News that Elliot Investment Management has taken a $4 billion stake in PepsiCo has spooked some corporate affairs directors. One told me this week, she feared being similarly attacked and how her company should respond.

But, in a session moderated by Sodali & Co’s senior managing director Victoria Palmer-Moore at last year’s Corporate Affairs Summit, delegates were told: ‘The only companies and boards that should be afraid of activism, are those that are not prepared.’

Sodali & Co, which has been involved in more than 600 activist battles, recommends organisations constantly survey their peer sets to understand what is happening across their share registers.

Activist investors are not afraid to copy their competitors: if one identifies a situation that could be ‘exploited’, others will be looking at similar companies in other jurisdictions, where a similar strategy could be deployed.

It advises companies to map out their shareholders to understand the influence that they wield and the relationships they enjoy across the investor industry, but also to understand their specific views about the company, its management and its performance. Are there broader issues that could play into an activist event?

Elliott Investment Management will have spent a considerable amount of time analysing PepsiCo before taking its position, and publicly calling for change at the drink and snacks group to reverse its declining share price.

And therein lies the problem for corporate affairs directors. In the short-term, the response has to be tactical and address the immediate needs, but this also needs to be underpinned by a long-term strategy otherwise the target company is constantly on the back foot. Activist investors typically move more speedily than a (bureaucratic) company, meaning you could be responding to a question here while the conversation has already moved over there.  

Carolyn Esser, chief corporate affairs officer at Darktrace, who joined Palmer-Moore on stage, shared her experience from January 2023, when the cybersecurity firm came under attack from New York-based asset manager Quintessential Capital Management (QCM), which previously claimed a 100% success rate.  

QCM released a 70-page document on X, entitled Darktrace = Autonomy 2.0, with a cover image of a palm-tree covered island, with a skull lurking beneath the water, exploiting Darktrace’s links to the late Mike Lynch, founder of Autonomy, who was at that time fighting extradition to America over claims he had inflated the value of the business that he later sold to Hewlett Packard.

The report alleged poor accounting practices in two geographies that made up a small amount of Darktrace’s revenues, drawing out several inferences about what QCM ‘therefore thought the company was up to from a financial point of view’, she recalled.  

Within six hours, Darktrace had released a statement ‘which was essentially a very robust quote from our CEO essentially saying that there was no validity in [the allegations] and that she stood by the business and her team’, added Esser. The company’s finance team was still, at that time, digesting its contents, so there was little more to say.

Nonetheless, Darktrace hit the phones – talking to investors, analysts and the media. Esser and her then CEO Poppy Gustafsson also ‘walked the floor of the office, checking in with our people’, briefed the senior leadership team on its planned response, and made sure customer-facing teams could respond to any client queries. 

Within 48 hours, Darktrace issued a three-page RNS statement. It did not attempt to respond to every allegation – ‘we would have had to issue a 500-page report to refute everything in the 70-page report’ – addressing the inferences rather than individual aspects of the allegations.

But Darktrace quickly recognised that it needed to do more because, obviously, it was still their word and that of its auditors against QCM. Esser recalld: ‘So the first thing we did, as part of our longer-term response, was to commission EY to do a forensic audit of our accounting practices, our processes and our controls.

‘And the second thing… we did not hide. We got out there and we stamped the pavements. Our CEO and CFO did something like 30 analyst meetings in the first few weeks after the attack. We had some of the toughest conversations I’ve ever had with the media.’

Esser added: ‘The short-term tactic was important but the longer-term engagement was incredibly important because we had to show that we had nothing to hide and that we had done nothing wrong. It was about reassuring the capital markets in the first instance, but obviously a much wider set of stakeholders as well.’ 

While the full EY report was never published, although it was released to the Financial Reporting Council and the Financial Conduct Authority, it allowed Darktrace and its auditors to reiterate that, based on its independent findings, there was no need to restate any financial accounts for any period of time.

Esser described the report as ‘the gift that keeps on giving’, recommending that others, who find themselves in a similar situation, might follow such an approach.

‘We had nothing to hide, but it forced us to go through that moment of catharsis. And we were forced to really engage with people, and that actually built an inordinate amount of trust. I like to think that we approached this from a place of transparency and openness and a willingness to engage.’ 

The day before QCM’s attack, Darktrace shares were trading at 250p. They closed at 220p on the day its report was released, but after three weeks were back at 250p. When the findings of the EY report were published in July 2023, the share price had reached 375p. The move cost QCM – a short-term activist – dearly.

