Accounting Study: Be Careful with Video for Bad News

A new study found a discrepancy in how managers perceived a CEO who announced financial restatements via video compared to text. After viewing messages in each medium, managers were asked to rate the trustworthiness of a CEO who announced changes. Published in the March/April issue of The Accounting Review,  the study suggests that companies needing to issue restatements should do so via video only if they take responsibility for the bad news. The authors explain:

"Announcing a restatement online via video is likely to benefit firms only when top management apologizes for the restatement and accepts responsibility by making an internal attribution for the error. When management apologizes but denies responsibility by making an external attribution, announcing a restatement online via video is likely to have unintended negative effects on investors."

The messages varied by only one sentence in the middle of the statement:

• "We are fully responsible for this error because we relied on the advice of our internal lease accounting expert when preparing our financial statements." OR
• "We are not responsible for this error because we relied on the advice of external lease accounting experts when preparing our financial statements."

According to the study, using video is risky, but there is an upside. Managers who watched the video gave the CEO a trustworthiness rating of 6.15 out of 7 for the first statement and a mere 4.0 for the second. Managers who read text of the statements gave similar ratings for both: 4.75 and 4.55, respectively.

This study had a professional actor play the role of the CEO. For real situations, corporate communicators likely will consider many other factors before choosing video or text, including how well the CEO will come across to an audience of investors.

For more detail, see the study, "Using Online Video to Announce a Restatement: Influences on Investment Decisions and the Mediating Role of Trust."

Discussion Starters: 

• What do you think accounts for the discrepancy between a video and text?
• What would you advise a CEO to do when he or she has to issue a restatement because of an internal error? Should he or she risk creating a video? What would factor into your decision?
• If a company has to issue a restatement because of an external error, should the CEO take responsibility as if it were an internal error in hopes of garnering more investor support? (Careful!)

Vassar Posts Acceptance Letter for Rejected Applicants

When 122 early-decision applicants logged onto Vassar's system to check their application status, they saw the good news: that they were accepted. But 76 were not. A test letter that a college spokesperson called a "system error" was mistakenly posted. Fortunately, even more of the 254 early-decision applicants hadn't seen the letter before the problem was caught.

On the website College Confidential, students posted their frustration:

• "Is it possible to be admitted and then 2 hrs later have admission revoked???"
• "It did the same for me: accepted at 4, reject at 5. I don't understand..."

Vassar sent an email to students to apologize for the error:

Catharine Hill, president of Vassar, also apologized:

"We are terribly sorry about the confusion and disappointment the erroneous information posted online caused the students. Our admissions process is a careful deliberation over several months, so it is so unfortunate to have this communication error happen at the end of that process for some of our early decision candidates."

 Discussion Starters:

• The mistake is far too common, with the University of Delaware and other schools making similar errors. How do you think this could happen, and how could it be avoided?
• Assess Vassar's apology letter. If you were a student affected by the mistake, would the email reassure you, or would you find it "lame," as one student said?
• Rewrite the apology email in your own words. How could you improve it?

Company Communications about the Costa Concordia Cruise Disaster

Here's a compilation of communications about the Costa Concordia cruise disaster so far:

• January 17: Statement from CEO of Carnival Corporation, parent company of Costa Cruises.

• January 16: Press conference with CEO of Costa Cruises. Transcript here. Watch the introduction:

• January 14 and 15: Statements from Costa Cruises (on its website).

• January 13: Audio of Italian coastguard telling the captain to "Get [back] on board" (with English subtitles). Transcript here. Audio from BBC with English dubbing:

• January 13: On-board announcement indicating "an electrical fault, which is currently under control" (video shot by a passenger).

Discussion Starters:

• How do you assess the timeline of the Costa and Carnival statements? What could have caused the delay in Carnival's statement? 
• Analyze each communication after January 13. What is most and least effective about each?
• What else, if anything, do you believe Costa or Carnival should communicate at this point? What should the companies prepare to communicate next?

Sears Communicates Store Closings

Perhaps a New York Times article says it best: "Sears has been limping along for years." But after a disappointing holiday sales season, the company has decided to close 120 Kmart and Sears stores.

