The Lorenzo Legacy (1990)
Charting the future of public relations
Holmes Report

The Lorenzo Legacy (1990)

When trustee Martin Shugrue took over the reins at Eastern Airlines in April, he was candid about the difficulties he faced repairing the airline's bat­tered reputation, and swift to distance himself from the remnants of Frank Lorenzo's management team.

Paul Holmes


When court-appointed trustee Martin Shugrue took over the reins at Eastern Airlines in April, he was quite candid about the difficulties he faced repairing the airline's bat­tered reputation, and swift to distance himself from the remnants of Frank Lorenzo's management team. And that was before the news that Eastern faced criminal charges over maintenance violations that some believe were countenanced by the Lorenzo regime.

When former Delta president Hollis L. Harris was appointed president of Lorenzo's other carrier, Continental, in September, interviews stressed that he was a people per­son, that he was committed to working with the Scandanavian airline S.A.S., which owns almost 20% of Continental voting rights and has a reputation for focusing on the cus­tomer, and that he too realized the airline's image was its biggest problem.

Shugrue and Hollis face many of the same problems. Eastern and Continental declined in reputation under Frank Lorenzo to the point that a recent Zagat survey found them both to be two of the three lowest-rated air­lines in terms of customer satisfaction. Travel agents report that many fliers—particularly business fliers—continue to specify any­thing-but-Eastern or anything-but­Continental. And an even greater problem exists internally, where employees at all levels are battered and embittered by years of con­flict and confrontation with management.

If there's one thing Shugrue and Hollis have going for them, it's that they are not Frank Lorenzo, or Lorenzo appointees.

To understand the problems facing these two executives, it is necessary to delve back to the days of Colonel Frank Borman, the former astronaut and Lorenzo's predecessor.

"The story of Eastern Airlines is a story of a decade-long breakdown in communi­cations," according to employee communi­cations expert Geoff Nightingale, president of SynerGenics. "It is a story of what can happen to a company and its people when management and labor end up following conflicting paths because of the simple fail­ure to agree on a common mission."

Nightingale worked with Eastern in the Borman era, and found management and labor leaders unable to work together because of mutual personal distrust, distrust that was to lead directly to Borman threat­ening workers with Lorenzo and then being out-maneuvered as the former con­sultant snatched the airline away from him.

Lorenzo was already well-known to workers as the man who had founded New York Air, the first major non-union airline in the U.S., and defeated the unions at Continental by taking the airline into bankruptcy. He, in turn, knew the Eastern unions' reputation for militancy, and had formed his own opinion about machinists' leader Charlie Bryan, who had been a thorn in Borman's side and who Lorenzo saw as a militant hot-head.

Within months, management and the employees were at loggerheads, with Lorenzo demanding wage concessions and the unions demanding adherence to their existing contract. Since the management was blocked by law from imposing new wages or work conditions, it adopted a pol­icy of confrontation and harassment.

The harassment included calling in the police in an attempt to have Bryan arrested for holding an illegal meeting when work­ers in Miami presented him with a plaque for defending the union. But worse, in terms of strategy, it also extended to ordi­nary workers.

"Managers became adept at psychologi­cal warfare," says Business Week reporter Aaron Bernstein in his book Grounded. "Flight attendants were forced to pick up trash on planes, in violation of their contract. If they refused, they could be fired for insubordination. A new auditing system for on-flight liquor sales spurred a wave of paranoia among flight atten­dants, some of whom were fired when their receipts showed $2 or $3 discrepan­cies. Wild stories began to circulate about strip searches and auditors disguised as nuns, pregnant women and Sikhs."

It was clear that Lorenzo, a numbers man, simply did not appreciate the importance of a well-motivated workforce to the success of a service enterprise like an airline. Indeed, some observers say he never realized that the airline business was a service. "People, whether employees or customers, were the last thing on his mind," says one public relations executive who worked at one of the Lorenzo-owned airlines, and spoke only on condition that he not be identified. "He was much more com­fortable discussing hardware or financing. I think he saw everyone else as obstacles to achieving his goals."

It was, as SynerGenics' Geoff Nightingale points out, a "vision thing." Lorenzo's prob­lem was not simply that he wanted his work­ers to take pay cuts, it was that he was not prepared to explain to them how they—and the airline for which they worked—would benefit by doing so. He was never able to articulate the company's mission.