Coincidentally, just four months prior to the attack, Darktrace had conducted a desktop crisis simulation envisaging a cyber-attack. ‘It gave us muscle memory around how to deal with a crisis,’ said Esser. ‘The challenge when you’re running a function day-to-day is that you cannot spin out 25 scenarios of what may or may not happen in the future. You need the muscle memory. You need the trust among your team. And you need the fleetness of foot.’  

Esser’s other recommendation at last year’s Summit was, in the event of a crisis, divide the team: it should be business as usual for some members, with a dedicated few assigned to overseeing the crisis and its response.

This year’s Corporate Affairs Summit takes place on 8 October at the British Library. I’ll be revealing the full programme next week, but I promise it’s a corker. And tickets only cost £50. Join 200 of your peers at the industry event of the year. Reserve your space here https://buytickets.at/corporateaffairssummit/1734090

IN CONVERSATION WITH

Jason Groves, international director of external affairs and media relations at global professional services firm Marsh McLennan

Jason Groves wears two hats. By day, the urbane Australian is international director of external affairs and media relations at global professional services firm Marsh McLennan, as well as global head of media for Marsh, reinsurance broker Guy Carpenter, health, wealth and benefits adviser Mercer and management consultancy Oliver Wyman.

But at night, he occasionally throws a cerulean blue and gold robe over his business suit, adds a medallion-style badge of office around his neck, and performs his duties as this year’s Master of the Worshipful Company of Communicators – a sort of communications superhero, as it were.

And what a year it has been. In March, the Worshipful Company of Communicators became the 113th (and newest) livery company in the City of London, just one month after the Worshipful Company of Entrepreneurs was established.

Livery companies, effectively professional trade associations, have been a colourful part of the City of London’s history since Medieval times, when they afforded a guarantee that members were trustworthy and qualified tradesman. Today, they act to support members and promote their sectors, while engaging in charitable and educational activities to benefit the wider community.

For Groves, achieving Worshipful status marks the culmination of five years’ hard work.

CRISIS MANAGEMENT

The crisis no comms director wants to deal with

Many years ago, while I was working on the Daily Telegraph, a colleague invited a senior investment banker to be the subject of her Saturday profile interview.

He accepted with alacrity, and then informed his communications director who was immediately suspicious. Why, he asked, has she chosen you? Are there any skeletons in your closet? If there are, she’ll have found them.

Assured that there was nothing untoward to be uncovered, the interview commenced with the comms director sitting in. Just in case.

Her first question: ‘Why do they call you Bonking Bob B…?’ [Surname removed to avoid legal action – but it was a fantastic alliterative moniker.]

And that, ladies and gentlemen, is a salutary tale to share with your bosses on why they should never lie to their comms director. (And secondly, why you should beware journalists bearing gifts!)

It’s the one crisis that nobody gets trained for: managing a senior executive’s peccadillos, for want of a better word. One leading comms director told me of a time, early in her career, when she was called to reception to calm a cuckolded husband, searching for his wife – who was at that very moment ensconced in a hotel bedroom nearby, with the chief executive.

Another recalled handling the fallout when the soon-to-be-appointed chief executive had his job offer revoked after being caught on camera in flagrante delicto with the wife of another board director.

I still chuckle about the poor comms man bravely denying a commotion at his CEO’s family home, after a neighbour alerted the local newspaper that his boss’s wife was - at that very moment - tossing men’s clothing from an upstairs window.

And there was widespread sympathy for the comms director who had to alert his CEO, then on holiday with his family, that a tabloid was going to press imminently with incriminating photographs.

(There’s also the story of a CEO who literally died, er, on the job – I’m sorry, I don’t know how to express it differently and get through your email censors – and how the comms director managed to keep it out of the press, immortalising his boss’s image as a happily married family man who died peacefully in his sleep.)

But lying to the corporate affairs director is one thing. Lying to the board is quite another, as Nestlé chief executive Laurent Freixe discovered this week. He is just the latest in a growing line of CEOs to be fired after embarking on an undeclared romantic relationship with a colleague.

After an allegation was made on Nestlé’s whistleblower hotline, Freixe was quizzed as to its veracity. Apparently, he denied the suggestion. Not once. But twice. And therein lies the problem: it is rarely the ‘crime’ that does them in, but the lying or attempted cover up. It is also rumoured that Freixe’s mistress had recently been promoted, which might be unrelated to the affair, but the optics, as they say, do not look good.

