It’s earnings season, and despite the daily headlines about the recessionary economy, the earnings reports haven’t been all bad. Today, GM reported that it tripled its profits from last year. Whole Foods reported its best quarter in five years. Goldman Sachs disappointed the street with quarterly earnings of $2.74 billion. MasterCard profits are on the rise. Big oil, same story.

Healthcare, energy, banking and financial services are trending well – something that their investors expect, and appreciate. But how successful is too successful? Particularly when gas and milk are both costing nearly $4 a gallon? When millions of Americans are uninsured or can’t afford their prescriptions because they’ve lost their jobs and can’t afford private healthcare? Do companies run the risk of reputational backlash when their success is perceived as being “on the backs” of their employees, their customers or their communities?

This is a tricky equation. A growing profitable business creates and preserves jobs, provides much needed tax revenue to our communities and fuels growth of our stock markets and our economy. I think the answer to this question is “it depends.” When necessities like food, gas, healthcare and heating your home are viewed as “unaffordable” for many Americans, record earnings growth, big bonuses and other symbols of so-called “corporate greed” can create real reputational challenges. This is where the communications becomes very important…the difference between applause and reputational backlash is all about context. What will the Company do with those record profits? Who will benefit (in addition to the shareholders and leaders of the company)? What new employee programs can be funded? How many people will be hired? What investments will you make in the future?

This is why investor relations and financial communications professionals can no longer just think about their messaging and narrative exclusively through the lenses of Wall Street’s response – management’s commentary and company news spreads through the twitter-verse in minutes. Your financial performance is relevant to consumers, communities, regulators and elected officials. And it is reflected in both your valuation and your reputation.

cwinters General Corporate, Investor Relations Earnings, Gas Prices, GM, Goldman Sachs, Whole Foods

What a difference a month makes. Last month Warren Buffett was praising David Sokol, his erstwhile successor who made a hasty departure amid the scent of an insider trading scandal, as a great guy whose purchase of Lubrizol shares prior to the Oracle of Omaha buying the Company “were not in any way unlawful.” At this weekend’s Berkshire Hathaway annual meeting, normally a lovefest for 40,000 Buffett shareholders and devotees, the Oracle used words like “inexplicable”, “inexcusable” and “very damning evidence” to describe Sokol and what now looks like share purchases that will end with a perp walk.

Buffett is legendary for his investment acumen and vigilance regarding his and his firm’s reputation. After a month in the media spotlight regarding the Sokol/Lubrizol affair where questions swirled about what the Oracle knew and when he knew it, whether he was just getting too old and was off his game, or whether he was just a hypocrite when it came to Sokol, Buffett came clean and admitted that he “obviously made a big mistake.” Time will tell whether Buffett’s reputation took a hit. He has built up considerable good will over the years and the Sokol fiasco as well as the big hit to Berkshire Hathaway profits in the first quarter as a result of insurance losses will likely not do lasting damage to the man or his company’s reputation.

The Sokol/Lubrizol affair is just the latest example of the response to a crisis situation creating seemingly more problems for a company and its executives than the crisis itself (think Toyota, BP, Goldman Sachs and Johnson & Johnson). Crisis communications 101 teaches that you take control of the message quickly, be transparent, only release information on what you know and never speculate. From the start, Berkshire Hathaway dropped the ball, whether due to Buffett’s loyalty to a key member of his team or just not knowing the facts. The media jumped all over the issue and for a month reveled in discussing the seamy details and timeline of events, repeating Buffett’s reputation mantra and highlighting the ode to Sokol in the company’s press release.

Now, a few weeks late, Buffett has held forth on the issue and provided a mea culpa. Charlie Munger, Buffett’s right hand man summed it all up nicely at the annual meeting in typical Berkshire Hathaway understatement when he admitted that it “wasn’t the most clever press release in the world.” It also wasn’t the most clever way to respond to a crisis and that should be the lesson for the normally very clever Oracle and the rest of us.

rtauberman Crisis Communications Berkshire Hathaway, BP, Goldman Sachs, Johnson & Johnson, Toyota, Warren Buffett

While it pales in comparison to Rolling Stone reporter Mike Taibbi’s famous description of Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” Senator Carl Levin (D-MI) added his take with the release of yesterday’s Senate report on the financial crisis calling the House of Blankfein “a financial snake pit rife with greed, conflicts of interest, and wrongdoing.” The report itself points accusing fingers across Wall Street for everything short of murder in the run-up to the financial crisis and lambasts Washington for either being too cozy with bankers or asleep at the wheel. Yet the most robust criticism and best reading is that related to Goldman Sachs.

In his remarks, longtime anti-Goldman crusader Levin spoke of DOJ and SEC investigations and perjury charges from misleading testimony before Congress. This has led some commentators to get almost giddy about a new round of perp walks for some of investment banking’s glitterati.

A focus of the Senate report was Goldman’s bet against the mortgage market while it also was playing games with its clients and the market in general. Goldman reaped some killer profits but in the last few years, it has been those who have shorted the reputation of the former paragon of investment banking and its beleaguered CEO Blankfein, who have been the winners.

