Mastering the media

Criticisms are increasingly being flung at the private equity industry. Firms have two options to manage their reputation: they can litigate, or engage the media.

David Engel is a partner in the commercial litigation group specialising in reputation management, including for alternative asset management teams and their investee companies, at London law firm Addleshaw Goddard. He can be reached at

The public reputation of private equity has taken something of a battering in recent months. While the attacks have mostly been ill-informed and unjustified, there have been a number of media savvy (and often politically motivated) campaigns against private equity houses that have backed the likes of Bird's Eye, Burberry and NCP. These campaigns have had some success in portraying private equity investors as unprincipled asset strippers whose priority is to make a good return on their investment at the expense of employees and the long-term prosperity of the investee company generally. Criticism has also been leveled at the tax concessions enjoyed by the private equity sector, and of the fact that acquisitions are so highly leveraged.

The trades unions behind a number of these campaigns have not hesitated to use every trick in the book to generate media interest, including publicity stunts such as the camel paraded outside Damon Buffini's place of worship, and of course web sites and blogs, to generate media interest.

There are answers to these criticisms. Some are straightforward; others require greater explanation. And there are plenty of positive stories, such as the extraordinarily generous levels of philanthropy of many individuals. But the fact remains that much of the sector has a tendency to react to the spotlight of media attention more like a rabbit caught in the headlights: don't move, don't make a sound, and hopefully eventually the caravan will move on.

Such a reaction is unsurprising. Private equity houses are, by their very nature, private. Most are understandably deeply reticent about discussing their own affairs, or the affairs of their investee companies, with anybody other than their own investors. That, after all, is in many cases the raison d'^tre of taking such companies private.

But perhaps now it is time for private equity houses to move onto the front foot and become a little less private, particularly with those close to the British Prime Minister-elect starting to bang the transparency drum.

To anybody who is not hostage to a particular agenda and who thinks about the subject for more than half a minute, it is plain that the private equity sector can be, and in most cases is, a powerful force for good in the British economy. Arguably, private equity, and the increasingly closely linked hedge fund sector, represents a whole new model for capitalism. That does not mean it is wrong. But it may make it harder to explain. And therein is the challenge from a communications perspective.

Private equity and PR consultants may not be natural bedfellows. Far from it. But the development and execution of a communications strategy (including, but certainly not limited to, media relations) need not in any way cut across or undermine the wider strategy of the business. Indeed there is no reason why it cannot be fully aligned with it and, in due course, become an integral part of it and assist in its delivery.

At its simplest, the private equity sector needs to consider communicating the benefits of its business models to a wider audience, including not just employees and other stakeholders in its investee businesses, but also to government, to the business community generally and to the opinion forming, radio-listening and broadsheet newspaper reading, sections of the public.

To some extent, this is already starting to happen. Damon Buffi-ni and Charles Sherwood of Permira are examples of two leaders in the field who have been willing to put their heads above the parapet and engage with their critics. Jon Moulton of Alchemy Partners has also given robust and persuasive interviews. The BVCA appears to be alive to the issue and is rumored to be developing a strategy to counter negative press coverage of the sector.

These green shoots tend to suggest that private equity has a great deal to gain, and perhaps not so very much to lose, from engaging in public debate and allowing a little more light into their businesses and those of their investee companies.

There may even be lessons to be learned from the professional services sector (perhaps not always famous for being at the cutting edge of business strategy), which for years jealously guarded the privacy afforded by the partnership structure. When the opportunity arose for such firms to incorporate as LLPs, it was wholeheartedly embraced, despite the fact that it brought with it requirements of financial disclosure which would previously have been anathema to most right-thinking accountants and solicitors. Has the sky fallen in? No. Is there more press attention on the profitability and financial success of such firms? Inevitably. But is that necessarily a bad thing? Surely not.

If an approach is made by the media while a program or article is being prepared, some cooperation, at least initially, is generally helpful, if only to find out more about the likely angle of the story. Consideration may need to be given to contributing by way of an interview or by giving written answers to questions provided in advance. If a representative is to provide an interview, the right person should be chosen. His or her seniority will depend on the importance and profile of the program and the issue which has come under the scrutiny of the media.

Bringing the shutters down and adopting a ?no comment? position is always an option, but these days rarely a viable one. Almost inevitably it will be interpreted by the press and their readers at best as defensive stonewalling and at worst as a tacit admission of guilt.

If the media is proposing to run a story which is wrong or misleading, then this should be pointed out, in robust terms if necessary, perhaps highlighting the legal sanctions in the event that damaging and untrue allegations are made.

Even if the story is essentially correct, it may still be worth setting it in context and explaining what remedial action is being or will be taken.

It may be appropriate to invoke the Press Complaints Commission Code of Practice, the BBC Producers' Guidelines or the Ofcom Broadcasting Code. These give the subject of an article or program the right to be informed and consulted in certain circumstances.

To litigate or to mediate
Obtaining an injunction to prevent publication of a defamatory story is rarely a practicable option. The courts will not prevent publication unless it is obvious that there is not a shred of truth in the allegations. After publication, however, it is a different matter. If appropriate, the gloves can come off and a solicitors' letter sent, threatening court proceedings if the record is not set straight at once by publication of an apology and any other appropriate remedies.

If the story involves a breach of confidence, such as threatened publication of information in a confidential document, or an infringement of privacy, the prospects of obtaining an injunction will be better, unless the information is already in the public domain or publication is clearly in the public interest.

Each case should therefore be considered on its particular merits in order to assess the prospects of success. All litigation carries an element of risk, but an unsuccessful court hearing against the media can be seriously counter-productive.

It may well be that a more sophisticated legal and communications strategy will be more effective at ensuring that misleading and damaging coverage is not broadcast or published. Typically, this would include engaging with the media and its legal representatives prior to publication.

No two cases are the same, but a business which already has in place a strategy for dealing with media exposure is likely to be able to respond more rapidly and authoritatively than one which does not.

Preparatory steps might include the appointment of a media management team. Lines of command should be kept short and roles clear. Team members should understand the importance of deadlines ?there is rarely time for leisurely debate or extended chains of approval. The media does not respect time zones. Decisions may have to be made in New York or London even when the other is offline.

?Perhaps the most helpful pre-emptive step which can be taken is to engage with the media, and foster relationships with key journalists, particularly those who understand the sector. Journalists known personally by partners in the business may be more willing to listen sympathetically and give the business the benefit of the doubt at a time of crisis.?

Managers should be required routinely to report potential trouble spots at investee businesses to the crisis management team. Potential crises can arise in any part of the business, involving an employee at any level. This is a separate issue from compliance. What may be of great interest to the compliance officer may be of little interest to the media, and vice versa.

It is of course essential that employees both at the private equity house and at its investee companies should know who is authorized to communicate with the media. Journalists are generally past masters at eliciting information from those inexperienced in dealing with them. Appropriate due diligence processes should be set up, and perhaps tested in advance, in order quickly to ascertain whether there is any truth in any specific allegations being made by the media.

But perhaps the most helpful pre-emptive step which can be taken is to engage with the media, and foster relationships with key journalists, particularly those who understand the sector. Journalists known personally by partners in the business may be more willing to listen sympathetically and give the business the benefit of the doubt at a time of crisis.

Inevitably, it is easier to develop a successful reputation management strategy ?with or without the assistance of external professionals ?when all is calm, rather than fire-fighting at a time of crisis.