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The headlines are daunting and relentless—corporate malfeasance, exorbitant executive payouts, precipitous mergers and divestitures, Chapter 11 filings, broad-based job elimination, investor litigation. Seemingly every day new, disconcerting revelations stream across computer and television screens and fill the business headlines. “Outsiders” analyze, interpret, and debate the investor impact of these headlines. Myriad voices fuel investor awareness, concerns, cynicism and questions. In response to outside headline news, companies have been forced to create more transparent communications with investors. Tally sheets, internal equity audits, frequent investor calls, and improved, more comprehensible proxy and annual financial reporting are evidence of this commitment.

Unfortunately, responses designed to address “outside investor” concerns are inadequate for the “inside investors”—a company's employees. Employees have both real and “virtual” ownership in their company's success. They have been encouraged to “invest” in the company their hearts, minds, careers and a portion of their current and future economic well-being in the company. For these employee-owners the outside investor information often is confusing and conflicting with the day-to-day reality on the job. Disquieting questions arise: What does this all mean? Is my company doing well or poorly? Is our leadership corrupt? Am I going to lose my job? Are my company stock holdings [e.g., in the 401(k), profit sharing, Employee Stock Purchase Plan (ESOP)] in jeopardy? Why doesn't what I see and hear inside at work match up with what I see and hear outside of work?  Is there anything I should be doing? Thus, a disconnect appears between what employees “learn” from the outside media and the messages companies propogate on the inside. And the bond of trust weakens between employees and employers.

Why should companies care about the weakened bond of trust? One very pragmatic reason is that studies show that trusting relationships between employees and employers can make a difference in terms of productivity and company performance. For instance, the WorkUSA 2002* study found that “companies with high trust levels outperform companies with low trust levels by 186 percent.” Further, according to that study, “three-year TRS [total return to shareholders] levels are more than three times higher at companies with open communication.”

Increasingly, employers are attentive to the need to connect “outside” headline news with the "inside the business reality" of their employees. Employees in each organization described below felt disenfranchised when the outside/inside disconnect occurred. Forthright communication combined with decisive actions and collaboration with the “inside” owner accelerated the slow and often painful rebuild of employee trust in their companies.

Company #1: Admit Mistakes and Move On
A health care company started as a family business. Over the years, it grew its geographic reach and revenue size. Eventually the company was lauded as a shining example of what for-profit health care can be. However, once the founding family sold the business and handed over leadership to the new owners, the shine tarnished quickly. Headlines screamed, “Medicare Fraud!” The news stories described how a cash bonus plan designed to reward profit growth, instead spurred unethical executives to raise profits illegally and shamelessly reap the rewards. The company was excoriated for making money for its own good. “Wasn't this company supposed to be serving patients?” queried the press. Once-proud employees were shamed by their affiliation with the company. The paragon was now a pariah.

Decisive actions were taken and broadly communicated. To start, the company made changes at the top. The beloved and trusted company founder returned. He took just $1 in compensation and bought large amounts of stock to underscore his faith in the company's future. Another former executive who knew the operation, returned.  A Chief Ethics Officer was hired. The decisions, actions, and comprehensive yet candid communications of these executives consistently sent a strong message that while the company needed to make a profit, the highest priority was quality healthcare and serving patients.

To both outside and inside investors, the company acknowledged the serious errors in judgment that had occurred. Controls were put in place to prevent similar future occurrences. Yet, rather than dwell on mistakes, the company used heritage and history as a springboard for the future. This had been a great company and would be again. Specifically, the company reaffirmed, disseminated and continuously measured itself against the company's values and operating principles. These values and operating principles were not just put on posters. They were woven into the fabric of the programs and systems of the company. For instance, the revised incentive plans emphasize quality and patient and physician satisfaction as key measures for award determination.

Through frequent, very transparent messaging the company strove to earn back the trust and pride of its investors (especially the “inside investors").  Flash forward about five years—today, the company is once again a Wall Street darling. The leadership change, open communication, and consistent application of values and operating principles have put a tarnished company again on the path of exemplary organizations.

Company #2: No Black Box
A large pharmaceutical company also relied on transparency, values and disclosure when its blockbuster drug came under FDA scrutiny. Employees initially were surprised and then paralyzed by the outside announcement. “How could this happen here?” Employees had been very proud of the research behind the drug and, as shareholders, had enjoyed the economic benefits generated by the drug's success.

Fortunately, over the years, the company had earned a reputation as a trustworthy communicator. Disconnects between “outside” news and “inside” realities historically had been few. But, this time the messages were going to be less pleasant to deliver and the associated actions swift and painful. Jobs would be eliminated, new protocols and processes would change the way the company traditionally had operated.

A major focus of the communications was to put the loss of the drug in context. The CEO acknowledged the financial impact of the investigation, while also celebrating all of the other company products and successes. Communication also focused on possible efforts to reduce costs to help mitigate the impact of the lost sales. The company fully involved employees in the decisions associated with the cost reduction process. Internal messages were delivered in concert with all major press releases and media revelations. In effect, employees never had to learn the news “as interpreted by” the media because they were informed first. The employees knew the good and the bad, what to expect and what was expected from them.  No “black boxes” were permitted.