In its press release, titled " Sears Holdings Provides Update," the company provides its quarter-to-date performance and the rationale for the store closings and other actions:

"Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce on-going expenses, adjust our asset base, and accelerate the transformation of our business model. These actions will better enable us to focus our investments on serving our customers and members through integrated retail -- at the store, online and in the home."

The press release uses the indirect organizational plan but does use bullets to highlight important changes. The full release also was hard to find. I expected to see this with the list of store closings at www.searsmedia.com, which was referred to in several articles. As of this writing, the release was posted only on www.searsholdings.com, and which stores are closing remains a mystery. This change will bring many layoffs, so we'll continue to see the communications unfold.

Discussion Starter and Assignment Idea:

• Analyze the company's press release. Outline the release to show the sequence of main points. What works well about the organization, and what is lacking?
• Imagine that you're the VP, communication, for Sears. Write an email to employees explaining the news. What, if anything, would you say about layoffs at this point?

American Airlines Communicates Bankruptcy to Employees

AMR Corporation, American Airlines' parent company, has filed for Chapter 11 bankruptcy protection. In a press release, the company assured investors and passengers that "American Airlines and American Eagle are operating normal flight schedules today, and their reservations, customer service, AAdvantage program, Admirals Clubs and all other operations are conducting business as usual." The company also sent an email to AAdvantage club members about their miles.

As part of the change, Gerard Arpey, chairman and chief executive officer of AMR Corporation and American Airlines, announced his retirement. He will be succeeded by Thomas W. Horton, who will continue to also serve as president.

In a memo, Tom Horton tried to reassure employees:

I realize this news might be difficult to absorb; change is never easy. We will do our very best to keep you informed, understanding that there will be many questions we are not able to answer right away. I can certainly tell you that we expect to continue to provide employee wages, healthcare coverage, vacation, and other benefits, without interruption.

A New York Times article (and other sources) indicates that a major impetus for the bankruptcy filing is the airline's high labor costs:

One of AMR's chief goals in bankruptcy will be to lower its labor costs.

The company had been in contract talks with its unions until the negotiations stalled earlier this month when the pilots' union refused to send a proposal to its members for a vote. Because federal bankruptcy rules allow companies to reject contracts, AMR may take a harder negotiating stance with its unions.

"Achieving the competitive cost structure we need remains a key imperative in this process," Mr. Horton said, "and as one part of that, we plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels."

Of course, the company memo to employees makes no mention of these difficulties. 

Discussion Starters:

• Read the entire memo from Tom Horton. If you were part of American Airlines' management team, how do you think you might react? If you were part of the unionized staff, how might you react?
• What can American Airlines do to keep employees continuously informed? What internal communication strategies and tools will be important for the company to use at this time and going forward?

Layoffs at Nokia

Nokia Siemens is laying off 17,000 employees - 23% of its workforce. In a press release headline, Nokia explains the company's focus: 

Nokia Siemens Networks puts mobile broadband and services at the heart of its strategy; initiates restructuring to maintain long-term competitiveness and improve profitability

The press release further explains Nokia's restructuring plans:

Nokia Siemens Networks plans to reduce its global workforce by approximately 17,000 by the end of 2013. These planned reductions are expected to be driven by aligning the company's workforce with its new strategy as well as through a range of productivity and efficiency measures. These planned measures are expected to include elimination of the company's matrix organizational structure, site consolidation, transfer of activities to global delivery centers, consolidation of certain central functions, cost synergies from the integration of Motorola's wireless assets, efficiencies in service operations, and company-wide process simplification.

Discussion Starters and Assignment Ideas:

• What examples of euphemisms, business slang, and jargon do you see in the press release excerpt?
• How many nominalizations do you find in the press release? Rewrite the press release excerpt, changing all of the nominalizations to verbs or adjectives.
• Is the language in the press release appropriate for the audience? Who is the audience? 
• Rewrite the press release for employees. How would you change the word choices for an internal audience who is affected by the news? Would you address the speculation that Nokia is getting ready for a sale?

