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Putting the Right Spin on FundGate

It's your worst nightmare come true. Regulators called yesterday to inform of their investigations into your firm's practices, and already some of the toughest news reporters in the industry have called for comments --some more than once. You are still trying to absorb the information, figure out what's what and find out who did what, when, and why?

What do you tell those persistent reporters, your worried mutual fund investors, the concerned financial intermediaries that sell your funds, your loyal employees, your outside vendors, and maybe even your corporate shareholders if you are a publicly traded company?

Public relations and corporate communications executives differ somewhat in their approaches when advising clients as to what to do -- or not to do -- in the face of a crisis situation or scandal.

But all unanimously agree that companies should first take a few basic steps to remedy the offense and/or sanction the offender. Quickly and carefully assess the situation, determine if your company is at fault, and, if so, prepare a thoughtful and direct message to all constituents explaining the situation and detailing what actions will be taken and by whom.

Even if it has not yet been determined if your company is at fault, the thing to do is to say exactly that and to begin communicating even before an investigation has been completed, according to the experts.

The worst thing company executives can do in the face of a crisis is either out-and-out lie, or simply do nothing, crisis management experts told Money Management Executive.

"If they cover up, stone wall or flat out lie, they are doomed," said Larry Smith, president of the Institute for Crisis Management, a for-profit crisis management consulting firm in Louisville, Ky. "Reporters love to catch those who are pulling a fast one."

"Trying to dance around the issue or use spin is a cardinal sin," said Scott Tanner, founder and principal of Millennium Media Consulting in Alexandria, Va. "Journalists are so enterprising, they are going to get the story, anyway. If you have done something wrong, trying to cover it up is the worst thing you can do," he said. "Tell the truth. Be candid and forthright."

FRAGILE: Handle with Care

Whether it is an executive who has suddenly died, a tragic accidental event, a product recall, a class-action lawsuit, insider trading allegations, an ex-employee filing charges, or any other crisis event -- the current fund scandal notwithstanding -- company executives need to take a deep breath and address the problem head on. And they need to do it in the most ethical and direct way.

"It's not the crisis itself but the way that it is managed that will determine the outcome," said Robin Cohn, president of Robin Cohn and Company of New York, and author of The PR Crisis Bible (St. Martin's Press, 2000). Whether in the corporate world or the investment management universe, a company that doesn't do anything --often on the advice of legal counsel -- may face greater challenges, Cohn added.

"A company that is caught in a crisis has already hurt itself, but it can be even worse if it doesn't respond," she said. "And if a company doesn't appear candid, it can be terribly damaging."

"The natural reaction is to circle the wagons and batten down the hatches," said Jody R. Lowe, principal of the Wauwatosa, Wis.-based financial communications firm that bears her name, and a former mutual fund industry public relations executive.

While a gag order is often driven by attorneys whose job it is to protect their clients' interests, she explained, executives should take the exact opposite route and proactively get out in front of the news. Executives should understand the concerns of legal staff, but work to find the right balance between their desire for sealed lips and the proper disclosure for the firm, Lowe added.

Spitting out a pat "no comment" is also a mistake, she added. "A no comment' says that I am more concerned about handling how this crisis affects us than in communicating with clients," Lowe explained. Even a minimal response is a better idea, she added.

Furthermore, not returning reporters calls for comments is a bad move. "You're managing relationships with reporters," Lowe noted. If you cannot respond, call the reporters back and tell them that you cannot respond at this time, she suggested.

"The crisis will become public whether you respond or not," Lowe added.

"Every executive has to understand that there are two courts: the court of law and the court of public opinion," Smith said. "While it may take the court of law three years to decide if you are guilty or innocent, the court of public opinion will make up its mind in three hours to three days," he said.