In Full Public Disclosure, HP Recognizes Value of Reputation, Good PR

Gary McCormickOn Aug. 6, HP announced that its Chairman, Chief Executive Officer and President Mark Hurd was resigning from the company. The announcement followed an investigation conducted by HP’s internal and external legal counsel into a sexual harassment claim lodged against Hurd and HP by a former HP contractor.

While the investigation determined that Hurd did not violate HP’s sexual harassment policy, it nevertheless uncovered a related offense, which ultimately prompted his dismissal. Hurd, according to HP, breached the company’s Standards of Business Conduct by making inappropriate payments to the contractor and charging personal expenses to his corporate expense account.

Even though HP determined that Hurd had committed no sexual improprieties, the company reportedly acted on the advice of APCO Worldwide, a well-respected, global communication consultancy based in Washington, and publicly disclosed the allegations against Hurd in a press release announcing his departure.

APCO is thought to have reasoned that, given the nature of the allegations, HP would endure months of embarrassment if the news became public through a source other than the company itself. And considering that Hurd’s accuser had engaged celebrity lawyer Gloria Allred, who gained a measure of fame representing two of the women with whom Tiger Woods was rumored to have had extra-marital affairs, APCO no doubt feared that a full-blown and, quite possibly, salacious media frenzy could result.

Despite having acted on the counsel APCO is believed to have given, HP was criticized for its candor. Implying that HP’s board may have used the sexual harassment allegations as an excuse to rid itself of Hurd, who was said to be negotiating a lucrative new contract, Oracle CEO Larry Ellison took HP to task over its admission.

“Publishing known false sexual harassment claims is not good corporate governance, it’s cowardly corporate political correctness,” Ellison wrote in an e-mail to The New York Times.

Good Advice?

The criticism of HP’s public disclosures concerning the allegations against Hurd prompted speculation that APCO may have steered its client wrong. We will never know all the various considerations that could have led APCO to such a recommendation, such as what HP’s investigations did or did not find, or whether HP was completely forthcoming with details of the situation. Still, there is good reason to believe that HP’s public admission will serve the company’s interests well in the long run.

Corporate America has a much stronger appreciation today for the value of reputation, and companies increasingly find that behaving “in the way the public expects” can be a critically important asset

Mark Weiner, a frequent speaker and writer on public relations measurement, cites the example of a large utility that was about to miss its earnings forecast.  The company’s legal team recommended remaining quiet about the issue, while the public relations team urged full disclosure. An analysis of the ensuing media  coverage — which reported on a total of six utilities, all of which missed their earnings target — found that the stock prices of those companies that did not divulge their earnings shortfalls steadily declined, shrinking their market capitalization by up to 50 percent. Conversely, the utilities that were transparent in describing their underperformance saw only short-term declines in their stock prices, which not only rebounded to their previous levels, but ultimately realized average incremental gains of 12 percent within a year’s time.

Of course, there’s also the case of Woods, whose initial defiance and vague statements allowed speculation, innuendo and perhaps even lies about his infidelities to go unchallenged. Gatorade, Accenture and AT&T dropped Woods as a spokesperson, while Tag Heuer and Gillette removed him from their ads. Industry experts estimate that Woods’ transgressions and subsequent media isolation will cost him $25 to $30 million per year, while some put the damage at closer to $50 million annually.

If that is the price of a damaged reputation to a $1 billion athlete, what might the cost to a $100 billion company, such as HP, be?

APCO, for its part, appears to have given HP advice in keeping with the Public Relations Society of America (PRSA)’s Code of Ethics, which advocates for honesty, accuracy and transparency in all communications. The agency also may have recognized the benefit of getting ahead of the story, ensuring that HP’s version of events would be reported first, as opposed to waiting for the negative coverage that ultimately was sure to appear.

As public relations pioneer Arthur W. Page once noted, performance is the determinant of reputation. Viewed in this context, APCO no doubt felt it would be better for HP to be transparent and cede short-term profits for the long-term reputational — and quite possibly financial — benefits of behaving in a way the public expected.

Because, as Page also reminded us, “all business in a democratic country begins with public permission and exists by public approval.”

Gary McCormick, APR, Fellow PRSA, is the 2010 Chair of the Public Relations Society of America.

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