McDonald's and Target's (Former) Egg Supplier Caught on Video

The Food and Drug Administration gave Sparboe Farms poor reviews at five locations. This news and an undercover video by an animal-rights group inspired McDonald's and Target to drop the egg supplier. The graphic video [watch at your own risk] shows chickens terribly mistreated and living in unsanitary conditions.

In the first two paragraphs, McDonald's statement explains the decision and reassures customers:

McDonald's expects all of our suppliers to meet our stringent requirements for delivering high quality food prepared in a humane and responsible manner.  Based upon recent information, we have informed our direct supplier, Cargill, that we are no longer accepting eggs from its supplier, Sparboe.  This decision is based on McDonald's and Cargill's concern regarding the management of Sparboe's facilities.

This is not a food safety issue for our menu items.  We can assure our customers that eggs in our entire supply chain meet McDonald's high standards for quality and safety. 

Target explains its decision in this way:

Target is committed to delivering outstanding quality and uncompromising safety with every owned-brand food product. We expect and rely on our vendors to operate facilities that meet industry standards and regulatory requirements.

Having been made aware of the unacceptable conditions in the company's egg laying facilities, effective immediately, Target will discontinue its business relationship with Sparboe Farms. We are currently in the process of notifying our teams to remove the product from store shelves.

Sparboe Farms developed a website and video by the company president to convey its own position:

Discussion Starters:

• Compare Target's and McDonald's full statements. What differences do you notice, and which does a better job?

• Analyze Sparboe Farm's response. Review the website, president's video, letter, and other messages. In what ways is each effective and ineffective in rebuilding Sparboe's image?

Penn State Flubs Response to Child Abuse Accusations

Former Penn State Defensive Coach Jerry Sandusky has been arrested for abusing eight minors. Apparently, Athletic Director Tim Curley and VP for Finance and Business Gary Schultz were told about one incident but kept silent. They have since been charged with perjury.

The president of Penn State, Graham Spanier, issued a statement backing Curley and Schultz:

The allegations about a former coach are troubling, and it is appropriate that they be investigated thoroughly. Protecting children requires the utmost vigilance.

With regard to the other presentments, I wish to say that Tim Curley and Gary Schultz have my unconditional support. I have known and worked daily with Tim and Gary for more than 16 years. I have complete confidence in how they have handled the allegations about a former University employee.

Tim Curley and Gary Schultz operate at the highest levels of honesty, integrity and compassion. I am confident the record will show that these charges are groundless and that they conducted themselves professionally and appropriately.

The president has been harshly criticized for his response. One media expert offered this alternative for the university's response:

I am horrified to learn about the sexual abuse of eight minors. As a parent, I understand just how sacred a responsibility we all have to keep children safe. We will cooperate fully with the investigation and do everything possible to make sure this never happens again.

As for Mr. Curley and Mr. Schultz, I would ask everyone to wait until the facts of the case have fully emerged before forming a judgment.

This statement more appropriately acknowledges the victims without aligning the university with Curley and Schultz. Since the president issued the statement, Curley has been placed on administrative leave, and Schultz has stepped down and retired from the university.

The Board of Trustees of Penn State University are also planning for the dismissal of Joe Paterno, the current football coach, who, according to a New York Times article, "has more victories than any other coach at college football's top level and who made Penn State a prestigious national brand."

 Discussion Starters:

• How do you assess the proposed rewrite of the president's statement? What are the improvements -- and what are the risks -- of such a statement?
• Do you agree with the university's decisions to 1) place Curley on administrative leave, 2) accept the resignation/retirement of Schultz, and 3) plan the exit of Paterno? Why or why not?

Two More UBS Executives Resign

Not surprisingly, the two co-global heads of UBS's Equities division have resigned. These resignations follow a trading scandal that cost the Swiss bank $2.3 billion and the CEO's resignation on September 25.

