The invisible hand

A company’s reputation is a fragile asset, and like any other asset, it needs to be cultivated and protected. To manage this process, many portfolio companies have inhouse PR counsel, some even installed by the private equity backer.
Certain businesses, such as consumer product manufacturers, have robust communications departments, but smaller industrial interests may not have this resource.
This can pose a problem when something goes awry, such as a product recall or an accounting scandal.
Any such crisis has the potential to jeopardize the company’s performance, so the sponsor firm is naturally inclined to step in and staunch whatever ink-letting it can. If the portfolio company already has substantial inhouse communications resources, the GP may do well to let these executives address the crisis. In play will be carefully cultivated personal relationships with key journalists covering their industry, as well as the ability to communicate larger trends within a sector that may mitigate adverse circumstances.
However, throughout the a crisis, the portfolio-level PR team should provide frequent and detailed updates to the sponsor’s communication team to keep them abreast of the latest developments and strategies.
Should the PR resources be slim at a portfolio company, the sponsor can offer the services of its own counsel or finance the support of an outside firm. “Bringing in a sponsor’s support does not necessarily mean bringing the sponsor to the forefront,” says Owen Blicksilver, of Owen Blicksilver Public Relations, a PR firm with private equity clients. In fact, notes one expert, a press release from the sponsor firm commenting on a portfolio company issue can offer little value, and no small amount of risk. It calls attention to the link between a troubled company and its private equity owner, a link that’s rarely traced by anyone outside of the private equity trade press. Such a move can also diminish confidence in the company, as this implies that the management is no longer capable of speaking for their business.
As with any rule, however, there are exceptions to the generally unwise practice of making statements on behalf of an embattled portfolio company. If the management team is implicated in some variety of malfeasance, the sponsor can announce the company’s response to the charges, whether that be an internal investigation or new appointment. In such situations, the sponsor’s announcement comes with a credibility that is hard to come by from within the company.
The other exception to the rule is if the portfolio company CEO calls out the private equity firm in the press to accuse the sponsor of some sort of negligence in strategic or financial matters. In these cases, the communications interests of the portfolio company and the private equity firm fall out of alignment and the situation has to be tackled by the GPs’ PR counsel exclusively. This is the worst of all scenarios, as no matter who wins the public tussle, there is an erosion of value for LPs. Public relations experts stress the need for establishing proper communication protocols as soon as possible.
The sponsor firm should clarify what types of PR issues need to be immediately communicated by the portfolio companies. Furthermore, the response to various potential high-profile scenarios should be jointly reviewed, so that the portfolio company’s tactics do not catch the sponsor firm off guard.
But beyond this dialogue between the PR staffs, the greatest contribution a GP can make to an investment’s communication effort has nothing to do with public relations specialists. A PR crisis is rarely more than bad news delivered out of context, usually having been discovered or delivered before anyone at the company cared to share it.
One communications consultant explained that the best defense against bad PR involves an open and ongoing dialogue between the sponsor and portfolio company management. This exchange must value candor above all. An underwhelming quarter or an accounting irregularity can be minimized if the development is shared quickly and candidly. If that conversation takes place early, there is every chance for the proper resources to be deployed.
The vision of a PR guru arriving in the 11th hour to spin a story right is more mythmaking than reality. There is no magic pill or shortcut. The sponsor needs to devote the time to an open and honest relationship with portfolio management, so that if mistakes hit the front page, the GP can maintain the ideal position; namely, in mind, and out of sight.