Credit Crunch V: The Outlook for PR
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Credit Crunch V: The Outlook for PR

Gershon Kekst, founder and president of corporate and financial communications firm Kekst & Company recently told Bloomberg that current credit-market contraction is the most “frightening” slump he has seen in four decades.

Paul Holmes

When an economy enters a downturn, economists can be heard discussing the shape it is likely to take: a V-shaped recession is short and sharp; a U-shaped recession is longer but milder; and the “bathtub-shaped” recession (Martin Sorrell’s description of the last downtown), with a sharp decline, a prolonged period of difficulty, followed by a gradual recovery. But if Nobel Prize winning Columbia University economist Joseph Stiglitz is to be believed, the coming recession is likely to be something different: an L-shaped recession. According to Stiglitz, the economy is in a very low place indeed, and likely to remain there for some time to come.”

 

He points to a number of indicators: inflation is running at an annual rate of nearly 6 percent, its highest level in 17 years; unemployment stands at 6 percent and there has been no net job growth in the private sector for almost a year; housing prices have fallen faster than at any time in memory and 3.6 million Americans have lost their homes since the subprime-mortgage crisis began; banks are reporting record losses’ the $128 billion budget surplus that George W. Bush inherited from Bill Clinton has been transformed into the second-largest budget deficit ever reported; the national debt has increased by more than 65 percent to nearly $10 trillion.

 

Gershon Kekst, founder and president of corporate and financial communications firm Kekst & Company, is equally troubled, He recently told Bloomberg that current credit-market contraction is the most “frightening” slump he has seen in four decades.

 

“This is more severe and more intense, and if I had to use one word to characterize it, in contrast to the 80s, it would probably be frightening,' says Kekst. “We just don't know what's going to happen. The economy is being tested in a bear market that could go for a long time.”

Kekst has seen a sharp decline in the mergers and acquisitions business that is viewed as its bread-and-butter, but that has been offset by an increase in crisis communications, particularly bankruptcies and restructurings.

 

Yet the public relations industry as a whole remains cautiously optimistic, perhaps because the gathering storm clouds evident during the first half of 2008 have not yet produced the anticipated deluge.

 

“The PR business has been resilient so far,” says Michael Murphy, chief executive of European public relations giant Trimedia. “In difficult times organizations need to increase the level and frequency of communication with key stakeholders. Our increasing sophistication as an industry and the increasing reliance which organizations place upon us is standing the PR business in better stead than in previous recessions. Stakeholder relationships and brand reputations take a long time to build and clients know that turning the tap off suddenly can set them back many years.”

 

And the chief executive of one of the largest publicly-traded PR agencies in New York agrees: “We had a very strong first half. We saw digital fees increase at a very healthy pace. We saw an increase in business from emerging markets in Asia and the Middle East and Eastern Europe. We saw quite a bit of money that would previously have gone to our sister advertising agencies go into public relations instead, because clients are finally recognizing that we can engage with consumers more easily than ad agencies, and that engagement translates into a real return on investment.”

 

At its North American Fall meeting in Boston last week IPREX, one of the world’s largest networks of independent PR firms, conducted a survey of members and found that 63 percent still expect their revenues to increase in 2009, while just 6 percent anticipate a downturn. The survey identified three main growth drivers: globalization; client investment—more than half of delegates say their clients see PR as a core part of their marketing effort; and new media, with 42 percent seeing a 15 to 30 percent increase in digital spending and another 18 percent reporting 30 percent-plus.

 

Others make the traditional case for public relations in a downturn.

 

“Historically, where there is belt tightening, PR agencies serve as a cost effective solution for corporate communications teams,” says Kimberley Capwell, co-founder of California-based PR firm eLuminate.  “Quite frankly, in a downturned economy, more than ever, companies need to stay laser focused on moving their company’s messages out—whether it be to drive a consumer to action, establish a company position or provide extra arms and legs.

 

“Smaller firms can bring arms and legs resources to bear for clients that may be facing layoffs and other cut backs. Some companies will have to make difficult decisions to lay off staff within their marketing and communications departments. This is one place firms such as ours add value. We can fill the logistical void, but also provide senior level counsel at a fraction the cost of a salaried employee.”

 

That’s an argument public relations consultancies have made in the past, but it has not always translated into action on the part of clients. There is still a tendency for many marketers to revert to what they know—paid advertising—in times of crisis, or to simply cut marketing budgets across the board. They have found the arguments for PR’s superior return on investment unconvincing.

 

One reason that might be different this time is that this crisis is fundamentally about confidence; it is difficult to see how confidence can be restored without effectively engaging stakeholders—shareholders, customers, employees and citizens as a whole.

 

“The common theme throughout this current Wall Street crisis is the loss of trust and confidence in institutions and governments,” Matt Harrington, president and CEO of Edelman’s

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