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If public company investors or other stakeholders wanted to find out the good, the bad and the ugly, would they have to go to one place to find the good – and other places to find the bad and the ugly? Is good news given prominence and bad news downplayed or even hidden? What are the impacts of corporate communications policies on corporate trust?

Part of what struck me in researching my recent article on Olympus published by Fortune.com was the openness with which Olympus is now providing information about the scandal, front and center on their global website’s home page.

That kind of openness, along with other actions Olympus has taken in recent months, builds trust.

Yet how many boards have fully considered how the company might best handle communications with stakeholders in a crisis and what mediums they’d use? It’s an important decision that can impact survival, one that is preferably not put off until the company is in the midst of crisis trying to juggle all the decisions requiring immediate attention.

And what about run-of-the-mill ups and downs? How to handle communications during a huge crisis like Olympus’ isn’t the only question directors need to be concerned with. What is the company’s policy more generally on where, when and how it reveals good news versus bad or ugly news? Every company has hiccups. How does the company use its communications to build trust?

HP has been a company that has seen more than its share of governance woes and faltering trust (which I discussed most recently in this article published by Fortune.com). And taking a look at how HP has handled boardroom turnover as just one example provides food for thought.

This time last year, Ray Lane, HP’s current executive chair, directed the process that resulted in the removal of four directors and the addition of five others. HP issued a press release to mark the event. The changing of the guard caused quite a hullabaloo and ISS, a proxy advisory firm, objected to the process which did not follow HP’s disclosed procedures for independent nominations.

Last June, the board announced with a press release, that a company executive, Ann Livermore, would become its newest member. Presumably to calm investors as well as to garner his expertise, shareholder activist Ralph Whitworth was appointed to HP’s board in November and HP again issued a press release to explain the appointment.

But in September, following approval of a controversial HP strategy and just two weeks before Whitman’s appointment as CEO, Dominique Senequier, one of the January 2011 appointees, notified the board she would not stand for election for a second year. In this case, HP did not an issue a press release to explain her decision, instead burying the announcement in an SEC filing.

Just last month prior to the filing of the annual proxy, two directors decided to join Senequier and not stand for re-election. Those directors included Sari Baldauf who notified the board on January 18 and Larry Babbio who did so less than one week later according to SEC filings. The company issued no press releases to explain the departures.

Several years before she took the top spot at the SEC, Mary Schapiro and I discussed the importance of corporate transparency. The following is an excerpt from that conversation.

Schapiro: I think companies do well in the marketplace when they’re honest, and the analysts and the business community, Wall Street, know that they can rely on what that company is saying, either in its filings with the SEC, or in its comments to the analyst community, or in its press releases. And, so, for board members, I think it’s absolutely essential that companies have an ethos and a culture to be fulsome in their disclosure.

Bloxham: And to be forthcoming.

Schapiro: Absolutely.

Bloxham: Good news and bad news.

Schapiro: Good news and bad news. If it’s only good news, when the bad news comes, it will be reflected very rapidly in your stock pricing and people will be skeptical of what comes out in the future. So, it’s absolutely critical that companies be as forthright with the bad news as they are with the good news.

Bloxham: Well, and I guess that goes also to the relationship between the board and management, too. That the board welcomes bad news in hearing it earlier rather than later.

Schapiro: You might not like what you’re hearing, but you absolutely want to hear it, there’s no question about it. Nothing more important, frankly, as a director, in having confidence in management, in knowing that they will tell you everything that’s going on, whether it’s good or bad.

Bloxham: Right. And then for the board to react appropriately, and recognize that things won’t always go well.

Schapiro: That’s right. Nothing goes well all the time. We’re only human. Companies make mistakes, individuals make mistakes. The real crime, in my view, is covering it up or not being honest about it.

Bloxham: Right. And I think, you know, that goes to transparency in the capital markets, too, because the more that companies are forthcoming with the good and the bad, the more investors will understand that’s part of natural cycles that businesses go through.

Schapiro: That’s exactly right. And if we’ve learned anything in the last five years of corporate scandals, it’s that the markets are very unforgiving if you’ve been dishonest about your financial results or anything else that’s going on in the corporation.

Recent cases and the impacts of poor communication invite us to explore a number of questions that deserve thoughtful answers: How do we as board members prefer to find out the bad and the ugly – by having to dig for answers or by having management let us know about problems early on? How would shareholders prefer to learn about problems? What are the current approaches to communications at our company? How do we want important board and company communications handled? And how can we use our communications processes to build trust?

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Eleanor Bloxham www.eleanorbloxham.com
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