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First it was the Big Eight. Then the Big Five. And now, as folks are fond of saying, it is down to the Final Four. All professional services, not just accounting, have changed immeasurably in the past 18 months since Arthur Andersen, enmeshed in the Enron scandal, collapsed with dizzying speed. Of course, rather than whistle past the graveyard, we need to be recognizing and learning a few essential lessons, large and small (and all important), provided by the Andersen disaster. And as the court-appointed examiner in the Enron matter has made abundantly clear, law firms should be sitting in the front row when those lessons are presented to the class. The lessons fall into two categories: first, how to run a professional firm in a way that keeps you out of the quicksand the Andersen auditors sank in. Global growth makes oversight and due diligence all the more imperative. Then there are the lessons about crisis management: It is always later than you think, and crisis situations demand all your immediate attention. If it can happen to Andersen, it can happen to any professional services firm. Law firms need to understand what Andersen did right and what it did wrong as it tried to manage the crisis and survive the media. AN UNLIKELY PARADIGM From a media point of view, most of what Andersen did was right. In fact, we know of few better models for how to set up and manage a crisis team. It is, of course, ironic that a firm that endured one of the worst media blitzes in modern history should be such a paradigm, since its media campaign ultimately failed to save the day. Yet Andersen’s demise does not belie the soundness of its media planning or the seaworthiness of its crisis team. Remember that Andersen’s team, set up before the Enron debacle, effectively handled media relations for a variety of lawsuits and other institutional skirmishes. The dismal caveat is that some crises are terminal, either because the company or firm is guilty of unforgivable transgressions, or because, no matter how well-advised the media response, there are times when no one will believe anything you say. Worldwide, Andersen spent $100 million on marketing annually, a giant sum compared with law firm marketing budgets. It had a brand, something few law firms have achieved, and had moved on to the next stage of marketing maturity by becoming identified with an institutional symbol — the orange/red circle (the way Nike has become identified with its “swoosh”). Despite this market penetration, market dominance, and a history of ethical leadership, 77,000 employees were brought down by the acts of a dozen or so bad actors. QUICK, COORDINATED RESPONSE Most law firms do not have a crisis team or plan. Most litigators do not even know when to tell their clients that a case may become high-profile and that media prophylaxis is required. By comparison, Arthur Andersen was a cornucopia of best practices. Andersen’s crisis team was nationally based in the firm’s Chicago headquarters and in its Washington office. The team had expertise in public relations, legal, and lobbying, and communicated 24/7 with smaller Andersen teams in London and Hong Kong, who in turn communicated with the media in their own time zones, to ensure a consistent message. Logistically, they drew up an immediate list of priority publications to which they would speak directly, and dedicated their Web site to information for everybody else. The team was deluged with thousands of press queries per week. Despite the flood, the team was able to respond directly to rampant speculation and get the message out that the indictment was “grossly political.” They ran effective attack advertisements, got their top people on television shows, and placed op-ed pieces in the right places. They built highly visible grass-roots teams and produced an unimpeachable spokesperson, Paul Volcker. It would be hard to find a better example of the importance of starting early with a media crisis plan. Andersen fought its “holding action” well and the media team leveraged every message. The problem was that no one was listening. Andersen also had terrible luck because the story hit the news during proxy season. When Delta and a few other big corporations publicly fired Andersen, the press presented the defections as terminal symptoms. Yet only 5 percent of Andersen’s client base had bolted when those doomsday stories first appeared. The effects were nonetheless devastating as the bad press encouraged a further exodus. By September, the floodgates were open and were not to be closed again. Had the Enron story hit in June or July, it is likely that Andersen would still exist today. THE FATAL ERROR There was one weakness in the Andersen strategy that law firms in particular must understand: Andersen’s messages were ultimately too legalistic. There was no simple admission of fault and acceptance of responsibility — the sort of resonant mea culpa that, from the Checkers speech to Tylenol, has stood beleaguered media targets in good stead. People will tolerate mistakes, but not the denial of responsibility. By being too legalistic — in fact, too focused on the specifics of the case — they failed to address the bigger picture. Andersen’s team developed no overarching positive messages about Andersen itself; it was forced into a defensive position. The firm should have created opportunities to portray itself as the protector of our financial reporting system, not the destroyer. During its own scandal, WorldCom reminded the world that it was a crucial part of the American infrastructure. It even slipped in a reminder that the Pentagon depended on WorldCom technology. Nobody loved WorldCom as a result of this messaging, but the public was less inclined to howl for blood. It would not have been in the public interest to do so. To be sure, Andersen had greater odds against it — like that nasty bit about the shredding. Not only is shredding illegal, but from a media standpoint, it’s even worse because it’s visual. Audiences judge news in pictures and put those pictures into simple, broad categories: good versus bad, trustworthy versus untrustworthy, right versus wrong. The shredding stories reminded us of Watergate and made us envision sweaty little accountants destroying documents in dimly lit offices. The war was over when that word picture hit the newsstand. The only recourse for Andersen at that point was to create its own visual news bite of some sort that could counter this image with equal force. None was forthcoming. THE MOP-UP CAMPAIGN Once the war was effectively over, Andersen’s media team fought its “rear action” well: It used targeted media placements to help preserve individual reputations and maximize the value of the remnant Andersen business units in order to fetch the best prices from buyers or in mergers with other firms. As a result, Andersen achieved an auction mentality for its business units, avoiding a fire sale. When you know you’re going to dissolve, the key is to use media to generate the kind of marketplace you want — to suggest through targeted placements that a particular practice or business unit is still valuable, and that it’s being bid on, not picked up on the cheap. At the end of the day, many believe, Andersen’s first mistake was irreparable: They listened to lawyers who told them they were innocent. They focused on the letter of law and took no responsibility for Enron. That was a media relations mistake that grew from arrogance and an inability to understand that innocence was irrelevant. Crisis situations are more about perception than reality. Richard S. Levick is president of Levick Strategic Communications and can be reached at [email protected]. Larry Smith is the firm’s director of strategy and the author of Inside/Outside: How Businesses Buy Legal Services . He can be reached at [email protected].

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