recordof strategic investment decisions, thisunfortunate episode was an unfathomablerookie mistake for Buffett. How couldsomeone with his stature simply acceptSokol’s word that there was no self-dealinginvolved? Did Buffett really think thatSokol would say he was guilty of insidertrading?If he was practicing disciplined crisismanagement, what Buffett should havesaid was:“Sokol has resigned from BerkshireHathaway. We will immediately begin a<strong>com</strong>prehensive review of the circumstancessurrounding his resignation,including recent stock trades, and reportour findings to the public and authoritiesas soon as possible. We will also cooperatewith any regulatory investigation thatmight ensue.”Buffett has since explained himself, butI’m not buying it. In a business column onMay 3 in the New York Times, Buffett wasquoted as saying, “I felt that if I’m layingout a whole bunch of facts that are goingto create lots of problems for him for yearsto <strong>com</strong>e, that I also list his side of theequation in terms of what he’d done forBerkshire.”The Times column also quoted MarioGabelli, a nationally-acclaimed investorand major shareholder in Berkshire, assaying the Sokol episode was “irrelevant”and derided it as “a good story for themedia.” Gabelli also said he, like Buffett,simply cares about the <strong>com</strong>pany’s cold,hard numbers.While I agree that financials are alwaysparamount, I disagree that this episodemeans nothing to the reputation of Buffettand his <strong>com</strong>pany. What Sokol did may notultimately be proven to be “technically”wrong, but anyone with a sense of fairplay realizes that it does not pass the smelltest.Unfortunately for Berkshire, the Sokolmess erupted just a month before theannual meeting, a time when senior executivesat any <strong>com</strong>pany are most exposed.Instead of quieting down, negative mediacoverage ticked up several notches, withboth sides contradicting each other.On April 27, a report issued by the audit<strong>com</strong>mittee of the Berkshire Board accusedSokol of misleading the <strong>com</strong>pany abouthis personal stake in Lubrizol:“His misleading in<strong>com</strong>plete disclosuresto Berkshire Hathaway senior managementviolated the duty of candor he owedthe <strong>com</strong>pany … Sokol may have failed hisfiduciary duty under the law of Delaware.”What a stark turnaround from Buffett’sinitial <strong>com</strong>ments.Guest ColumnThings got even uglier when Sokol’slawyer, Barry W. Levine, got involvedand disputed many major assertions in theaudit report: “… Sokol had told Buffett‘twice, not once’ about his ownership ofLubrizol shares before Buffett began discussionswith the <strong>com</strong>pany.”A more stunning revelation was theaudit report stating that, “Buffett and the<strong>com</strong>pany did not have the full story inMarch.” This begs the question: Whywould Buffett make the statements hemade without knowing all the facts?I believe Buffett’s apparent knee-jerkreaction to this issue and the subsequentfallout has tarnished his pristine reputation.I continue to be shocked at the apparentlack of crisis management planning insome of the world’s largest <strong>com</strong>panies. Itwasn’t that long ago that Tony Hayward,the disgraced BP chief, said publicly,“The <strong>com</strong>pany’s contingency plans wereinadequate and we were making it up dayto-day.”Berkshire Hathaway, a <strong>com</strong>pany thatgenerated nearly $18 billion in cash fromoperations last year and currently hasmore than $38 billion to spend on futureacquisitions, erred badly in <strong>com</strong>municatingits reaction to what has be<strong>com</strong>e amajor scandal.What happens next isn’t clear, butaccording to published reports, theSecurities and Exchange Commission isalready investigating Sokol’s trading. Infact, we now know that Buffett called theSEC himself and laid out the pattern oftrading.Berkshire Hathaway may face lawsuitsfrom shareholders who want Sokol to forfeithis trading profits because of the negativepublicity and damage to the <strong>com</strong>pany’sreputation. And the audit report saidthe <strong>com</strong>pany is considering whether topursue “possible legal action againstSokol to recover any damage the <strong>com</strong>panyhas sustained, or his trading profits.”In the final analysis, the lack of a coherentand well-planned crisis <strong>com</strong>municationsstrategy is what’s most surprising.Buffett is fond of saying: “Lose moneyfor my firm, and I will be understanding.Lose a shred of reputation for the firm, andI will be ruthless.”Still, even in his latest interview withthe Times, Buffett has not publicly takenSokol to the woodshed. It may be the onlyway to truly end this chapter and move on.Betrayal cannot go unanswered. 34JUNE 2011 WWW.ODWYERPR.COM
