Crisis: Obstacle or Opportunity?

"There cannot be a crisis next week. My schedule is already full."
- Henry Kissinger

Crises Mode

Crisis management is when an organization deals with a major unpredictable event that threatens to harm the organization, its stakeholders, or the general public. Companies can view a crisis in two ways: as an obstacle or an opportunity. Like most major companies these days, GE has suffered its own crises. From the downward spiral of the economy to being reprimanded for polluting the environment, GE has tried to turn obstacles into opportunities.

The Crisis
Like I’ve mentioned in previous blogs, GE has dumped over 1.3 million pounds of polychlorinated biphenyls or PCB’s into the Hudson River. New York State took GE to court and won, exposing GE for many years of pollution. After fighting it tooth and nail, GE was mandated to dredge the Hudson River in three locations. From 1990 to 2005, GE spent more than $122 million on public relations, lobbying and legal efforts to fight their demand to clean up the 3 locations they contaminated with PCB’s. The nation’s biggest Superfund site is a 200-mile stretch of the Hudson River, located in Upstate New York.

Covering It Up
GE’s public relations tactics were to spend one billion dollars on addressing PCB issues and launch its “Ecomagination” campaign, which I believe is a perfect example of modern day propaganda. This cleverly designed campaign was GE’s way of presenting itself to the public as an environmentally conscious business, embracing pollution free policies and “Go Green” methods. Here GE acted reactively, but it actually played out quite nicely for them. Healthy public relations enabled GE to be viewed as a strong and respected voice in the industry, and considerate about the community.

Watch this video about GE's Ecomagination campaign!!

The Aftermath
Many people disagree with the way GE responded to this crisis. Patricia Daly, coalition director of the Tri-State Coalition for Responsible Investment said the money GE spent could “have gone a long, long way in cleaning up the problem” in the Hudson, “had it not been wasted on PR, lobbying and courtroom delaying tactics.” In 2005, the EPA estimated that the dredging of toxic sediment would cost approximately $700 million by the time the project was finished. However, after an agreement was reached between GE and the state of New York, GE is only obligated for the dredging costs within the first year. Therefore the company could potentially avoid $600 million in cleanup costs, according to EPA spokesman Leo Rosales.

If It Were My Choice…
I am bias on this particular topic since it pertains to my hometown. Part of dealing with crisis management is anticipating a crisis and being prepared when one hits. Personally, I believe GE’s PR people did not anticipate this crisis or adequately research the possible environmental issues that the company might encounter. GE is a multi-national power house who produces (emphasis on produces) heavy machinery and power plants across the country. Obviously, they are going to create some sort of pollution, be that air or water. If I worked for GE I would have heavily researched how GE pollutes the environment, not just to be prepared for when a crisis occurs, but with intentions of correcting it before the crisis could hit. As the saying goes; an ounce of prevention is worth a pound of cure! In addition, I strongly agree with Patricia Daly. I would have advised GE management not to fight the court cases or the accusations. I would have told them to model the Tylenol incident and take responsibility for their actions and clean up the Hudson River. However I do believe the “Ecomagination” campaign was a great idea to boost company moral and image.

Thought I'd leave you with a laugh. Happy Thanksgiving, GEewhiz!!!

Are You Ready for Some Football?

Even the Best Teams Fumble
The typical offensive goal of a company is to score shareholder points. To do this a company must not only perform well in the market, but also blitz the income statement and balance sheet with fair and reliable audit figures, providing evidence to the eligible receivers that they will benefit from blowout investments. This camaraderie between the company and the financial community is known as investor relations.

According to GE’s latest annual report, it must have been a scramble for the special teams (or PR people) to scout out extra points for shareholder value. With the economy in its current state, The Generals are only one of many corporations who have suffered major sacks in profit.

“2008 was a tough year, and we expect 2009 to be even tougher,” stated Head Coach Jeffery Immelt, CEO of GE.

