Optimism, Cynicism and Expectation Management

Former New York Governor Mario Cuomo once said beautifully that politicians: 'campaign in poetry but govern in prose'

And so it begins. 'We as a people will get there' has morphed seamlessly in to 'it will get worse before it gets better' without so much as a wry smile or a knowing wink from our next president. We saw a glimpse of this linguistic retrenchment on election night: 'we may not get there in one year' the president elect declared confidently... 'we may not even get there in one term...' wait, what? Did you just launch your reelection campaign before your innauguration? You bet he did.

- PE Obama is about as astute and strategic a communicator as you are likely to find. He knows how closely his words are watched and he does not choose them lightly. So why this speech at this time?
- Well first of course he is playing down expectations so as to lessen the inevitable bump that will be felt by liberals, Europeans and everyone under 25 when he fails to walk across the Reflecting Pool of the Washington monument on January 20th - but there's more.
- Politically he has nothing to lose and everything to gain from a further (short term) deterioration in the economy.
- He has an ambitious wish list - including his multibillion infrastructure reconstruction which has been on his agenda since long before this crisis - and a desperate congress will be more likely to acquiesce to grand government intervention as it did in 1933 with the New Deal.
- A second, related strength this pervasive sense of panic gives PE Obama is the ability to - in the immediate term at least - sidestep the tricky deficit issue. The Budget Deficit stands at $438billion, nearly twice the deficit inherited by Bill Clinton in 1993 ($290billion). Clinton also inherited a severely weakened economy but its relative strength compared to the current climate meant that his first 100 days were spent, largely unsuccessfully, walking the tightrope between stimulus cheerleaders on the one side and deficit hawks on the other. Today's more pronounced crisis gives PE Obama the opportunity to shelve a potentially bedevilling issue and focus all his attentions on his favorite stimulus programs.
- Finally, and cynically, a rapid worsening under president bush's watch - yes, that's right, I'm afraid he is STILL President - is just that much more of a rebound once the economy is brought or finds itself back on track.

The Communicator Speaks

On election night this commentator suggested that Obama's true strength lay in his potential for combining action with oratory. So far he appears to be fulfilling this potential.

In addition to some well received picks for Treasury (Geithner) and NEC (Summers) which have had the media swooning and the markets reaching for the smelling salts, Obama has established an Economic Recovery Advisory Board (modeled on Pres. Eisenhower's Foreign Intelligence Advisory Board) and appointed former Fed Chairman and fabled inflation slayer, Paul Volcker to head it. 

All decisive action. But being in PR 

what has really caught this writer's attention is the series of three, well-choreographed press conferences that he held in the days running up to Thanksgiving. While most President Elects would be keeping a low profile at this point, PE Obama has judged correctly that what is needed now is not just smart action but lashings and lashings of communication. He has, of course, left himself lots of wiggle room: on day one announcing a huge stimulus package without outlining how huge or where the money was coming from; on day two promising budget cuts without telling us who exactly was going to suffer. But frankly none of that is as important as just being out there, ahead of the story. Where for three months politicians have been reacting to the story as it unfolds, for three days PE Obama decided to be the story and let the world react to him. And by drip feeding positive news across a series of conferences while leaving us hungry for more details that is exactly what he has been able to achieve.  

By the way, on the subject this - from the Economist - is very useful:

Finally, A True Communicator In Chief

It's 3:00am in the East Village and the streets are still buzzing with the sounds of car horns, guitars and homemade percussion. This party promises to go all night.

Forget for a moment the magnitude of tonight's outcome. Forget America's inexhaustible capacity for reinvention or the sweeping policy changes which tonight's victory will usher in. Forget slavery and segregation; the injustices of the past or the supreme court justices that will almost certainly be appointed under an Obama presidency. Others will comment on such matters.

What interests me above all is that America finally, and once again, has a true 'Communicator in Chief'. With his ability to use language, discourse, tone and even humor to such dramatic effect, Barack Obama has the potential to stand shoulder to shoulder with some of the Presidency's greatest archetypes. Leaders like Lincoln, FDR, and JFK had not only the courage to act but, crucially also, the power to persuade - and in coupling the two were able to bring around substantial change at a time when the country and the world needed it the most.

Bonuses - The Next Communications Hurdle

According to urban legend the godfather of publicists, P.T. Barnum, was asked by a fish cannery to help clear its warehouse full of unattractive white salmon. Barnum did so by sticking labels on the produce which read: "Guaranteed Not to Turn Pink in the Can..."

Well Phineas, Wall Street needs your winning brand of double-think now more than ever.

(Keeping with the fishy theme) the sharks are circling. First Waxman and Cuomo and now House Financial Services Committee, Chairman Barney Frank. All demanding either justification for or cessation of Wall Street's upcoming round of bonuses which, among the firms taking part in the government's TARP plan, is estimated to come in at around $20bn. Even the White House smells blood in the water.

How will the FS Industry manage this issue? Will this be framed for them by regulators and the media as "The Bailout" or "Wall Street vs. Main Street" have been over the past months? Or will the industry find its voice and present its case forcefully and cogently. The fightback has started here and here but so far the argument seems to be that the government is even less trustworthy with taxpayers' money than the banking industry. Will this be enough?

On a lighter note, the head of the American Bankers Association who is spearheading to counter-offensive is Ed Yingling. I was trying to recall where I had heard that name, or something very similar, before...and then it came to me: Ringling Bros. Perhaps we needn't fear after all, perhaps the spirit of the great showman still lives....

