I’ve been involved with several corporate turnaround efforts.  And I’ve learned an important lesson from that experience that President-elect Obama should consider:  you start a turnaround effort from the inside.  That requires a focused and dedicated effort; it shouldn’t be a side issue.  Obama should create a Chief Internal Communications Officer.

The Logic To Start Inside Is Compelling

A few years ago I received a call at home on a Sunday from a friend of mine.   He was a client in the past when he was CEO of a company that used me and my firm for IR help.  He was a turnaround pro, and at the time of his Sunday call to me he was Chairman/CEO of a public company that was on the edge of turning out the lights and closing the doors when he first took over.  But now, after he had been at the company for a few years, the company was in a very different state than when he first took over.  That’s because shortly after getting to the company he began doing all the things turnaround people should do: he trimmed costs, reconsidered strategy and tactics, reallocated resources, got out of extraneous lines of business that either were bad ideas to begin with or had become mature and losing energy, and he iterated a few key ideas, stuck to those ideas, executed on those ideas, and turned the company around.  Within just a couple years or so, he improved conditions enough so that the stock grew from being a penny stock (literally) to a few dollars, and it moved from the Pink Sheets back to the NASDAQ from which it had been d-listed by the time my friend joined the company.

After initial pleasantries, my friend got straight to the point:  “We have a serious problem.”  The company designed and manufactured products used in instances where they were so critically needed that if they didn’t work correctly, lives would most certainly be at risk – very high risk.  And the products – hundreds if not thousands of them – were failing in the field.  [Sorry for the lack of details, but I do not want to identify the company so well that its identity become clear.]

He had two major worries.  First of all, because there was no way to determine which of the products would fail and which would work reliably, and because there could not be anything other than mission critical standards for the quality of each of the products, all the existing products needed to be returned to the company and replaced by new ones.  ASAP.  That was going to put at risk the relationship with the customer, which was the company’s most important customer by far.  They had to save that relationship.  That was problem Number One.

Problem Number Two was what would happen to the company’s stock.  The return of all the questionable products and their replacement with all new products was going to hit the P&L really bad, driving the bottom line from the profitable status my friend and his company had finally obtained, to a very significant loss.  The stock would suffer accordingly.  But more than the share price being adjusted for the loss, the price would also be pounded because the credibility of the company’s design and manufacturing capabilities would be seriously questioned.  Investors already owning the stock were going to be heavy sellers when the news about the product returns became public, and prospective investors whom they had been nurturing to achieve a high enough comfort level with the company to become eventual buyers were going to lose interest and take the stock off their monitors.

We did not have much time to work because this was material news and had to be released before the market opened on Monday.  So, our first priority was to focus on the two issues: a communication campaign to the customer to keep their faith and their business, and a communication campaign to the investment community to explain the situation and try to build their backbone so they would stay invested in (or interested in) the company’s stock.

We got past that fairly successfully.  The company was contrite with the customer, very forthcoming and candid (the only possible strategy), and assured them very fast replacement of the product.  If they were able to do that on schedule, they’d keep the customer and maybe even win a few “points” for their fast identification of the problem and a credible solution.  The stock did take a hit when the news was announced, but with a candid news release that fully explained the problem, and a proactive campaign of reaching out to the key investors to explain the news, the stock did not totally crash.

We breathed a sigh of relief.

Then we tackled the real issue:  How the hell did this situation occur?  How would it be fixed?  What role could communications play in helping to make certain this would never help again?  These are similar questions to those that must be addressed in any situation when performance has dropped – and that includes (especially) the federal government (especially now).

A trip to the company, headquartered outside the DC area where Qorvis is based, was in order.  We built a team of people focused on the client and together we decided on a course of action that included a number of ideas to communicate to investors and customers, the company’s industry, vendors, and other of the company’s constituents.  But we added a component:  we decided we needed to interview employees at all levels to determine what they thought of the situation and to garner their ideas.

The employee interviews quickly gave us insight into a major problem:  with the rush to turn the company around – which, at the time my friend took over as Chairman/CEO was a critical situation – actions were so fast and so serious that by the time things got in order again, everyone was justifiably proud of their success in resurrecting the company, but they weren’t focused on the vision of the company going forward.  During the turnaround effort, the focus was on getting the P&L right, which was the priority.  But once that got done, the company lost its goals.  It was just business as normal.  And business as normal wasn’t enough because the employees lost energy, motivation, and the sense of achievement they enjoyed when they succeeded in their corporate CPR efforts.

I was close enough to the Chairman/CEO on a personal level to be very candid and not have to measure my words.  “You have a major morale problem,” I said.  “Unless you get employees out of the funk they are in, and get them turned on-to and excited about a new vision for the company, you are going to continue to have quality problems.  They just don’t care.  They have been so focused on sharing the effort to cut costs and be efficient and return the company to profitability that they think entirely in P&L terms.  They have to start thinking about other non-financial goals, such as quality performance, new business ideas, innovations.  You’re not going to have your operating issues addressed until you solve your employee issues.”

