When Lucas van Praag, global head of communications at Goldman Sachs, was elected partner at the investment bank last year, it led to inevitable sniping that silence truly was golden. A partnership at Goldman Sachs is the City equivalent of winning the National Lottery every year, and Van Praag is now one of the highest paid mouthpieces in the world, with an annual salary reported to top £5 million.
But the promotion of Van Praag, who joined Goldman Sachs in 2000 from Brunswick (where he was also a partner), is made all the more astonishing when it is remembered that little more than ten years ago the US bank did not even employ an in-house communications team in London. Instead the then privately owned Goldman Sachs used the services of consultancy Shandwick, which eventually seconded two employees to the Fleet Street-based investment bank.
Today, such a move would be unthinkable. As one insider puts it: 'The media have become much more sophisticated animals, interested in a wide range of activities. Being an effective communicator is now seen as a competitive advantage. A company needs to understand the environment it operates in and how it is perceived externally. Using an agency to assimilate that intelligence is just not as effective as doing it in-house.'
Some analysts argue that share prices can be influenced by successful communication strategies. The recent rise in Marks & Spencer's fortunes has been attributed to a change in the company's direction, but analysts believe communications also played a significant role. Indeed, chief executive Stuart Rose was last year named FTSE 100 business communicator of the year by the PRCA and Romeike (now called Cision).
The role of the in-house communicator has changed beyond recognition over the past 20 years. Two decades ago, only the most enlightened FTSE 100 company employed a director of corporate communications. And it was far more likely the chairman's secretary or a graduate trainee would be delegated to handle press enquiries. Few had appropriate training - indeed, the standard response to a journalist's call was to refer the hack to the company's financial PR agency. The media were a source of mystery.
'Twenty years ago, the main thrust of communications revolved around the chairman's reputation or that of the chief executive,' explains one in-house director. 'Financial results were produced and released but there just wasn't the media attention there is these days.'
Even news of takeovers or mergers was rarely deemed worthy of the front page. 'In those days, financial PRs would sit outside the room while the investment bankers drafted a press release,' recalls Peter Baillie, director of corporate communications at engineering group GKn. 'The door would open, the PRs would be handed the release and instructed to drop it with a favoured journalist. Only years later did the PRs get invited into the inner sanctum, where they helped structure the press release and develop media strategy.'
As swashbuckling tycoons like Tiny Rowland and James Goldsmith launched hostile bids for household names, the financial PR agency became a vital component of the armoury to win shareholder favour. Agencies were asked to handle results presentations, manage the financial calendar, organise introductions with key journalists and influence the minds of shareholders and City editors. The agency was also likely to handle all dealings with the London Stock Exchange (LSE) and even organise the annual shareholder meeting.
Many chairmen and CEOs relied on their financial PR advisers as a sounding board for everything from the colour of their tie for TV appearances to preparing answers for tricky questions at the annual meeting. 'There was definitely a time when senior PR advisers, for lack of a better expression, thought of the CEO rather than the in-house PR man as their client,' concedes Baillie.
One former director of corporate communications recalls advising a City editor considering a role as a PR adviser that it was politic to deal directly with her office rather than that of her chairman or chief executive. Her advice was ignored as, in the first week at his new job, the former hack wrote directly to the CEO suggesting what was wrong with the company's communications strategy and how he could improve it. This snub merely emphasised how the in-house function was considered unimportant by many financial PR agencies. The advisers believed they had the chief executive's ear and only they could convey his message to the media.
Today, the tables have turned. PR advisers ignore the in-house function at their peril. Chairmen and CEOs now recognise that their careers (and reputations) depend on the external perception of their companies; they are in the hands of their in-house teams.
The new frontier
A director of corporate communications at a Ftse 100 company can now command a base salary of between £150,000 and £250,000, with bonuses, share options and other executive rewards on top. Although an in-house corporate communications director has yet to be appointed to an executive board, many hold positions on the management board (or executive committee) - just one level down - and share responsibility for overseeing the implementation of the company's strategy and policies. The role of the corporate communications director has also changed. 'It used to be called public relations rather than communications,' says Baillie. 'But when a Ftse 100 communications director is being offered £250,000, you know the role is being taken seriously by the company.'
A communications department might have responsibility for sponsorship, corporate and social responsibility, media relations, public sector and internal communications. Some even oversee experts in lobbying - vital for companies operating in controversial sectors or seeking planning permission - and regulatory matters, such as competition issues.
