Speaker 1:
From the library of the New York Stock Exchange, at the corner of wall and broad streets in New York City, you're inside the ICE House. Our podcast from intercontinental exchange on markets, leadership and vision in global business, the dream drivers that have made the NYSE an indispensable institution for global growth for more than 225 years.
Speaker 1:
Each week, we feature stories of those who hatch plans, create jobs and harness the engine of capitalism. Right here, right now at the NYSE and ICE's 12 exchanges and seven clearing houses around the world. Now here's your host, Josh King, head of communications at Intercontinental Exchange.
Josh King:
Over the course of our podcast of some 40 odd episodes so far, you've heard us occasionally bring you behind the scenes of what happens every day here at the New York Stock Exchange, the big IPOs, major events and celebrity sightings that come with a workplace that's the birthplace of capitalism. There are about 2,400 companies that list their shares here. They're represented to some extent by the NYSE's listed company advisory board or LCAB, they meet several times a year, hear what we're up to, offer us advice and otherwise gather to share wisdom and counsel.
Josh King:
And we try to share some of that back, which is why in this episode, we're taking you into our LCAB meeting, talking about what to do when the crisis hits. At one time or another in ways both small and existential, every company faces a moment when they're tested. Are they cool under pressure, or do they hit the panic button? We saw a crisis hit again a few weeks ago, Intel, the chip company lost its CEO, Brian Krzanich, resigning over violating company policy for having a consensual relationship with a coworker.
Josh King:
Today on the podcast, we bring you into our event, the LCAB to hear what our listed companies heard about managing through crises, right after this.
Speaker 1:
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Josh King:
In my career running communications for four public companies, the moments have certainly come. In one, it was dealing with the securities and exchange commission over something called directed brokerage. That cost that company $50 million to settle. And another company was dealing with former New York attorney general Elliot Spitzer, on what was then known as bid rigging in the insurance industry, price tag for that settlement $55 million.
Josh King:
So two companies into my career. I'm already $105 million in the whole. In cases like this, you're often better off with a trusted advisor to look at your situation from the outside in. Someone who's seen it all before, often to the lens of a skeptical journalist who pulls no punches. At many points in my career that has been Steve Lipin. Trusted advisor to CEOs, CFOs, general counsels and heads of communications like me.
Josh King:
In his early days, Steve was the Wall Street Journal, which he joined in 1991, redefining the M&A beat and launching the deals and deal makers column, eventually rising to the WSJs finance editor. In 2001, with all that he had learned, he moved over to the other side, beginning a long run at Brunswick advising companies on their strategies around M&A and crises, including the ones that the companies that I worked for.
Josh King:
And then last year, Steve put up his own shingle Gladstone Place Partners. He's now fully immersed in the next chapter in a career that has seen him to this day, be the go-to guy for high stakes crises, M&A, and activist defense assignments, something we're all on guard for every day as representatives of publicly traded companies. Steve was the perfect guy to have into our listed company advisory board, to share his wisdom on some of the crises old and new that corporations face.
Josh King:
We joined our conversation at the NYSE just after I finished my introduction of Steve Lipin, the chairman and CEO of Gladstone Place Partners.
Steve Lipin:
It's great being here. Thank you. Like Stacy, my wife started her career as a market maker. One of, I think three women who were in the Intel option pits down the street at the Amex. Anyway, it's great to be here. Thank you Josh.
Josh King:
Before we get into it, six months in, and you've heard some of the conversations in the previous sessions, but how's it going at Gladstone Place? Do you get some reverberation and echo of the things that... The concerns that have been expressed?
Steve Lipin:
Yeah, I think the conversation on governance overlaps a lot with what we do, because we're also advising on the communication side how to deal with activists, but also how to engage with your long-term shareholders. And we're in the mix with a number of things. It's been a busy few weeks. We've been representing Disney with regard to its deal for Fox.
Steve Lipin:
But really I think that the topic is crisis. And Josh brought up the CEO of Intel and I'm not sure if 10 years ago or 15 years ago, be curious what you all think in the room, whether the board would've made the decision that it made this week. I think there's obviously a lot less tolerance and a lot more stakeholders who are looking at situations. And the fact that this bubbled up through employees meant that clearly internally people knew about it.
Josh King:
We're going to go back a little bit in time to begin because it starts, it hits very close to home at the founding of Intercontinental Exchange, Ken Lay, Jeff Skilling, Enron. They go down in 2001 and into 2002. And that really allows Jeff Sprecher to take a new approach toward making transparent the energy trading market, and doing for both sides what Enron had tried to trade with all counterparties.
