Everybody loves a train wreck and what I affectionately call a “NASCAR story.”
Even the promise of a collision tends to attract a crowd.
With this as the backdrop, UTStarcom faced a quandary.
The Justice Department had nailed the company for violations of the Foreign Corrupt Practices Act, a fancy phrase for bribery. How does one put its best foot forward in disseminating such news?
Ultimately, the company went with the old “If a tree falls in a forest and no one is around to hear it, did it make a noise?” strategy. By distributing the news release on December 31, the company calculated that reporters would have one foot out the door in anticipation of their New Year’s Eve celebrations.
I think it’s fair to say the new release’s headline UTStarcom Inc. Agrees to Pay $1.5 Million Penalty for Acts of Foreign Bribery in China – compliments of a writer at the Justice Department – made this tough to miss.
As it turns out, reporters were willing to stay for a few extra minutes before New Year’s Eve, as you can see from a sampling of headlines:
San Francisco Chronicle: UTStarcom settles bribery case for $3 million (Dec. 31, 2009
PC World: UTStarcom to Pay U.S. Fines for Bribing Chinese Carriers (Dec. 31, 2009)
The Associated Press: UTStarcom pays $3M to settle bribery charges (Dec. 31, 2009)
The Wall Street Journal: UTStarcom to Pay Fine for China Bribery (Dec. 31, 2009)
The New York Times: Telecom Company to Pay $3 Million in China Bribe Case (Jan. 1, 2010)
I got a kick out of The New York Times piece that highlights, “A company spokesman could not be reached for comment on Thursday.” Apparently, The Times held out a day waiting for a return call, which explains the January 1 publication date.
Still, if you’re UTStarcom, you might make the case that most of the media coverage was nothing more than a regurgitation of the news release. With the worst behind, let’s now embark on a fresh start in 2010.
But this rationale would be flawed.
Trying to hide bad news by distributing an announcement on a late Friday afternoon or on December 31 is akin to flashing a red cape in front of a bull. It’s only going to increase the media’s “enthusiasm” to explore the story with greater depth.
Plus, the story has a Tyco-like quality to show excess or just plain buffoonery (although we can safely assume no $2M birthday parties were staged in Sardinia). Consider that the Justice Department documentation already shows ditties like the company paying for Chinese officials to take junkets to Hawaii, Las Vegas and New York under the auspices of training.
It’s not like this is the first time the company has lost its way.
The law journal The Recorder published a piece entitled “UTStarcom’s Crash Shows Pitfalls of Doing Business in China” back in 2007 that captured:
Over the past couple of years, the company has admitted to backdating stock options for executives, investigated its own employees for paying bribes across Asia, and admitted improperly recording hundreds of millions in revenue.
And there’s still more fodder to explore.
For example, it’s not every company that asks its general counsel to do double duty as chief ethics officer, but that’s the dual title worn by Susan Marsch. I’m guessing Ms. Marsch had a few voicemails when she returned from the holiday break.
The company might also want to rethink the “Our Values” section on its Web site:
That line “clear standards of right and wrong” could use some work. Perhaps that Justice Department copywriter is available.
Kidding aside, this story has all the elements of a country song.
It behooves UTStarcom to recognize that a) the story won’t disappear behind a December 31 release date, and b) without proper preparation, its public image will be savaged beyond rehabilitation.
Excellent and interesting analysis of the kind of PR mess that is so illustrative of our impulsive times. So I’m trying to work out whether as a result of this kind of publicity, companies on the whole will become more ethical or even more ruthless. I’m going to got out on a limb and predict a decline in the culture of ‘raising short-term shareholder value at any expense’. Any others?
I suppose if one’s moral compass is pointed in the wrong direction it’s likely transparency takes a beating as well.