Recent events at NetJets, Part 2: The Public Relations Crisis
(See Part One here.) The New York Times story of December 3, 2009, “Potential Successor to Buffett Has Tough Task” is noteworthy, and not just because of its contents. In an unusual move, NetJets hired a crisis communications public relations firm to help it respond once the Times began reporting.
Even in a crisis, Warren Buffett has avoided crisis communications PR: for example, at Salomon, and during General Re. His approach is: pick up the phone and talk. Berkshire does not have an internal PR person; Buffett is Berkshire’s PR person. He has exceptional media skills, rarely makes mistakes, and is skillful at negotiating when to speak on background, off the record, or with quote approval.
In pointing out this contrast I am not criticizing NetJets or Sokol for hiring a PR firm. Nor am I endorsing the “pick up the phone” method. Buffett’s PR approach is a personal style and I believe it shouldn’t become a litmus test for anyone else. Rather, what this episode signifies is the beginning of the “corporatization” of Berkshire that would take place if Sokol is put in charge. Again, I want to stress, at the risk of repeating myself, that this is not necessarily a bad thing as long as it is kept in reasonable bounds.
You may be asking yourself, why is the management change at NetJets a crisis? Berkshire has had money-losing businesses before. At NetJets, Sokol has got an enormous challenge on his hands. The changes he’s making at NetJets are so significant that Sokol’s angry employees apparently took their complaints about him to the press.
Try to imagine Berkshire employees doing that to Buffett. It’s unthinkable, right? Buffett could order animal sacrifices on his birthday and his employees probably wouldn’t complain to the New York Times.
One reason for that is that Buffett almost never criticizes anyone by name. In keeping with that practice, he is not quoted anywhere in this article. Although the harsh changes have been ordered by him and are being made with his approval, he is staying well out of the way. Sokol has signed up to be the bad cop.
This suits Buffett's personality. But .... there is also a business synergy in this arrangement (which echoes the Warren/Charlie dichotomy); shareholders are best served if Buffett keeps his image simple and clear. Berkshire is in the business of making acquisitions, and Buffett's endearing image is part of what is so appealing to potential sellers.
That raises the obvious question …. What is his successor to do? No matter who succeeds Buffett (Sokol, if he pulls off the turnaround) this part of the franchise will be “lost” after Buffett is gone, because it is unique to the way Buffett has arranged his image over the years. Buffett has gone to a lot of trouble to be universally liked. I can't think of anybody else qualified who can replicate that. (Nominations, anyone?) Plus, in a transparent Internet era, it's unlikely that anyone else could pull it off even if they wanted to do so. We already know this, on some level, yet the situation at NetJets is a vivid illustration of the conundrum. Picture a CEO thinking to himself, hmmmm, do I want to sell my company to David Sokol? (or whoever) and you get a completely different set of thoughts going through that person's head than if the buyer is Buffett and the thoughts are simply a) he'll leave me alone b) I won't have to retire c) he'll praise me in the shareholder letter.
As an illustration of the perception issue, the article contained some pretty harsh criticisms of Sokol by NetJets employees. He may indeed be a tough guy and perhaps he’s a jerk. I don’t know. But do consider:
- Turnaround CEOs are nearly always perceived as cruel, heartless grinches because their job is to take away the toy chest and make everybody work harder. Complaints about the people who perform this thankless task are ubiquitious and don't mean much when it comes to what lies ahead;
- Employee sources complained that Sokol demanded more than once that they be truthful with him and expressed this in a brutal manner. If so, it’s hard to blame Sokol for that. He obviously realizes that the biggest risk he faces is that Santulli loyalists will sabotage and undermine him. They have every incentive to do so – not least because if Sokol turns around the losses at NetJets, he has the CEO job at Berkshire locked.
Next post: What happens at NetJets, stays at NetJets. Or does it?