An email to employees from interim CEO Sergio Ermotti uses a sharper tone than emails from the previous CEO:

"We have to be straight with ourselves. In no circumstances should something like this ever occur. The fact that it did is evidence of a failure to exercise appropriate controls. Our internal investigation indicates that risk and operational systems did detect unauthorized or unexplained activity but this was not sufficiently investigated nor was appropriate action taken to ensure existing controls were enforced."

Discussion Starters:

• Ermotti's email uses an indirect organizational plan. Do you think this is appropriate in this case? Why or why not?
• Compare Ermotti's email to that of Carsten Kengeter, the head of the UBS investment bank. What differences do you notice, and how would you explain them?   Download UBS emails.

UBS CEO Resigns

Following the scandal that caused Swiss bank UBS $2.3 billion, CEO Oswald J. Grübel has resigned. In a memo to employees, Grübel says, "I did not take the step of resigning lightly."

In the memo, Grübel includes a pep talk for employees:

"As I've always emphasized, a lot of work remains to be done here. So don't let recent events distract you from your work. Continue giving your all and keep your focus on your clients. I am certain that UBS can carve out a strong place for itself within the fundamentally changing financial industry."

This memo follows a previous communication to employees, in which Grübel explained the incident and wrote, "Ultimately, the buck stops with me."

Discussion Starters:

• Who are Grübel's primary and secondary audiences for this memo?
• What would you identify as Grübel's goals of this message?
• In your opinion, to what extent did he achieve these goals?

UBS CEO Memo Following $2.3B Loss: "The buck stops with me"

A 31-year-old rouge trader has caused close to $2.3 billion in losses for Swiss bank UBS. Unauthorized, speculative trades over three months apparently went unnoticed until the trader's recent arrest. UBS is expected to be able to absorb the hit, but Moody's is investigating the firm for a potential downgrade.     

In a memo to staff, UBS CEO Oswald J. Grübel acknowledges that people are "shocked and disappointed" and tells employees "our fundamental strengths as a firm remain intact." Grübel also encourages employees to report wrongdoing:

"Ultimately, the buck stops with me. I and the rest of senior management are responsible for dealing with wrongdoing. I only wish to remind everyone that all of us have a part to play in identifying and reporting wrongful behavior and conduct in the workplace. If you feel uncomfortable about informing your line manager, I urge you to use one of the other available channels for doing so."   Download memo from UBS CEO

Discussion Starters:

• How could a loss of this magnitude have happened at a company like UBS?
• How do you assess Grübel's memo to staff? How well does he handle the bad news? What arguments do you find most and least convincing in the message?

Bank of America Will Cut 30,000 Jobs -- The Largest Number This Year

Bank of America is cutting more jobs. Following the 6,000 jobs lost earlier this year, a $5 million investment by Warren Buffett's Berkshire Hathaway Inc., and a management-team shake-up, the company will lose 30,000 jobs in attempt to scale down the largest bank in the country.

CEO Brian Moynihan has some explaining to do. The stock is down 48% this year, and the Bank is still paying for what some believe were poor acquisitions of Merrill Lynch and, particularly, Countrywide. BofA wins the dubious honor of having the largest number of cuts this year. (The U.S. Postal Service announced 30,000 last year and has cut more than 100,000 jobs in the past five years.)

As part of its communication strategy, Bank of America issued a press release to provide an update on "Project New BAC." (BAC is the stock symbol.) And in a conference call, Moynihan described four points that support Bank of America's future success.

Discussion Starters:

• Read Bank of America's recent press release. If you were an investor, would you find this reassuring? Why or why not?
• Listen to the introduction to Moynihan's conference call. Based on this introduction, which of his four points do you find most convincing? Least convincing?

Yahoo CEO: "I've just been fired over the phone..."

Carol A. Bartz leaves Yahoo in the same style in which she ran the company. Known for her abrasiveness, Bartz sent this email to employees: 

Hired in January 2009 at Yahoo, Bartz has a history of writing strong emails, such as this one, in which she tells her staff, "...people seem like they're waiting for something. I'm not sure if it's a sugar-low or what, but we need to stop waiting and get moving. Good things do not come to those who wait, they come to those who make things happen."  She is also known for her liberal use of the "F-bomb," as on this quarterly earnings call.

