Timing is everything

It did not take long for the first corporate public relations controversy of 2013 to appear. At 6.20pm on Wednesday 9 January, Sky News' City editor Mark Kleinman phoned Marks & Spencer to say a story was going live detailing the following day's Christmas trading update.

While analysts' consensus forecasts were for general merchandise sales to fall 1.5 per cent in the 13 weeks to 29 December, Kleinman claimed they would be 3.7 per cent down.
 
Marks & Spencer went into PR overdrive, organising an internal conference call with advisers at 7pm and then making a highly unusual decision to issue the figures at 8pm, with a press call 20 minutes later. Kleinman had nearly got the figures right, with general merchandise sales falling 3.8 per cent, while overall like-for-like sales were 1.8 per cent down - similar to Kleinman's claim of a fall of 'just under two per cent'.
 
The retailer's shares duly opened nearly five per cent lower the following day, closing 0.6 per cent down. But the communications repercussions of Marks & Spencer's response to the leak are still reverberating.
 
The Financial Times called the episode a 'frocky horror show' saying it was 'curious that a single controversial number should trigger such a spasm' and calling the company's reaction to the leak a 'panicky response'.
 
While Marks and Spencer's American Depositary Receipts were still trading in the US at the time of the leak, the London market was closed and the retailer 'might have done better to sit tight and wait for morning', the newspaper concluded.
 
Paul Murphy, founder-editor of the FT's Alphaville Internet venture, went further, titling his blog about the episode 'Dumb financial journalism, dumb corporate management, dumb financial regulation' and calling Kleinman a 'chump'. Some public relations professionals are also not mincing their words. 'It was a cock-up of monumental proportions,' says Rory Godson, founder of PR group Powerscourt. 'It was madness. The whole thing was just humiliating.'
 
Dissecting the news
 
So what actually happened and what are the likely consequences for corporate communicators?
 
Andrew Grant, managing partner of Tulchan Communications, Marks & Spencer's financial public relations agency for the past eight years, says the matter was dealt with entirely on the conference call between the retailer's chief executive Marc Bolland, chief finance officer Alan Stewart, director of communications Dominic Fry, financial advisers from Citigroup and Morgan Stanley, lawyers from Slaughter and May and Grant himself.
 
He says Slaughter and May advised that if the information was price-sensitive it would have to be announced by Marks & Spencer immediately. Citigroup and Morgan Stanley confirmed that it was and everyone on the call agreed that the retailer should rush out a statement and organise a press call.
 
'If you're M&S, you cannot break the rules,' says Grant. 'Those people who see this as a sign of a panicking board or say we did wrong don't know what they're talking about. Companies have no option in these cases and it's a legal issue, not a communications tactic.'
 
It's an issue that has split corporate communicators. 'It's pretty unprecedented for something like this to happen,' says one corporate communications director.
 
'I think the ADRs trading in the US are the point that some people have been missing but I'm not sure that Kleinman's report would really have moved that market.
 
'I may have just chosen to sit tight, but the key indicator is that M&S held a press briefing. That's not about regulatory requirements. They wanted to manage the reaction.'
 
That view is countered by a senior director at a leading inancial PR agency who sees Marks & Spencer's action as emblematic of decisions increasingly in the hands of lawyers.
 
'I don't think the corporate communications advisers would have had very much influence over this situation,' he observes. 'Nowadays everything remotely near a regulatory matter is driven by lawyers and lawyers in that kind of situation always choose the most risk-averse option.
 
'The Financial Services Authority keeps a close eye on these matters and will not hesitate to call to check a company has carried out its full disclosure responsibilities.'
 
Indeed, the FSA's disclosure and transparency rules state that if price-information leaks out then companies must disclose this information as soon as possible. In the past, there has been some wriggle room for public relations advisers, especially if the journalist's information is not 100 per cent correct.
 
Media is changing
 
However, Christina Mills, global practice leader for media relations at mining group Rio Tinto, says companies have to be ultra-careful with disclosure, with regulators in many jurisdictions watching closely.
 