Facebook flap shows difference between PR, journalismBy Bill HueyBill Huey is presidentof Strategic Comms., acorporate and marketingconsultancy inAtlanta, and author of"Carbon Man," a novelabout greed.The Burson-Marsteller/Facebookflapdoodle has almost run itscourse, except that Burson continuesfiring wildly at its own foot by fiddlingwith its Facebook page to deletenegative <strong>com</strong>ments.Everyone got what they deserved, and,fortunately for Burson-Marsteller, theInternational Monetary Fund chief’s sexualescapades camealong over the weekendto wipe theFacebook story offthe Big News agenda.Which makes thepoint that someoneis almost alwaysgoing to do somethingworse than youdid, so don’t panicwhen a crisis arises— especially if noone was killed ormaimed.The two high-profileformer journalistsat Burson-Marsteller who perpetratedthe dastardly plot will be spared theaxe because they are new hires and “willbe given additional ethics training,” the<strong>com</strong>pany said. How’s that again?Additional ethics training to formerjournalists about not trolling for journalistsunder a false front? Where will thisend?Nevertheless, it is time for lessonslearned. One of the most salient lessons— and one that the PR business neverseems to learn — is that PR and journalismare different pursuits. That PR isnot just journalism practiced in a corporatesetting, and firms that hire marqueeor even second-tier journalists inhopes of bolstering their cred are simplybarking up the wrong tree.How are PR and journalism different?In an extended rant on Slate,“Press Box” columnist Jack Shafer saidflatly that PR people push lies, whilereporters are guardians of the truth:“Every reporter approached by PRfirms knows that the primary focus ofPR firms is to push lies. If PR peoplewere being paid to push the truth,they’d be called reporters,” Shaferwrote.Of course, as an editor who oncebought into a <strong>com</strong>pletely fabricatedstory called “Monkeyfishing,” aboutalleged fishing for monkeys in Floridafrom a reporter who repeatedly bamboozledhim when asked for more factualdetail, Shafer should know the difference.PR and journalism are differentbecause their aims are different. Ignorethat fundamental fact and you are askingfor trouble. But PR firms have doneit repeatedly over the years, luringquondam journalists to the so-called“dark side” and touting them as someone“who has an intimate, first-handknowledge of the news business andcan shape <strong>com</strong>pelling stories that movepeople to action,” or similar nonsense.Sometimes it works out. Reporters,after all, are highly adaptive creatures,and some of them learn to appreciatethe difference between their old careeras journalists and their new career asstrategists and advisors.But just as often, the skill sets don’tPEOPLE IN PRDuke exec to Purduein PA shuffleJulie Griffith, VP of governmentaffairs and foundation relations forDuke Energy, has been named VP ofpublic affairs for Purdue University as theIndiana school shuffles its <strong>com</strong>munity andgovernment relations with economicdevelopment operations under its office ofengagement.Griffith takes up thepost June 20, subject tothe expected approval ofthe board of trustees,reporting to presidentFrance Cordova. Theschool said it has madethe changes to fosterstronger ties to the stategovernments, non-profits,private entities andcitizens.Julie GriffithGuest Columntravel well. The new hires remain stuckin the journalism mode, pontificating toeveryone within range about “news values”and how to make news, or tellingwar stories about the time they interviewedsome flavor-of-the-month bigshot and told him straight to his face thathe was lying, etc.You know the type because you’veprobably encountered them. They simplydon’t understand that they are nolonger in the news business, and theirnew employers are either too dense ortoo timid to explain it to them.Of course, despite mountains of evidenceto the contrary, you might thinkthat PR and journalism are more similarthan they are different. If you are convincedof that, try putting out some jobfeelers to the New York Times or Time orone of the networks and see what happens.And don’t let that one-way door hityou in the face. The VP/government affairs slot had beenvacant since 2008. The office of engagementhad been led by Victor Lechtenbergsince 2004. He plans to retire in June 2012and Perdue said he will take on an interimassociate VP role with plans to advise theVP of PA and university president.She exits Indianapolis-based Duke after14 years, the last 11 in the VP slot. Griffith,a Ball State grad, also led Indiana governmentaffairs, as well as <strong>com</strong>munity andeconomic development for Duke. CNBC blogger to MDCAsh Bennington, a journalist andblogger on CNBC, has joinedMDC Partners as Director ofStrategic Technology and Innovation.He is to run the MDC Ideas unit, an inhousethink tank to find opportunities insocial media, convergenceand business analytics.Bennington will serveas the ad/PR <strong>com</strong>bine’s“technology evangelist”and help identity investmenttargets in the digitalsector.Ash BenningtonCEO Miles Nadalsays Bennington is totravel the globe, scoutingfor <strong>com</strong>pelling opportunities for MDC<strong>com</strong>panies and clients.At CNBC, Bennington reported on technology,economics, finance and banking.He will continue to do pieces forCNBC.<strong>com</strong> and serve as contributor toCNBC. Prior to CNBC, Bennington wasassistant VP at Credit Suisse and VP for e-<strong>com</strong>merce at BB&T.Sloane & Co., Kwittken & Co. andAllison & Partners are MDC’s PR units. JUNE 2011 WWW.ODWYERPR.COM 35