Josh King:
So your reflection, then this was at the very moment that you were leaving the journal and going into private practice.
Steve Lipin:
Yeah, the crisis had hit and we got hired by Enron. I left the Wall Street Journal in July of 2001. And we were hired by Enron in October, and Brunswick at the time was also representing the International Accounting Standards Board. So that was awkward. And it turns out that the meeting we were invited to was up in Westchester, it wasn't in Houston, and they were trying to cobble together a revised deal between Enron and a company called Dynegy.
Steve Lipin:
It was up at Rhinebrook Westchester hotel conference facility, and everybody was there and the horseshoe table, Ken Lay was there, the late great Jimmy Lee was there and yet the counterparty CEO was not there. So the chance of getting a deal done were quite low. Fast forward, we didn't get it done. Although Jimmy Lee did say to me, "What would it take for the market to believe this deal?"
Steve Lipin:
And I said, "Jimmy, it would take Chuck Watson," who is at the time of CEO of Dynegy, "Kissing Ken Lay on CNBC for people to believe this deal was going to work." It didn't fast forward. The last story I'll tell about that is about a month later, we were in the offices of Skadden Arps in Washington, Bob Bennett the super lawyer was retained by Enron. And Ken Lay's daughter was there and she was a lawyer. I'm not sure whether she worked for Enron or what, but she said, "We got to get our side of the story out."
Steve Lipin:
And back to how you manage crises, Bob Bennett took his glasses off and said, "Just what is our side of the story?" And there was no, there was no side of the story. So it's not about, "Hey, we got to get our side of the story." Yeah. If you have a story, that's certainly the case. When you're fighting activist, it's all about getting your story and your narrative out there as opposed to reacting to the activist story or narrative. But it all goes down to what your story is.
Josh King:
We were talking a little bit earlier, I think as mentioned a couple times, Warren Buffet, legendary chairman and CEO of NYSE listed company. And he doesn't beat around the bush when it comes to talking about the tight rope we all walk on a daily basis with corporate reputation.
Steve Lipin:
When you think about, there was an earlier discussion when we talked about ESG and all the efforts companies make with shareholders and all their other important constituents. And to think that one incident, it could be a quality issue, it could be a personal issue. Could significantly damage a company's reputation, then people's reputation.
Steve Lipin:
And even reading the Intel coverage this morning. What was interesting was in one of the columns they said, "Most Intel CEOs they're boring. We don't need to know their name. They do a great job. They have one job to do, which is continue the momentum of this great company and protect its reputation and Brian failed because of violation of the company, his code for senior executives, the board clearly felt that he had no choice."
Steve Lipin:
Now, is that going to in the long run impact Intel's reputation? Maybe it certainly doesn't help the fact that they don't have a sitting CEO right now in an industry that is quite dynamic.
Josh King:
We were talking about Intel and Brian's resignation. Here was another case of a self-inflicted wound that you were very close to. This is, Klaus Kleinfeld's letter to Paul Singer of Elliot Management.
Steve Lipin:
You're catching all my highlights here.
Josh King:
Why didn't you tell him to throw this in the shredder before he put it in the mail?
Steve Lipin:
Well, just another sort of anecdote, iconic and Alcoa split Elliot investment, the activist came in, wanted Klaus head, and it was a very aggressive knockdown drag out fight. It was so aggressive and Elliot's tactics were so harsh. They hired private investigators to not just go through the garbage and knock on doors of neighbors, but approach friends of their kids on college campuses to try to friend them on Facebook and all this stuff. And I think Klaus just lost it.
Steve Lipin:
And if somebody did that to me, with my two college... I have two girls in college, I would probably do the same thing, but I'm not a public company CEO. And he wrote this letter and rather than put it in a closet, put it in a drawer or call me or call somebody and say, "I wrote this letter, I'm about to send it. What do you think?" He sent it. And it didn't take long back to the discussion about the role of boards, which again, I think it fits right in that this is a strong independent board and there was simply no tolerance.
Steve Lipin:
And it was at a very critical moment. We were on the road talking to investors. This was a knock down drag out, proxy fight. Both sides soliciting shareholders, mailings, meetings, media. It obviously took things in a different direction because not only are you dealing with an activist, but now you have a CEO's gone, you have an interim CEO and you're still fighting the activist. Ultimately they did settle. And again, I think from a governance standpoint, I think the board did what it had to do.
