Tag Archive: Restructurings


PR = SG&A?

Speaking before a group of Santa Clara University integrated marketing students recently http://www.scu.edu/, I presented them with an overly simplified but relatively accurate representation of a financial statement for a publicly traded company:

  • Total Revenues: $2.0 billion

–      COGS: $1.0 billion

  • Gross Margin: $1.0 billion

–      SG&A: $300 million

–      R&D: $400 million                  

  • Operating Income: $300 million

–      Income Tax: $50 million

  • Net Income: $250 million.

 

After providing them with a few nanoseconds, I asked the undergrads where does public relations or marketing or brand management fall within this financial statement. The unanimous answer following a bout of serious contemplation was SG&A or Selling General and Administrative. http://en.wikipedia.org/wiki/Financial_statement

I then inquired whether they were comfortable with that answer. What is SG&A? The answer is that selling, general and administrative is an “operating expense” on a financial statement. http://en.wikipedia.org/wiki/SG%26A

Do we really want PR, marketing, brand management, crisis communications etc. to be regarded merely as an “operating expense?” And if we interpret PR as an “operating expense” what will be the view of accountants and controllers in a Finance Department that are looking to control spending and improve the bottom line?

Do we really want to risk having your function zeroed out or greatly diminished in the face of mounting financial pressures? What does that mean in terms of job security?

How about a different way of thinking?

Doesn’t public relations contribute to revenues or the top line? Doesn’t brand management help expand gross margin? Doesn’t marketing play a key role in keeping a company in the black, rather than the red?

Before we go further in this discussion, please keep in mind that public relations/marketing/brand management/social media/crisis communications cannot defy gravity. If customers are retrenching in the face of an economic downturn, if inventory is building rather than declining, then an entire company will be impacted and most likely start reporting red bottom-line numbers.

And also be mindful that PR/Marketing/Branding will most likely always be classified by accounting types as SG&A. Nevertheless that doesn’t have to be our mindset. We need to convince internal decision makers that our responsibilities are not a mere operating expense.

Public relations practitioners can and should always demonstrate ROI or Return on Investment. Our jobs as communicators are not just to spread the good word to external audiences (e.g. customers, suppliers, partners, analysts, editors, bloggers…), but to internal audiences as well. And included in this definition of “internal audiences” are company executives, including the CFO and the company’s Finance Department. Think of it this way, these internal audiences make the hiring and firing decisions and more to the point whether we will receive a paycheck or not.

If the company is publicly traded, then it must report to the SEC and the world. Translated, the company must issue quarterly financial results, pre-announce all “material” differences from prior quarterly guidance, issue an annual report, hold a yearly meeting for shareholders, publicize all major M&A activity, and announce all major executive appointments and restructurings. A good public relations department will know how to effectively manage this information to get maximum mileage out of good news and mitigate the impact of bad news.

Aligning a corporate public relations department with the CFO, Investor Relations, Legal and Corporate Development in not only reporting to the SEC and investors, but becoming an integral part of their daily activities, is battle-tested job protection. We want a seat at the table.

What is the impression of existing customers and prospective customers to a company’s image and products? Obviously, the products have to work and the company needs to execute. Assuming that is the case, then how is the company building and enhancing its reputation? That sounds like an activity that is far more than just SG&A. Is marketing and brand management helping to drive revenues, expand gross margin and contribute to the bottom line? Yes indeed.

We need to document (not exhaustively) what we are doing on behalf of our clients. Whether we like it or not, contributing to our monthly reports should be a daily activity. It is far easier to remember what you did on Monday on that very same Monday, than a month later.  I have always been mystified by those who write their monthly reports two weeks into the new month. How can you accurately recount what you did six weeks earlier, 42 days or more ago?

The bottom line for public relations? Remember ROI, the top-line, gross margin, profitability and stay away from the dreaded SG&A mindsets. Besides who needs career-limiting thinking in this economy?

If you asked my opinion a year ago what is easier in a troubled economy, managing an agency or corporate PR team or selling a house, I almost would have laughed…well of course, selling a house is easier. Everyone knows that.

Right? Ah, wrong.

Working with at times irksome and annoying external or internal clients/stakeholders of varying degrees of talent and temperament demands tremendous amounts of patience and perseverance. There is simply no argument. In addition, a skilled PR practitioner must coordinate the development of the message, prepare the messengers, set the timing and target the recipients, what could easily be labeled as “communications choreography.”

That means that everyone is on the same page and singing out of the same hymnal (pardon the awful clichés). Is this process very similar to…staging a house for a sale? Let’s delve a little deeper into this comparison.

Working for an international public relations agency, you are aligned with a series of people with various tasks and hopefully the majority with the same agenda. There are the members of your own team, your agency bosses, your clients, their executives, their partners, their suppliers, the legion of analysts, editors, reporters, bloggers…Negotiating through this litany of humanity to achieve a desired branding or marketing result in a tough economy requires an incredible amount of resolve and fortitude.

And in the case of a publicly traded company, financial results must be reported four times a year, an annual meeting for shareholders must be conducted and the annual report (the 10K) must be issued each spring regardless of exogenous events. These could include: pre-announcements, mergers and acquisitions, IPOs, restructurings, mandated restatements or any other “material” event that requires immediate disclosure under SEC rules. That means that a company must not only employ PR people trained in telling the story, but also a legion of attorneys, accountants, controllers, IR pros and corporate development types to go along with the CEO, CFO etc…the folks that make up the team.

So does this same team building exercise and plan execution also apply to selling a house? Based upon my recent experience, I can safely reply in the affirmative.

A seller must interact with an assorted collection of contractors, pool remodelers, granite counter-top builders, “equity beige” rug installers, nosy neighbors, pest inspectors, house cleaners and pesky Realtors. If you think Mussolini had trouble keeping the Italian trains on time, try coordinating/choreographing this motley crew and keeping them to a schedule. There is no place in your schedule for the “manana” syndrome, but you will be asked repeatedly if this task or that task can be put off to another day. You have to resist the temptation of being too nice, while maintaining your professionalism.

In the corporate world, the SEC requires quarterly financial result reports, the 10K, annual meeting, and any “material” disclosures on the corporate side. Who serves as the SEC when it comes to a home sale? I guess that would be the seller…in this case, little Ole me.

Starting tomorrow, my house will go on the market first with the Realtor tour and then with open houses this weekend. My purpose in bringing up this point is to not market my house via my blog. I am helping my Realtor with the marketing and she is the one that will carry that burden.

My point is that I am sitting at the vortex of a $749,000 business…yes; selling your house is a business. A house sale has its own particular P&L statement: the costs associated with staging the house, the obligatory Realtor fee, paying off of the first and second mortgages and after all of that…hopefully something for me (e.g. the profit). I never thought that selling a house would be akin to managing agency PR or corporate PR teams and all of the associated players that are a necessary evil and require the same degree of people skills.

Guess this experience is yet another one of life’s lessons learned.

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