Nestlé’s Code of Business Conduct, now signed by new CEO Philipp Navratil, stresses that compliance is mandatory for every employee, including executive board members. It poses five questions that employees, worried about a decision, should ask themselves to determine the right way - or, as the Code calls it, ‘The Nestlé way’ - to behave.

Three of these should have given Freixe cause for concern:

• Is my decision consistent with Nestlé’s values, corporate business principles and company policies?

• Would I be comfortable explaining my decision to a colleague, family or friend?

• Am I confident that my decision will not have a negative impact on Nestlé?

But it is also a reminder, once again, to corporate affairs directors that they work for the company. Not the individual. They may suggest an external adviser to assist their former boss with the inevitable media interest, but their priority is bedding in - sorry, couldn’t resist - his (or her) successor and reassuring key stakeholders that it is business as usual.

REFLECTIONS

Wrong number?

Calling the main number of a PR agency recently, I was surprised to find, after the ubiquitous Your call is important to us, please hold message, that it just rang out.

As a hack, we were trained to answer any ringing phone: you never knew who was at the other end, and what story they might have.

Walking through his newsroom, legendary Sun editor Kelvin MacKenzie once answered a ringing phone. The caller wished to complain about a story in that day’s edition.

‘What’s your name?’, demanded MacKenzie. Mr Smith*, came the reply. ‘Where do you live?’ 1 Acacia Avenue, Hemel Hempstead. ‘Right,’ said MacKenzie. ‘Mr Smith of 1 Acacia Avenue, Hemel Hempstead, you’re banned from reading The Sun,’ before slamming down the phone.

Almost immediately, it started to ring again. ‘Hello,’ barked MacKenzie. ‘Hello, I’m Mrs Smith from 1 Acacia Avenue, Hemel Hempstead. My husband has just been banned from reading The Sun. I was just checking: does the ban apply to me too?’

(*True story alert, as we used to say, back in the day: I just can’t remember the name or address!)

ODDS & SODS

👏🏻 Much excitement about a job description for a (remote) senior vice president head of corporate communications at US-based HealthEquity. ‘This individual will report to and serve as the voice of the CEO, our chief storyteller, and the architect of the enterprise narrative—ensuring alignment, consistency, and execution across all internal and external communication touchpoints. You will help shape the voice of a category leading public company. This is not a behind-the-scenes role.

‘The right candidate must thrive on being ‘in the room’ and at the table—translating business strategy, industry dynamics, and company performance into clear, compelling narratives for all of our stakeholders: investors, clients, partners, members, media, and teammates.’ Others can only dream. I read last week of the job spec for a director of communications, which required experience in Canva.

🌟Not to throw shade at anybody but, following the IPO of Athens-based Metlen Energy & Metals on the London Stock Exchange, I believe we have the first corporate affairs director of a FTSE 100 company to appear in Vogue. Metlen’s chief corporate affairs and communication officer Vivian Bouzali recently graced the pages of Vogue Greece’s Bold Women tribute. (The pictures looked lovely, but it was all Greek to me.)

🧗🏼An interesting analysis from Hedley May on the ripple effect of a new CEO on corporate functions. Since 2023, there have been 42 new CEOs appointed at FTSE 100 organisations. This led to the appointment of 21 corporate affairs directors – ten a direct result of the CEO looking for something new. All these appointments were well-established professionals who had previously held a similar position elsewhere. None were internal candidates.

This is in contrast to other functions. For example, 20 of the 41 newly appointed chief financial officers were first-timers, 16 of which reflected internal promotions.
Hedley May’s Harry Friend says that a new CEO typically takes one of two routes regarding corporate affairs.

They either recruit an external heavy hitter, who is brought straight onto the Exco, or revamp the role so that it is no longer on the leadership team, while giving the next in command a broader communications remit. Career progression in a function that is, usually, the smallest is tough.

🚀Cyber Breaches, Communications & Consequences, a white paper produced by The Remarkables, a new agency founded by Kerry Parkin, makes interesting reading. The vast majority of cyber-attacks, it seems, are not the result of a sophisticated hack, but rather human error: clicking a phishing link, reusing old passwords or bypassing established security protocols.

One recommendation stood out: store your crisis management plan, insurance policy, and key contact details off grid and offline. Apparently, these are among the first documents that hackers will attempt to access, which as Parkin warns, ‘provide a roadmap for exploitation’. If hackers know how much your cyber insurance policy will pay out… they’re unlikely to demand a lower ransom.