SEC & Form 10-k – Hike!
All publicly owned teams are responsible for producing a comprehensive report of their game plan throughout the preceding year. GE took this as a marketing opportunity. They gave shareholders and other interested fans information regarding their actions and financial performance in a quarterback sneak. Therefore, after searching from document to document, I found that there was way more than just an SEC and Form 10-k on GE’s website. It was a very analytical attempt on behalf of the PR people to explain GE’s current economic loosing streak. Although I believe GE’s PR people fully intended on being honest, they used many “forward-looking statements” within their annual report. That, intertwined with GE’s strategy of keeping shareholders and future rookies focused on a completion in future business and financial perforce of GE, was intended to keep shareowners in motion and driving to the end zone, rather than dwelling on the current economic crisis.

General Managers
Coach Immelt’s PR people have been sending signals throughout the company’s letter to their shareholders. However, the most frequently stressed defensive message is about the economy, referring to it as “a global financial meltdown.” With the economy in a recession, The Generals will focus on their innovativeness and diversified portfolio. They emphasize the importance of preparation for a difficult season in 2009 and how they can capitalize on their own wild card advantages, especially as a technological advanced corporation. The statement I found most reassuring, as a season ticket holder of GE stock, was that GE is looking at the economy crisis as a thrilling opportunity for a big win rather than overwhelming defeat. The overall tone of this letter was optimistic. After reading it, I felt very confident that the odds were in my favor and that my stock was invested on the favorite draft choice. GE’s PR people had just the right amount of gusto to keep me in possession of faith in the company.

NY Times Implies GE is in the Stability Zone
I reviewed a recently released post game report (news release) related to GE’s earnings and found the play by play slightly difficult to understand. Printed in the NY Times, the article was obviously well written and detail oriented, however my GE “jargon radar” suffered technical difficulties! Luckily, I did manage a few interceptions from the article such as; GE’s 2nd quarter profits were better than the 1st quarter and the 3rd quarter profits were better yet suggesting possible holding in the company and stabilization in the economy. The playoffs seem to be Industrial Business vs. Big Finance. Although GE’s earnings per share dropped 44% from last year, it was still 2 cents higher than analysts expected. Orders for industrial equipment are down but this decline seems to have slowed down considerably. Yet, the critical aspects of this article demonstrated that the highest earnings by GE were made up of almost a billion dollars of tax credit for the losses in their financial side of business, making gains less exciting. Revenue has fallen 20 percent, which was worse then expected on Wall Street. The NY Times encouraged investors to be critical about whether the higher than expected earnings were actually stable. Another unfavorable aspect of this article is GE’s decline in financial business such as commercial property, and home mortgage loans. GE is even considering a hail mary by selling their stake in NBC Universal. According to the article, “Analysts are closely monitoring G.E.’s quarter-by-quarter results for two things: evidence that its industrial business is reviving as the economy gradually recovers, and proof that the loan problems in the finance business are under control”.

Read Full Article Here

Game Notes
After reading this article, I felt that the NY Times tested my confidence as a shareholder in GE. Will it be the thrill of victory of the agony of defeat? While the PR people at GE instilled a sense of hope and optimism in the future of GE’s financial undertakings through their annual report and letter to shareowners, the NY Times made me weary about my investments in GE. Although the news release stated that GE does have a backlog of future orders that will raise revenue and earnings, such as the profit gain from the NBC Universal trade, the price of my stock is still down 14.88% this year and my team is losing.

Overall, I thought the unfavorable news was handled quite well by both parties. GE’s PR people told the truth, while looking at the economic crisis through a hopeful lens. If I were the PR person at GE I would not have done anything differently. The NY Times article also took the negative aspects of GE’s earnings and demonstrated that the company and the economy were both likely coming to a plateau. After analyzing all the game stats, I have decided that it is a good bet to back my team hoping for a first in ten rather then an incomplete pass!

Till next time, GEewhiz!!!