Our Thoughts Turned To The IBM “Think” Campaign

In 1915, Thomas J. Watson, Sr., founder of IBM, told his employees “”All the problems of the world could be solved easily if men were only willing to think.”  Subsequently, the idea of “THINK” (all caps) became the core of IBM’s image.  When I discussed that campaign with my friend, I made the point that the campaign was not initially launched as an external marketing campaign, but as an internal communications effort.  As one observer noted at the time: “This word is on the most conspicuous wall of every room in every IBM building.  Each employee carries a THINK notebook in which to record inspirations.  The company stationery, matches, scratch pads all bear the inscription, THINK.  A monthly magazine called Think is distributed to the employees.”

What IBM did was to take that internal campaign, once it was inculcated into the corporate culture, and then extended it to the outside world with their marketing campaign (still reiterated today with branding such as the ThinkPad, etc.).  That was the approach we proposed to our client: change the culture internally by launching a bold campaign based on product quality, back it up by substantive action such as the appointment of a Chief Quality Officer and (most important) a revision of the remuneration system so that high quality by individual performance is visibly rewarded (that is, put the corporation’s money where its mouth was), and then let that internal campaign become “overheard” by the external community, and then raise the visibility even more by transitioning the same themes and phrases of the internal campaign into a full-fledged external communications program.

In other words:  to achieve the substantive results you desire, the first thing that has to be done is to change the culture, then banner that change and promote it by communicating the same themes to all relevant audiences.  But doing it the other way around – that is, communicating new values to the external audiences prior to making them key components of the company’s own belief system, would be wrong.

That’s the lesson for the Obama Administration.

If You Want Proof Of The Need For A Chief Internal Communications Officer For The Federal Government, Just Consider SEC Commissioner Cox’s Comments About The Madoff Ponzi Scheme.

When SEC Commissioner Chris Cox stepped up to a barrage of television cameras and reporters to defend the SEC when it became clear that they missed the Madoff Ponzi Scheme despite all sorts of warning signals, he said:  “We have thus far no evidence of any wrongdoing by any SEC personnel.”

I do believe Secretary Cox was being totally honest when he said that.  But I also think that the only way he could be honest is that he truly believes that “incompetence” is not part of “wrongdoing.”  I believe he had no trouble with that at all.  I am also willing to bet that his view would be shared by others at the SEC at all levels, and I believe it would also be shared in all nooks and crannies of the federal government bureaucracy – all 1.8 million civilian (non-military and non-postal) employees.

I believe the concept of incompetence in serving the public not being the same as wrongdoing would also be shared by those who have been charged with helping the victims of Hurricane Katrina.  And I believe those assigned the care of our veterans at Walter Reed Hospital would not think that negligence of duty is also not part of wrongdoing.  I believe that those in Government who have failed to enforce rational environmental regulations based on the theory that global warming is not a scientific truth also think that their inability to accept scientific reality is not an act of wrongdoing.  I really do not need to continue.  The point is clear: there is an internal culture problem within the federal government that is dire.  They have aberrant definitions of such concepts as what comprises wrongdoing.  The standard appears to be that if it isn’t criminal, it isn’t wrong.  Usually I am extremely resistant to make strong conclusions of this nature without having a close-up view, but this is obvious to an informed observer.  Obama isn’t going to fix Government without successfully asserting a new culture with new standards inside the bureaucracy.

Being realistic about the prospect of trillion dollar deficits for years to come, Obama acknowledges the greater-than-ever need to achieve significantly higher efficiency and quality performance from Government activities.  As a step toward making good on this goal, he has created the new position of “chief performance officer,” and named Nancy Killefer, a consultant with McKinsey & Company, and former assistant secretary of the treasury in the Clinton administration, to the job.  As I understand it, she will focus on individual programs, determining which make sense and finding those that are obviously silly pork barrel programs not worth the money.  I applaud that approach.

But, as with the example with which I began this article, you can’t achieve higher performance without changing the attitudes and standards of the people involved in the process.  Nor will the American public regain their confidence in Government until the Government itself evidences that it merits that confidence.  To do that, the attitudes and standards of all Government employees must be re-established.  This should be a priority.  It isn’t going to happen by accident.  It needs to be a well-conceived, comprehensive and integrated campaign, using new distribution channels to communicate to Government employees at least to the same degree that the Obama campaign used them to communicate to voters.  This requires a dedicated office that should work in tandem with Ms Killefer and have the personal attention of the President.

The focus on this program should be much more than simply to challenge the bureaucracy to achieve numerical results, which works only for a short time, as the example about my client taught.  There must be a focus on standards and values tied to a vision that inspires them.

The sooner the culture of the Government is turned around, the sooner we get to a more efficient bureaucracy – and then maybe we can start addressing trillion dollar deficits with some degree of reality.