Professional Pundits & Prognosticators

Cognito commenting in AM New York this morning on the rise of the financial punditocracy. Our position: consumers and investors need quality information now more than ever. This presents a fantastic opportunity for financial institutions to position themselves as calmer heads in a crisis, on-hand to offer advice and support to investors battered by the recent turbulence. Charles Schwab actually captured this approach quite well before the recent market meltdown. Unfortunately FIs are equal, if not disproportional, victims of the current uncertainty and have become gun-shy and introverted, leaving a communications vacuum which is currently filled by what I'm trademarking the 'professional pundit and prognostication industry'. This is bad news for FI's and even worse news for their clients.

By the way: the irony (or hypocrisy) of blogging about being quoted in article complaining about the rise of financial pundits is not lost on me.

Becoming Indispensable...

At Cognito we have only two types of client: financial firms and those that deliver solutions to financial firms. We've talked in this blog about how asset managers and banks need to better communicate with their investors but what about those companies which offer goods and services to the financial industry?

For some, such as financial consultants and analysts, the current crisis could present an opportunity, particularly around cost reduction, outsourcing or post-merger integration (PMI) programs. Others, such as the data and infrastructure providers, may be so operationally integral within financial institutions that they find themselves sheltered, at least from any short term panic response. No-one, however, will be immune to the inevitable shrinking of the financial universe (Morgan may be the next shoe to drop this week) and all will need to find new ways to become more valuable to this diminishing customer base. There is too little time at this point to dramatically change the nature of their solutions. Firms now need to focus on communicating their purpose with renewed clarity, selling their value, and convincing clients of their indispensability. Below are four recommendations to this effect:

1) Stop Panicking - Most decisions made around 9:15 on Friday were the wrong decisions. An effective response strategy needn't take a long time to put together but similarly it can't be a formulated with one eye permanently glued to the Bloomberg terminal.

2) Get Closer to your Clients - Whether personally, through their sales teams or with marketing initiatives, business heads now need to get as close to their clients as possible. While undoubtedly a brave move given the market volatility, a number of Cognito's clients have held successful and well attended user-group meetings this week and will be stronger for it in the coming months. Firms that shut down proprietary events, marketing efforts, and trade show attendance will not only project instability but will lose invaluable communication channels to their customers.

3) Have a Story - This is not the market to be without a clear story and a strong message yet it surprises me just how many firms still have neither. In an environment of fear and uncertainty, clients look for stable partners whose value is demonstrative. An interesting point several of our clients have made recently is that their direct contacts within the FIs are also looking for a clear message to sell internally - so when they are asked why the firm should keep solution x, they can clearly explain its value to the whole organization. We can't begin to equip our clients with these messages if we have not formulated them for ourselves. In addition, having this story articulated and validated by third parties such as the media and analyst communities is obviously an excellent way to enforce your message.

4) Sell Value - Value is relative and your messages may need to change to reflect this. 12 months ago a car dealer whose models were 10% more fuel efficient and 5% faster than his competitor's may still have led his pitch with a message about speed. Today there is no question which message would take priority. So it is with solutions for the financial industry. Some industry providers are lucky enough to have been talking about risk and cost reduction for some time now but others are not so lucky. Listen to what your clients are telling you they need today and be prepared to redraft your value proposition to meet this short term need. For some firms this effort will prove just too difficult but for those nimble and well equipped enough to redraft and successfully pitch this new value message there is opportunity to be found in even the direst of circumstances.

Hedge Fund Communications 2 - Redemption Season

Hedge funds are facing a truly unprecedented confluence of events, and when they need it the most, communications seems to be the skill that too few have an adequate store of right now. To date the success of the hedge fund industry has grown largely on the back of its ability to deliver uncorrelated alpha - i.e. performance. As such, many funds simply haven't felt the need to leverage the power of PR. For years performance remained high and when a particular fund was down it didn't matter: overall market confidence in the sector remained strong. Even uniquely spectacular blow ups like Long Term Capital Management and Amaranth were seen as just that: isolated incidents, worth examining from an intellectual standpoint but hardly denting the exponential investment in the hedge fund market.

Today several things are happening at once: 1. Performance is the worst in many of these funds' histories and shows no sign of improving soon 2. knee-jerk regulation like the short-selling ban is complicating hedge funds' business in ways they could not anticipate and, most importantly, 3. for the first time ever there is endemic fear and uncertainty in the market. These are confusing times in which institutional investors will inevitably fly to safety and poor performing hedge funds are having to explain to a panicked investor base not just why performance is down this quarter but why this string of poor performance does not mean that they are going out of business. Suddenly communication has become very important and too few fund managers have these skills available on hand...

With redemption season upon us - now, more than ever before, is the time for funds to seek professional support.

Who Speaks For the Financial Industry?

The previous post touches on something that I have been considering for the past couple of days: who speaks for the Financial Industry as a whole? After one of the worst days in Wall Street history driven,  in no small part, by confusion and resentment around a - largely sensible - Congressional proposal, one has to wonder why the best equipped, best funded, and most sophisticated industry worldwide - the Financial Services Industry - isn't better at making its own case. 

Love it or hate it the petroleum industry has used public relations with increasing success to convince consumers and lawmakers of two inalienable facts: 1) carbon fuels are a necessary evil which fill an immediate need while we search for viable alternatives and 2) for all the talk of 'big' oil and corrupt cadres, "around 41% of oil company stock is owned by 401k retirement plans and mutual funds" i.e. by you and me. 

Very similar arguments could be and should have been made around today's 'bailout' bill but the administration and its proponents have, as so often happens, failed to pay sufficient attention to the only thing that really mattered in the end: successfully framing the debate. 

The fact that the word "bailout" is now well and truly cemented in the vernacular demonstrates the need for a more cohesive and frankly more effective communications strategy industry-wide.