Following Bartz's email to staff, the board chair and Yahoo founders sent an email of their own, announcing the decision and explaining other changes at the company.

Discussion Starters:

• In Chapter 1 of the text, you read about communication media choices. What is your assessment of the chair of Yahoo's board firing Bartz over the phone? What could be the rationale for terminating her over the phone rather than in person?
• What is your assessment of Bartz's email to Yahoo employees? Do you consider this appropriate, inappropriate, or something in between?

Should the NYC Mayor's Office Have Disclosed Domestic Violence Arrest?

When Bloomberg's deputy mayor Stephen Goldsmith resigned, the administration said that he was leaving "to pursue private-sector opportunities in infrastructure finance." In a statement, Goldsmith said, "The change will provide me, at age 64, with more flexibility for me and my family and a secure foundation for our future."

But the story has changed. Prior to his resignation, Goldsmith was arrested following an altercation with his wife and spent two days in jail. Critics say that the arrest should have been disclosed as soon as the administration knew. This is significant partly because of Goldsmith's role, which was to oversee major city agencies: police, fire, transportation, sanitation, and buildings.

Discussion Starters:

• Did the administration have a responsibility to disclose Goldsmith's arrest? 
• Evaluate the decision: what are the arguments supporting and against disclosure? How might the administration's view differed from Goldsmith's perspective?
• Goldsmith's wife seems to have changed her story from what was reported in the arrest record. The original record describes quite a physical scene, and yet Mrs. Goldsmith later denied that physical violence occurred. What role, if any, do you think she played in the decision not to disclose the incident?

Steve Jobs Submits His Resignation Letter

Steve Jobs has resigned as CEO of Apple and will continue as Chairman of the Board. He will be replaced by Tim Cook, who has filled in for him during his most recent medical leave. Jobs' resignation letter does not explain the reason, but his resignation is believed to be related to pancreatic cancer that has plagued Jobs in the past.

While speculation about the impact of Jobs' departure runs rampant, investors are "undaunted," according to Reuters. The stock dropped a mere 1.7% on the news.

Discussion Starters:

• Compare Jobs' resignation letter to previous emails to employees: Janaury 2011 and January 2009. What differences do you notice?
• Watch Jobs' Stanford University commencement address from 2005. What lessons do you take away from this speech?

Layoffs to Begin This Week at RIM, Maker of BlackBerry

Research in Motion will begin laying off 10% of its workforce this week. This comes as no surprise to people watching the company: the BlackBerry has been losing smartphone market share and has dropped to second place after Google's Android. Also, RIM warned of lower revenues and announced layoffs (their "cost optimization program") last month.

Skeptics doubt that the layoffs will be an effective long-term solution for RIM:

Video source.

In a press release dated July 25, 2011, this is how the company explained the decision:

Cost Optimization Program
In addition to the management changes outlined above, RIM today provided further details on its cost optimization program, which is focused on eliminating redundancies and reallocating resources to focus on areas that offer the highest growth opportunities and alignment with RIM's strategic objectives.  The workforce reduction is believed to be a prudent and necessary step for the long term success of the company and it follows an extended period of rapid growth within the company whereby the workforce had nearly quadrupled in the last five years alone.

As part of this broad effort, RIM is reducing its global workforce across all functions by approximately 2,000 employees. RIM intends to notify impacted employees in North America and certain other countries this week. The remainder of the global workforce reductions will occur at a later date subject to local laws and regulations.  All impacted employees will receive severance packages and outplacement support. 

The size of this workforce reduction is in line with the preliminary estimate that was factored into RIM's full year financial guidance on June 16, 2011.  Following the completion of the workforce reduction, RIM's global workforce is expected to be approximately 17,000 people.  Additional information about the financial impact of this workforce reduction and other operating expense reductions will be communicated when the company reports Q2 results on September 15, 2011. As explained on June 16, 2011, any one-time charges associated with the cost optimization program are not included in RIM's Q2 and full year outlook, but will be identified and disclosed on September 15, 2011.