Three years later, the smaller, yet still vigorous, company is back on track financially. There were few negative residuals with either inside or outside investors from the disconnect that had occurred and the tough actions that had been required.

Company #3: LISTEN TO THE “INSIDER'S” VOICE
The outside press was filled with positive comments about the company and its recent IPO, "A meteor in a lackluster industry.” Employees invested heavily in the company's stock. A year later, however, employees couldn't see the light at the end of the tunnel, yet alone a brilliant meteor. Programs and processes imposed by “the ivory tower corporate execs” (as dubbed by the employees) had resulted in a dramatic drop in service quality and customer retention. From the inside employees could see what the outside investment community could not—the company was on the edge of the slippery slope of corporate failure. Thus, it was no surprise that there were no employee bonuses for the year. It was a surprise, however, when employee owners learned from the proxy materials that the corporate executives at the top had received large “discretionary” incentive awards. There was a big disconnect. Several high profiles, key project managers “spoke” quietly with their feet.

The CEO acted swiftly to stem the discontent. He commissioned an independent third party to conduct an all-employee engagement study. The independent third party presented the “unadulterated" findings via a company-wide WebEx. These findings (consistent across all geographic and employee demographic cuts) were humbling. In summary, the insiders said, “The Company has lost our customer focus and our trademark service quality. The new technology and processes have cut cost but didn't improve what or how we were delivering to customers. The only ones who benefit are the greedy ivory tower guys who we don't trust or respect.”

The CEO and his management team were taken aback—not just by the lack of trust but also by the condemnation of the far superior technologies that had been introduced. The employees, and subsequently the customers, experienced the impact of one of the first changes the CEO implemented. He loosened his tight grip on the training budgets. Instead of his penny pinching, makeshift “learn-it-on-the-job or from reading the manual" approach, comprehensive classroom training on the capabilities of the new technology was introduced. The CEO also announced that no sacred cows (either old or new) would stand in the way of a goal to restore the customer focus and get back on track for the growth that had been promised to the investment community. He chartered an independent task force of respected leaders from the company to determine what needed to change and, perhaps most importantly, he empowered them to make the changes.

A year later the company is somewhat stabilized. Customer focus has improved and financial results are promising. However, the CEO has found that earning the trust is a slow process. “It's like I'm on trial every day.”

Company #4 Opt for Full Disclosure
Who knew that the executive team of an insurance company had a change-of-control provision that would allow top executives to exit with an embarrassingly lucrative windfall? The board of directors had never anticipated a “break-up” with management and thus had not tallied up the value of their exit packages. But the executives certainly had. The size of the “involuntary termination payments” nearly bankrupted the company and shook the confidence of employees and everyone else in the small community where the company was the dominant employer. The bond of trust between the outside and the inside communities had been broken.

Some thought the company would never bounce back. Fortunately, the new leader, chosen from within, adopted disclosure and collaboration as her mantra. She started by communicating every detail of her employment contract and the rationale behind it. Her plan was to change the business model. This would require the creation of a “new” company built upon a particularly profitable division and the shut down of the remaining business units. All aspects of the new business model underwent a very public review. Employees helped decide how to "right size" the company. New performance management and compensation programs created a high-performance, value-oriented culture as compared to the entitlement culture of the “old” company.

Transparency, employee involvement and performance based rewards for contributions enabled the company and its employees to transform a crisis into a new company with an inspiring future.

Be Prepared: Six Guiding Principles
Bad things happen. Disconnects between the outside headlines and the inside reality occur. Companies that weather the storm are prepared. From the “would haves, could haves, should haves” of the four companies described above (as well as others) six “preparededness” guiding principles emerge.

1. Take an “Outside In—Inside Out” view of headline news. Recognize that employees are a key “investor class.” Regularly provide explanations of how the outside headlines (about your company and others) affect them and their “investment.”

2. Stay ahead of the headlines. Confront tough issues in a timely way. Don't be the ostrich that says, “This will never make the news. This too will pass.”

3. Enlist leaders to boldly acknowledge and communicate the facts—with context and rationale. Consider the advice of Edward Barnholt, Chairman, President and CEO of Agilent Technologies Inc. : “During tough times, you need to be out there even more, communicating. People need to see you.” When Agilent's business collapsed, resulting in thousands of layoffs, Barnholt explained the rationale, not just facts, to employees. Despite its business problems, Agilent ranked as a Fortune most admired company, both before and after the change in its business model.

4. Tell the truth…always. Establish a proven reputation as a truthful communicator.

5. Commit to doing “what's right”…always. Acknowledge what went wrong and then provide the move-forward vision. Don't dwell on the past. Anticipate employee questions. Let them know what's expected of them to move the company forward.

* Watson Wyatt survey conducted in early 2002 of 12,750 US workers at all job levels in all major industry sectors about their attitudes toward their workplace and their employers.

Myrna Hellerman is a Senior Vice President with Sibson Consulting, a division of The Segal Company, in Chicago. Contact Myrna at mhellerman@sibson.com.