Penn State: The school’s PR crisis has not abated with the conviction of former coach Jerry Sandusky on multiple counts of child sexual abuse. In an independent investigation, former FBI director Louis Freeh said Penn State officials hid allegations against Sandusky dating back to 1998. Freeh has identified the late coach Joe Paterno as central to the concealment, undermining claims by Paterno and his supporters that his knowledge of the situation was limited. Based on the investigation’s findings, Paterno may have faced charges had he lived.
The images of Paterno and Penn State suffer further damage in a report that the coach negotiated lucrative new compensation for himself as prosecutors opened the Sandusky investigation. The package hinged on Paterno’s agreeing to retire, but negotiations entailed keeping the school’s board of trustees in the dark until the last minute and using strongarm tactics to get them to agree to the deal once revealed.
Penn State is vowing a new era of transparency and accountability. These promises will ring hollow if perks and other contractual obligations given to the Paterno family go unchallenged. The board’s chairperson, Karen Peetz, has announced there will be no reexamination of the Paterno deal, saying “Contracts are contracts.” This attitude will heighten hostility toward the school, weakening its position in civil suits by Sandusky’s victims and possible investigation of the football program by the NCAA. Ms. Peetz’ pat answer is all the more remarkable given Penn State’s plethora of PR failures to date.
Duke Energy: Duke Energy rocked the business world by ousting its new CEO, Bill Johnson, within hours of its completed merger with Prospect Energy. Johnson had been Prospect’s CEO and was promised the top spot of the combined company as part of the deal. Duke’s CEO Jim Rogers assumed the helm upon Johnson’s forced departure.
All stakeholders including regulators, investors, customers and employees, had been informed of the plan to have Johnson lead the new Duke. His severance looks clumsy at best and conspiratorial at worst. There is no way that this outcome could be considered “in the best interest of the company” per a traditional corporate response given the fallout which could include investigations and fines, pushback on future requests for rate increases, and even the theoretical possibility of the North Carolina Utilities Commission voiding the merger.
I wrote my master’s capstone on mergers and acquisitions, basing my thesis on personal experience as Assistant Vice President of Marketing Communications for a national mortgage company acquired during the deepening industry crisis in 2007. Unexpected changes in corporate leadership after M&As create distrust among internal and external audiences. Ignoring this outcome belies an ignorance of public relations fundamentals.
LIBOR: The London Interbank Offered Rate, LIBOR, is not a company or a product. It is a financial benchmark compiled and published by the British Bankers’ Association (BBA), a daily average of rates that banks charge each other for short-term, unsecured loans. LIBOR is considered a barometer of financial industry health as low rates indicate banks’ confidence in each other and overall markets. LIBOR affects the entire economy as a foundational rate for trillions of dollars in financial products used by consumers and businesses. Now LIBOR is having a PR crisis.
Banks have been charged with rigging LIBOR by underreporting their interbank lending rates when surveyed by the BBA. Reporting institutions did this to preserve customer and investor calm since higher rates are a sign of nervous banks. There were doubts that banks were posting honest figures. While president of the New York Federal Reserve, Treasury Secretary Timothy Geithner communicated with Bank of England Governor Mervyn King about reforms to make LIBOR more accurate following his suspicions that banks were not communicating actual rates.
The LIBOR crisis is growing as officials admit to lying about interbank lending rates. The Justice Department levied a $450 million fine against Barclays with investigations ongoing against other major banks. Civil suits are likely as investors, business and consumers claim damages from rate manipulation.
I served as editor of LIBORATED.com, a website dedicated to LIBOR and financial products tied to the index. LIBOR’s significance cannot be overstated. It has been considered an unimpeachable means to set rates for a vast array of financial activities. The LIBOR-rigging scandal provides another condemnation of the banking industry and the trade associations and government bodies that are supposed to be overseeing it. LIBOR is not the property or responsibility of a single bank. It is a collective source of information built on trust between banks and their stakeholders. To instill confidence, banks ironically turned to deception, the antithesis of good public relations.