When a public corporation is embroiled in a lawsuit, the kind of investor relations it should employ is based on a very fine line between not trying the case in the press and addressing stakeholder concerns.
This breed of PR is one of those instances when a "no comment" about your strategies, not the value of your case or claim, is prudent.
"You don't have to explain these cases as they are unfolding and you don't litigate them outside the courtroom," says Robert Ferris, senior VP of IR at Ruder-Finn, New York.
In some cases, the wisest route you can take is addressing the issue in Securities and Exchange Commission documents such as annual reports to mitigate confusion about lay interpretations of legal issues. That, too, can ensure that your messages make it to shareholders without a lot of conjecture from the media and other outsiders.
A prime example of this is Pittway Corp., a Chicago-based business with $1.35 billion in sales, which includes profits from one of its chief lines of products, household and business security systems. Two weeks ago, a federal jury in St. Paul, Minn., awarded ITI Technologies $36 million in damages after determining that Pittway infringed on ITI's security systems technology.
The decision came in a patent lawsuit St. Paul-based ITI brought against Pittway in 1995.
Still, Pittway has made the sagacious move to remain silent about the decision. "You don't undertake litigation lightly and you don't do it for the benefit of your stakeholders," adds Ferris. "But you should address it in your annual report."
Hence Pittway, and any other company caught in this predicament, must balance its requirement to communicate with constituents without creating drama that the media craves.
"You need to adhere to SEC guidelines, but you also need to answer [constituent] questions," says Art Stevens, president of LobsensStevens, a PR firm in New York. Its clients include American Express, the National Academy of Television Arts and the New York State Bar Association. "You need to convey that your cause is the right one."
Other avenues to control the message include full-page advertisements in major or trade publications and letters to stockholders, adds Stevens.
Additionally, PR managers may encourage executives to engage in one-on-one conversations with journalists and analysts in which a company's position is explained thoroughly.
But legal strategies should be kept close to the vest.
Using the SEC as an information vehicle is commonplace for publicly-held companies because they can release information to constituents without the filter of the press. It also gives the company control of the message in the business arena.
Pittway's Play on the Drama
Pittway, which is appealing the March 10 verdict, has opted for a cautious stance. It will address the issue in its annual 10K which is due to the SEC by the end of the month, according to Ed Schwartz, a VP at Pittway.
But in a rather circuitous, four-paragraph press release distributed the day of the verdict by Edelman Worldwide's financial relations operations in Chicago, Pittway says SEC documents will play in its external communications.
"This press release contains certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995...Such statements may be identified by the use of forward-looking terminology...and are qualified in their entirety by the cautions contained in reports and documents filed by Pittway with the SEC," it states.
The verbiage may sound a bit formal and not the least bit informative, but its a fitting by-product of the communications Pittway has adopted to govern its PR concerning the lawsuit.
It's basing its limited response on requirements imposed by the SEC and likely planning (through its upper management ) how the rest of this should play out.
But the release does attempt to address customer concerns as well - it says the jury's decision will not affect its ability to ship products. (Pittway, 312/831-1070; Edelman, 312/240-2640; Ruder Finn, 212/593-6400; LobsenzStevens, 212/684-6300)
The 4 Key Elements of a 10K
A 10-K annual report is filed by companies with more than 500 stockholders and over $1 million in assets. It includes:
1. Business particulars that identify the company's key products and services, its markets and distribution channels.
This portion of the 10K is an extensive list that also hits on these variables: the size of a company's workforce; the weight placed on patents, licenses and franchises; total sales and net income; properties; and principal security holders and security holdings of management. This is also the segment that outlines legal proceedings, including pending cases.
2. Details on a wide spectrum of business information: the principal market in which voting securities are traded, with high and low sale prices; five-year profiles that delineate net sales and operating revenue; income or loss from continuing operations; total assets; and cash dividends declared for common stock. Also included is the MD&A, which is management's assessment of operational and financial particulars, including forward-looking statements.
3. Information and directors and executive officers, including salaries.
4. Exhibits, financial statement schedules and reports on Form 8-K. This includes marketable securities; investments in securities of affiliates; intangible assets; reserves; and incomes from dividends.
Source: "Guide to Economics and Business Journalism, Columbia University Press, 212/666-1000