She explains: 'There's rarely a 24-hour cycle when our stock isn't trading somewhere in the world. We've been sent letters by the Australian Stock Exchange to ask for more explanation of something that's appeared in the press so we are incredibly mindful of our disclosure requirements.
 
'Reporters tweet and blog these days so something that appears on Sky News in the UK can be all over the Twittersphere in an instant. Print and publication times are less and less relevant these days. They don't dictate the agenda any more.'
 
James Henderson, chief executive of PR agency Bell Pottinger Private, agrees that Marks & Spencer had its hands tied by its regulatory requirements.
 
'There has been an obvious leak and there was potential for the share price to move significantly so without clarification to the markets, they would have been open to censure by the FSA,' he says.
 
'The FSA would have asked why they didn't make an announcement. They did the appropriate and responsible thing, given the circumstances.'
 
While there are few direct comparators to the M&S case, many communicators can tell of having to make judgment calls about leaks.
 
'When we had a rights issue in 2009, there was quite a bit of leakage in the press about it but we neither confirmed or denied the stories,' says Jonathan Thornton, head of communications at FTSE100 cansmaker Rexam, which has ADRs in New York.
 
'There was a lot of speculation, which turned out to be fairly accurate. We did look at bringing things forward but didn't think it was sufficiently material.'
 
Similarly, Alex Cole, the former global corporate affairs director at Cadbury who is now director of corporate affairs at Sainsbury's, recalls a leak to BBC business editor Robert Peston the day before Kraft's lengthy pursuit of the chocolate group ended with a recommended £11.9 billion takeover in January 2010. Peston was correct but Cadbury stuck to its policy of not commenting.
 
'It was not finalised; the deal had not been signed,' she says. 'Peston and Kleinman both said they'd heard the Cadbury board was going to recommend a Kraft bid but the difference was that it had not been finally decided.'
 
Some decisions have gone other ways. Grant cites Kingfisher issuing an unscheduled trading update in September 2009 after accidentally sending analysts a spreadsheet containing its figures.
 
Google's shares were suspended for two and a half hours last October after the group's financial printing supplier released its third quarter results by mistake.
 
And in January, easyJet issued a Saturday evening announcement that its chairman Sir Michael Rake is to leave the company in the summer after Kleinman reported the move earlier that day.
 
'It's what's called a cleansing of the market,' says Grant. 'You have to confirm that information through the official regulatory channels.'
 
But Godson at Powerscourt believes it's a matter of corporate leadership. 'It's just advice, whether it comes from brokers, public relations advisers or lawyers,' he says. 'The buck stops with the executive management. It doesn't matter whose advice they take, it's the chief executive's decision. My advice would have been: if at all possible, brave it out.'
 
A precedent?
 
The question is whether Marks and Spencer's action will influence other companies experiencing disclosure issues.
 
'This has to set a precedent,' says one senior in-house PR director. 'I don't think the FSA or anyone else has come out and said that Marks & Spencer was right or not to do what they did. People are still figuring it out. If anything, the reaction to what M&S did reveals the dangers of doing something like that unless there is a real need.'
 
Grant disagrees, arguing: 'Firstly, it is not unprecedented. There's a clear principle here which we abided by. If a company is in possession of what appears to be price-sensitive information and it appears that that information has become public via any route whatsoever, the company has an obligation to make that information public as soon as possible.
 
'What was different about this case is not so much that shares were trading through ADRs as about rather the wide range between the consensus analysts' forecasts and the information that was leaked. The range was huge and so we had to announce it.' In an unrelated move, Marks & Spencer has subsequently put its financial PR contract up for repitch. Tulchan will not be involved.
 
Fry at Marks & Spencer wants to move on. 'We did what we did and took advice from our financial advisers, lawyers, public relations advisers and everyone else,' he says.
 
'It was a unanimous decision to bring the announcement forward. That's all we really want to say about it.' For other corporate communicators, however, the debate has only just begun.