Steve Lipin:
Klaus is a personal friend. It's very hard to work with boards and managements when you're getting rid of the CEO who personally hired you. And I've had to do that many times because we represent companies and boards, not individuals for the most part. And as I said, Klaus remains a friend and he realized that it was a real lack of judgment.
Josh King:
Another CEO departure story from the present day, Denise Morrison's running Campbell's Soup with great fanfare since 2001, resigns abruptly after year in which the company's share price drops 30%, first quarter, 2018 earnings are weaker than expected. What happened?
Steve Lipin:
This got a lot of coverages. I'm sure you could imagine. And Denise, a proud Boston college graduate was a CEO for seven or so years. And as you say, the company had made a series of acquisitions to pivot away from its traditional soup and snacks business. She was highly respected. I think she was a true and still is a true business leader. And at the same time, the company had disappointed for the last couple of quarters. I don't want to speak for her and I don't.
Steve Lipin:
We were representing company and the board, but I think Denise felt it was the right thing to do. And she retired. It is a very tough situation. And you want to step back and look at CPG in general, it's obviously a very tough situation. There are probably going to be a lot of consolidation. This remains a family controlled company, of course, unhappy shareholders.
Steve Lipin:
And from a communication standpoint, here it was really about trying to be transparent and authentic. And at the same time, this was not a situation where you're going to have a long transition period. It was a situation where it was a retirement effective immediately that the interim CEO, and we announced this as part of an earnings call. So we timed it alongside of a regularly scheduled call and the CFO and the interim CEO participated on the earnings call. And Denise did not.
Steve Lipin:
That set off a lot of coverage about exactly glass ceiling, Paul's data, which was in the journal this morning, about 31% I think she said of new board directors are women. But if you still crunch the numbers for CEOs, there are a number of very high profile female CEOs who have stepped down in the past six or eight months, but it did set off a lot of discussion because she was so visible and long tenured.
Steve Lipin:
And I think just viewed as a great leader and role model in a sector that was, and still is going through a lot of flux. Look at the stock prices of others in the sectors as well. So this isn't just a Campbell's issue, but at the same time, she's a CEO and the buck stops with her. And that was what happened. I think that, when we get to the point where 50% of the S&P are run by female CEOs, there'll be fewer stories about such an iconic female CEO stepping down.
Steve Lipin:
And so we certainly have a long way to go. I enjoyed the conversation about, and I've heard a lot about this, about trying to get younger directors on boards. I think that's critical. If you look at some companies like P&G hired a woman in her 30s who came out of Google has a technology background.
Steve Lipin:
Other boards are looking for, in areas where people have had prior experience in nonprofits, because if you have never run, if you've never been a public company board, how do you become... Other than being a CEO, how do you become board members? So I think it means looking broader and deeper, but from a corporate governance communications standpoint, we felt it was important. Be proactive. The fact that there wasn't a transition period, just think the reality it's way too awkward.
Steve Lipin:
Once a board makes a decision, it's extremely hard and I've lived through CEOs where this happened at AIG, where they announced that Peter Hancock was stepping down and they were doing a search and it creates a real period of uncertainty for the company and for the CEO. Now that was a different situation, and I think it worked and they found a great CEO and that's all fine, but each one of these things is different. I think the reason it's set off such reaction was just how few women CEOs there are in the S&P. And that's obviously something that this really touched upon.
Josh King:
So let's pivot to the practical or the work that any of us in the room might need to face at any point. According to Lipin, these are the eight categories of crises that we'll tend to face, and there could be nine or 10 or 11 or 12 that aren't quite on the list, but this covers a lot of the range. Government regulatory, cyber we touched on, environmental we haven't talked about much today, operational and industrial, supply chain, labor practices, banking, financial and accounting, litigation and personal. We certainly talked a lot about personal. So Steve are these the five first steps that you take?
Steve Lipin:
Well, these are the five questions that I would ask. I think what do we do is really getting the team together and ensuring that the team works well together. It's not about having a crisis plan that you put in the shelf. It's having a team that has worked IR, comms, legal, finance and then whether it's a CEO or CFO or some representative. And these are the basic questions, whether it's a financial scandal, whether it's... My firm is working with iconic on the awful Grenfell fire. And there was just a one year anniversary, and there's a commission that is investigating it.