A Goldman statement regarding the Senate report said that the firm “disagreed with many of the conclusions,” but said it did “take seriously the issues explored by the subcommittee.” So what does Goldman do now?
In reaction to the Goldman-bashing of the past few years, the firm has issued a number of mea culpas (and refrained from referring anymore to doing God’s work), published a list of 39 things it promises to do better in managing conflicts and client relationships, initiated some big ticket philanthropic efforts to rebuild its image and even paid $550 million to the SEC for indiscretions with CDOs. It all hasn’t bought them much loving.

Since words, self-improvement plans and throwing around a lot of money has not worked, it may be time for Goldman’s board to consider some changes on the executive wing. New leadership, a more humble approach and some quick and decisive action on the issues raised in the Senate report could stop the reputational bleeding at Goldman and help the firm take the initial steps to rebuild its reputation. We may still see a perp walk but perhaps the allusions to squids and snakes will begin to fade away.

rtauberman General Corporate Goldman Sachs, Lloyd Blankfein, Senate

Corporate America gets a bad rap for its tendency to over-regulate, and over-policy their employees to death. And in an era of WikiLeaks, whistle-blowing and a general need to CYA, a move to conservatism and lots of policies may even seem prudent. I recall a client that was rolling out a new policy manual – it was thicker than the phone book I used to sit on to reach my Grandmother’s dining room table.

One of the greatest areas of new policy development is social media. In many organizations, social media is perceived as the Wild West of reputational risk…where employees gripe about their bosses, complain about their companies, or worse, use valuable work time for non-work purposes. The rush to regulate and restrict social media may be one of the biggest over-corrections in the past year.

Take, for example, Goldman Sachs, which prohibits the use of Facebook at work. One could argue that for a big bank, the need for clarity and conservatism has never been greater. Except for the fact that Goldman just invested $450 million in Facebook. And demand to get into the Facebook deal was so high, that Goldman Sachs is reportedly closing that investment opportunity two days early. Yet those people tasked with selling the investment value of Facebook can’t even access it at work.

You can’t codify good judgment. And you can’t manage to the outlier….for every employee who spends the day on Facebook rather than working, there are dozens who use social media to connect with colleagues, prospect for clients or customers, or engage with your Company’s stakeholders in a positive and productive way.

Having a social media policy is prudent. Providing employees guidelines about its use for appropriate business benefits, and with good judgment, is something every company should do. But banning its use isn’t a policy….and it won’t protect your reputation. What it will do is firmly entrench your Company with a reputation of being out of touch, and possibly irrelevant, particularly among employees. And in the case of Goldman Sachs, it is a case where their policy is at odds with their investment.

cwinters Social Media Goldman Sachs, WikiLeaks

The New York Post is reporting that Goldman Sachs is delaying its bonus announcement until after it reports earnings – and after the other big banks report theirs. The official party line is this:

“It’s important to have context of earnings before we start communicating compensation.”

Ahhhhh, the elusive but all important context.

In the area of reputation management, we talk about context, and things like benchmarking, a lot. In fact, we often counsel clients that when handling an important issue, context is king. Stakeholders need to understand what to think about your news, and how it stacks up to others, and where it fits into the bigger story of your reputation. The notion of context is pervasive and accepted — we see performance relative to peers reflected in share price valuation, teachers who grade on a curve, and even employee performance evaluations.

But in this case, the idea of waiting for context feels like a parlor trick designed to allow Goldman’s peers to take the lion’s share of public reaction to the fact that the banks are giving bonuses at all. This storm started brewing 2009 when the banks accepted TARP funds, and as coincidentally began repaying them as discussion of Wall Street bonuses in Washington heated up, in what some would describe as another parlor trick – repay the money to avoid government intervention and public backlash.

In a time when 10% of Americans are out of work, home foreclosures are at a record high and consumer fear about their economic futures is palpable, the banking industry takes great reputation risk in doling out checks to their executives.

No doubt the decision makers at Goldman are thinking that reporting good results will give them the permission – I mean context – to award those bonuses. But what they fail to recognize is that the perception by everyone except perhaps their shareholders (and presumably their bonus eligible employees) will be that those profits, in this environment, are hardly a badge of honor. Big healthcare companies will face the same dilemma and the correlating reputational risks.

Herein lies the dilemma. While our capitalistic society rewards initiative, success and profits are good (in theory) – there are certain industries that can be dinged for being too successful, and too profitable – particularly when it can be perceived as coming on the backs of the average working person on Main Street USA. So when those profits coincide with people losing their homes, foregoing their prescriptions or medical care, and an increasing number of unemployed and uninsured, the very things that can build reputation can also diminish it.

Just a generation ago, achieving home ownership was the American Dream….it is now an expectation. In America, healthcare is viewed as a right, not a privilege. When Americans find these things out of reach, it is easy to demonize the big corporate machines for “putting profits ahead of people” – regardless of the fact that the fundamental principles of our system that fuel that American Dream require it.

Noticeably absent from all of this discussion is the role that companies like Goldman Sachs and other large corporations play in creating good jobs, support community and philanthropic initiatives that would otherwise go unfunded, and improving lives. These things are true, and they are important. Just not in this context. After all, context is king.

Carreen Winters can be reached at cwinters@mww.com.

cwinters General Corporate bonuses, context, Goldman Sachs, Reputation Management