Discussion Starter and Assignment Idea:

• According to Chapter 1 of the text, what type of language is used in RIM's press release? What examples can you find of different barriers to communication?
• Rewrite this segment of the press release for employees. What would you say differently to internal staff who may be affected by the decision? When you're finished, exchange drafts with a partner. Which version do you prefer and why?

Bad News at Borders: All Stores Will Close

After filing for bankruptcy and failing to find a buyer, Borders will start liquidation. Currently the second-largest bookstore, employing 10,700 people, the company will close its remaining 399 stores. At its peak, Borders operated 1,000 stores and employed nearly 20,000 people. In the company's press release, Borders Group president Mike Edwards explained the decision: "We were all working hard towards a different outcome, but the headwinds we have been facing for quite some time, including the rapidly changing book industry, eReader revolution, and turbulent economy, have brought us to where we are now."

Discussion Starters:

• Read Borders' full press release. How do you assess the company's statement? Is this an effective bad-news message?
• On an open blog for Borders employees, we can read about employees' frustrations. If you were the VP of communication for Borders, what if anything, would you do in response to these comments?

Dr Pepper Sues Its Bottler

A family-owned company in Dublin, TX, has been bottling Dr Pepper since 1891 but is now being sued by Dr Pepper Snapple Group Inc., which owns the brand. The parent company wants the bottler to stop using "Dublin" on its label and to stop selling its bottles via the Internet. The Dublin bottler uses cane sugar rather than high fructose corn syrup.

Discussion Starter and Assignment Idea:

• How do you think this news reflects on the Dr Pepper brand? Could this damage its reputation, or will this blow over quickly?
• Write a bad-news message from the parent company's management team to its employees. How will you explain the lawsuit internally?

Apple and Foxconn Respond to Explosion at Foxconn Plant

More bad news today at Foxconn, the Taiwanese manufacturer of electrical components and maker of Apple's iPod, iPhone, and iPad. An explosion at an assembly plant in China caused the death of two employees and left 16 more injured.

Video source.

Apple was quick to offer condolences: "We are deeply saddened by the tragedy at Foxconn's plant in Chengdu, and our hearts go out to the victims and their families."  

Foxconn also offered this statement to All Things Digital:

"We can confirm that at approximately 7 pm on May 20, there was an explosion at our Chengdu campus. At this point, we can also confirm that there were two fatalities with injuries to 16 other employees. We are working with medical officials to provide treatment to the injured employees and we are working with government and law enforcement officials to contact the families of all employees affected by this tragedy.

"The situation has been brought under control by the fire department and the cause of this explosion is being investigated by local police officials. Foxconn is cooperating fully with that investigation. Production has been suspended at the site of the explosion until the completion of the investigation. The safety of our employees is our highest priority and we will do whatever is required to determine and address the cause of this tragic accident."

Foxconn was in the news in late 2010 when employee suicides called the company's labor practices into question. In June 2010, Apple's Steve Jobs defended working conditions, saying, "Foxconn is not a sweatshop." With this latest incident, Foxconn and Apple have had more than their share of communication challenges.

Wal-Mart Manages the Company Crisis in Japan

The Story

The life of a CEO is particularly challenging during a crisis such as the earthquake and tsunami in Japan. The Wall Street Journal has published the experience of Toru Noda, the chief executive officer of Wal-Mart Japan Holdings.  Below is a timeline of the company's activities.

Discussion Starters

• What are Wal-Mart's major business challenges at this time?
• What are the company's major communication challenges? 
• Looking at Wal-Mart's reaction (the timeline above), what surprises you?

 Assignment Ideas

• Imagine that you are Toru Noda, the chief executive officer of Wal-Mart Japan Holdings, and need to prepare for your first meeting with the two dozen team leaders mentioned in the article. Write an outline for your meeting.
• In groups of 3 or 4, have one person, playing the role of Noda, practice the opening to this meeting. 
• Write an open letter from Noda to the public about the lack of product on Wal-Mart shelves. How will you address this bad news and inspire consumers' confidence for the future?