Not surprisingly, Eastern's battle with its unions had an impact on a wider public arena. In an era when organized labor was seeing its popularity declining, the Eastern battle was one in which the unions were able to win massive public sympathy.

"The unions were able to make Lorenzo the issue," says Richard Weiss, executive vp of The Kamber Group, a PR firm that spe­cializes in working with labor. "They were able to portray him convincingly as a man who was single-handedly destroying a com­pany. They were able to show people that he was a tyrant."

Given Lorenzo's inability to grasp the importance of public relations, it was an easy case to make. Lorenzo told students at Stanford University that he had hired psychi­atrists who compared the union activities to "brainwashing in the style of the '40s." Incredibly; he went on to add: "What is being put into their heads gets them excited about giving up their jobs."

Lorenzo's name appeared in red paint on the Berlin Wall with a line through it. Picketers stood outside his home in Houston. He was pelted with eggs on college campuses and heckled at airports. When he boarded a Delta flight, the pilot initial­ly refused to take off.

The press seized on a new villain gleefully, with Playgirl naming the Eastern president one of the ten unsexiest men of 1988. Politicians jumped on the bandwagon. Jesse Jackson denounced Lorenzo; more surprisingly, so did Newt Gingrich. Michael Dukakis promised to make a machin­ist secretary of labor if he were elected.

Most importantly, however, the company's labor problems were raising questions about safety in the minds of the flying public, particularly with pilot pickets carrying signs that warned: "Eastern Airlines May Be Hazardous to My Health" and ABC's 20/20 running a piece examining Eastern's safety problems. A 1987 survey by Virginia Tech University showed that 23% of Eastern pilots showed frequent symp­toms of depression.

The problem also affected Continental, where passenger traffic fell 26% in May 1988.

In June 1988, the Federal Aviation Authority declared Eastern safe, but added an extraordinary rider: "In a company so divided, the risk is increased that discord... either through inattention or by design, have an adverse impact on public safety"

Lorenzo, in an ironic twist, sent out a memo to Continental employees urging them to answer critics who were "Continental-bashing." He even hired the Hay Group, to prove that workers enjoyed working for him. While 80% said they liked the work they did, only 16% liked doing it for Continental. Hay executives told the company it had the worst morale problem of any they had ever seen.

Yet more bizarre was Lorenzo's video plea to pilots, one of the few attempts to formally communicate his vision for the airline. Two days before their strike was due to start, Lorenzo sent a video to the home of each pilot by Federal Express. The tape showed Lorenzo at home in Houston, being inter­viewed by a hired journalist. He promised a minimum number of captain's positions and job protection. But he failed to mention that if Eastern declared bankruptcy, all those promises would be void. Nor did he touch on $64 million in benefit cuts.

Pilot leaders called the video a "gim­mick". They sent out a rebuttal video which pilots received the day before the strike was due to start. As Grounded author Bernstein says: "In the final moments, with the fate of his empire hanging in the balance, Lorenzo had found a way to anger virtually every union member."

In the end, it was poor public relations—with both internal and external publics—that made it impossible for Frank Lorenzo to continue operating his two airlines. First the court appointed Shugrue at Eastern; then Lorenzo sold his Continental stake to SAS.

Now that he's gone, his successors need to address his legacy swiftly and con­vincingly. Internally, they must make sure that management and workers are on the same side. Externally, they must reassure passengers that their carriers are concerned for both safety and quality of service. It will not be easy.

Part II

In July of this year, when a Federal grand jury indicted Eastern Airlines on 60 counts of ignoring maintenance requirements and falsifying safety records, many observers believed the final nail was being hammered into the coffin Frank Lorenzo built for the once-proud carrier. One analyst, Timothy Pettee of Merril Lynch, told the The New York Times that: "This does a tremendous amount of damage to their efforts to rebuild travel agents' confidence."

In fact, the way Eastern handled the announcement and its fall-out may have done more to help restore the company's reputation than any other single event. The indictments were announced by Eastern a day before the grand jury made its official statement, allowing the company to tell its side of the story (which was that the alleged offenses occurred under previous manage­ment and were "ancient history") and reporters found the airline's press office responsive to all their queries.