'I don't see what a financial PR agency can offer when there is that wealth of experience and knowledge in-house,' says one in-house director, who declined to be named. 'The PR agencies don't have the power they once had. I think, in many respects, we are also not as scared of them as we once were.'
It's certainly true that many financial PRs have taken up in-house positions. For example, Charlotte Lambkin, director of corporate communications at BAE Systems, was once the defence company's financial PR adviser at Bell Pottinger.
Firms are also recruiting expertise from other disciplines. British Airways has just appointed Julie Simpson, a former adviser to Prime Minister Tony Blair, as director of corporate communications, while Jennie Younger, global head of communications at Deutsche Bank, was once a City analyst.
'The in-house function has changed a lot,' says Mary Walsh, director of corporate relations at Lloyds TSB. 'Companies are recruiting expertise and getting the best people around from consultancies and other organisations.'
One communications director adds: 'The biggest problems agencies have is that their advisers will never devote their entire efforts to one client. They can never know the company as well as those in-house. I operate in a global business.'
Indeed, today the communications director of a FTSE 100 environment and have teams in situ where possible. Where it is not possible, I use local agencies but only from the point of view of eyes and ears - I would never trust them for strategic advice.'
Oskar Yasar, executive director at VMA Group, the executive search agency, finds such an attitude perverse. He argues that listed companies rely on stockbrokers to provide market expertise and investor feedback, and that an independent PR agency can fulfil a similar role with different stakeholders, such as journalists.
'There has been a huge shift in the people coming into PR,' explains Yasar. 'It is no longer seen as a glorified bagcarrying position. Agencies are recruiting brokers, research analysts, lawyers and accountants in order to provide clear strategic advice to their clients. The processes, such as press releases and journalist relationships, may well be done in-house, but when it comes to major strategic issues such as M&A, external agencies can be invaluable.'
Geoffrey Pelham-Lane, senior director at Financial Dynamics, also believes agencies can still play a valuable role. 'We offer an independent viewpoint,' he says. 'We can access the market and present that intelligence in a less subjective way than an in-house officer might do. We are less concerned with media coverage and more with communicating the strategy in the right way and appealing to stakeholders.'
Baillie believes an external adviser, used wisely, can add value to the communications equation. 'I would say all large FTSE 100 companies have sufficient people in-house of the appropriate calibre and are perfectly capable of handling the media,' he says. 'But advisers have an external viewpoint that you can't get in-house. It is an entirely symbiotic relationship that can be of immense benefit.'
Others agree the relationship can provide a good sounding board for ideas, but for many there is a lingering suspicion the financial adviser would far rather deal directly with the chairman or CEO and cut the in-house team out of the loop. 'Good in-house communications directors should make access to the chairman and chief executive easy for the PR adviser,' argues Baillie.
'They should not be threatened by it.' But most in-house directors agree that, when it comes to mergers and acquisitions, agencies come into their own. 'You are virtually guaranteed a team that is 100 per cent dedicated to your project,' says one. 'It is the only time they have no distractions.'
Some FTSE 100 companies retain agencies only when they are involved in takeover activity - Royal Bank of Scotland recently hired Tulchan Communications in preparation for its battle for Dutch bank ABN Amro.
While most FTSE 100 companies have some experience of takeover activity, the in-house team can lack the breadth and depth of knowledge a financial PR adviser (that may have handled several) might have. Yasar believes the battle for the LSE was won not by CEO Clara Furse, but by its PR agency Finsbury. 'Without its strategic advice and input, the LSE would have lost,' he says.
Yasar also highlights one leading high street retailer that, several years ago, suffered dramatically after it switched external agencies from one that cared about all aspects of operations to one that believed its primary role was to offer support on results day. 'You can trace the moment the retailer lost its way to the moment it lost that external strategic support,' he claims. 'It then became a takeover target.'
Internal teams point to such examples as evidence that, too often, financial PR agencies received large monthly retainers but did not exert themselves much. 'Some agencies are their own worst enemies,' rants one internal communications director. 'They do little for their money and then seem surprised when we challenge them about it.'
But while their position as advisers to FTSE 100 companies may be changing, financial PR agencies are certainly being kept busy by companies in the FTSE 250 and Aim. 'I can see a growing role for financial PR agencies with small and medium-sized companies that need to buy in their experiences,' says Walsh. 'They won't have the in-house capabilities FTSE 100 companies possess.'