Steve Lipin:
And a lot of it comes down to some of these basic questions. They're basic, but in the end, you can't really communicate until you try to answer some of these questions. And I have to say that I didn't appreciate the no comment when I was at the Wall Street Journal. I just assume anybody who's no commenting me is hiding something. And then I got to the other side and I was like, "Oh my God, these are the facts. Why don't we just say, no comment."
Josh King:
It's a tactic we use a lot.
Steve Lipin:
Dealing with the facts, the alternative is to give that answer or no comment, we're going to go with no comment. So I learned to love no comment, a lot more than I ever thought as a journalist. Comms and IR are going to want to lean in and legal will rightly so be saying, "Hold on, slow down. Let's make sure that whatever we say is accurate." And that was, as I said, back to the Enron case, one of my early lessons about, "Why aren't we responding? Let's get out there."
Steve Lipin:
And until you know it's accurate, better not to say a thing. And so there is that tension. I would say in my own personal experiences in the last five or 10 years, legal, comms, IR for the most part work really well and respect each other, I think IR and comms has again over the past 10 or 20 years risen in respect within the C-suite so that it got a seat at the table. And I'm not sure if that was the case 10 or 20 years ago. And I think that helps as companies manage crises to have everybody who has worked together.
Steve Lipin:
Yeah. I generally like to avoid those actual words, but just say things that we've recently filed our proxy, it's all in the proxy. And if you have further information, you know where to find us or something like that. I actually having been of journalist know what it's like, and even if it's a call back to say, "Hey, I'd love to help." At this point we have a short holding statement as opposed to not responding or even responding with a cur email, journalists or people too. And they need to be stroked and cared for.
Steve Lipin:
And so the personal relationship much like you would with investors, this is sometimes what I tell managements. They'll meet with investors, but they don't want to meet with journalists and Wall Street Journal blah, blah, blah. I said, well, but just think of them as another important constituent. Yes, you have shareholders. Then you have shareholders who read the Wall Street Journal every day. So I would think that they would be important too. And not just have an email relationship.
Josh King:
Steve, it is Friday we're headed to lunch and-
Steve Lipin:
Excellent.
Josh King:
... a long weekend. This is the summer solstice. These are the longest days of the year, plenty of time to reflect on what we've learned today from chairman Clayton and the follow on conversations. And then the conversation that you and I have just had. But as we look into coming back to work on Monday and sharing some of the lessons that we take away from the New York Stock Exchange today, can maybe you summarize some of the realities that we face as either IR or GC or CEO or CFO of publicly listed companies and the different environment that we work in today.
Steve Lipin:
Yeah. Look, the fact is that every one of you I'm sure has been through one or more, it's part of your job. It's not, we need a crisis, but one of these days we're going to have. You will, if you haven't, God bless you. But of course you will. And so it's not about, I guess I said the manual. Yes, you can put together a communications investor relations plan for a crisis or for an activist, but it's, how are you engaging and how are you thinking about it and how are you building into everything you do?
Steve Lipin:
So when something hits, it's not a shot, it's something, as I say here where you've basically prepared for it. Whether it's a crisis simulation, whether it's an activist simulation, a lot of companies and boards want to do activist simulation. So what would you do if Carl icon bought 5% of your company, and walk through what that first day looks like?
Steve Lipin:
Okay. Mostly it's about, when I say here about leadership, I think the biggest mistakes are when there's a vacuum and there's a vacuum in terms of decision making and a vacuum in terms of, it's important to have everybody around the table, but in the end, somebody's got to make a decision when you're hearing all these dissident voices.
Steve Lipin:
And I think that's obviously the role of the C-suite and of the CEO. And so companies that do it right, have been through it, learn from the lessons and mistakes that they've made and learned from the lessons and mistakes that many other companies have made as well.
Josh King:
Steve, thanks very much.
Steve Lipin:
Thank you.
Josh King:
That's our conversation for this week. Our guest was Steve Lipin, chairman and CEO of Gladstone Place Partners. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question, you'd like one of our experts to tackle on a future show, email us at ICE House at the ice.com or tweet at us at NYSE. Our show was produced by Pete Ash and Ian Wolff with production assistance from Ken Abel and Steven Portner. I'm Josh King, your host signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next time.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates, make any representations or warranties express or implied as to the accuracy or completeness of this information, and do not sponsor approve or endorse any of the content hearing. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security or recommendation of any security or trading practice.