A hefty fine could still end court appointed trustee Martin Shugrue's cam­paign to turn Eastern Airlines around, but until the case is resolved he had kept the company's reputation intact.

Both Eastern and its sister company, Continental—now under the presidency of Hollis L. Harris—have shown encour­aging signs of revival in recent months, despite surveys showing them to be close to the bottom of the league in customer satis­faction. Both companies are clearly attach­ing more importance to the communica­tions functions, both internal and external.

At Continental, the turn-around began before the departure of Lorenzo, according to vice-president of corporate communica­tions Arthur Kent. "I'm getting tired of reading about morale problems and labor problems at Continental," he says. "That's all in the past. We have a very young, tremendously enthusiastic workforce. They are well-trained, service-oriented, and the compliments we receive from travelers far outweigh the complaints we receive."

That's why a recent Zagat survey show­ing Continental to be among the worst in customer satisfaction provoked "fury" at Continental headquarters in Houston. The survey used old statistics and was simply not a reflection of the way things are today, Kent says.

The way things are today are due in part to Continental's relationship with the Scandinavian carrier SAS, a relationship that goes back two and a half years, but was strengthened in September when SAS increased its stake in the company and Harris was named president. In the past two years, more than 22,000 Continental employees—most of them customer-con­tact staff—have been through the SAS Quality Service Institute, which helps them develop interpersonal skills for use with other employees and with travelers.

"When Continental merged with People's Express, US Air and Frontier in 1987 we just hit a wall," says Kent. "There was a clash of cultures and a clash of styles and it created some problems. But we have been coming back since then."

The company has improved communi­cations with its employees, creating a two-way process has involved a company newsletter and newspaper, and an elaborate voice-mail system, allowing senior managers access to individu­al employees, as well as a number of employee coun­cils, which offer suggestions to management, and a CEO forum, which answers all employee questions. "We have made a commitment to answer every question, if not on the spot then in writing within 30 to 60 days," Kent says. "And we've stuck to that commitment."

Another important task has been the creation of a uniform corporate identity. In the first few months after the takeover, cabin crew were wearing four different uni­forms, so the company allowed flight atten­dants to design their own outfits. That design has now been implemented and, Kent claims, "the change in attitude is noticeable."

Eastern's internal communications pro­gram is less well developed, and its prob­lems, following what was one of the bitter­est strikes in labor history, may run deeper. However, Martin Shugrue is currently enjoying a honeymoon that stems from the fact that "he is not Frank Lorenzo," according to Richard Weiss, vp of The Kamber Group, a public relations agency that specializes in work for labor unions.

"Shugrue is clearly a very different kind of personality from Frank Lorenzo," Weiss observes. "He seems to be more prepared to listen to what his workers have to say. I think there is a spirit of cooperation that stems from relief that Lorenzo is gone, and the company should be able to build on that."

Karen Ceremsak, Eastern's vice-presi­dent of corporate communications, says the building has begun, and emphasizes the contribution of those Eastern workers whose dedication to the company was such that they worked through the strike, often doing work that was not part of their job descriptions in order to keep the airline in the air.

The company has introduced an inter­nal communications newsletter, published daily and transmitted electronically to all sites. And Martin Shugrue's personality has been an asset both internally and externally, where he has been used in two major advertising campaigns devised by Ogilvy & Mather, the first promising a 100 day pro gram to "get a little better every day" and the second offering expanded business class service for business travelers.

Says Karen Ceremsak: "In the course of our research we found that Martin Shugrue was symbol­ic of the changes here at Eastern. We felt we had to publicly acknowledge we had a problem if our efforts to solve the problem were going to gain any acceptance, and he was credible and he had an honest, candid style. The ads were totally unscripted and based on real focus groups he conducted with both employees and cus­tomers."

Shugrue himself clearly recognizes this role. "The CEO of any corporation needs to be a leader," he says. "They don't discipline; they don't kick. They get out front. They tell the truth. You can't sugar coat bad news. It's more important for ceos to be visible in times of trouble than when things are run­ning smoothly."

There is evidence, Ceremsak says, that business travelers are already coming back to Eastern, and that new business travelers have been attracted by the offer to fly in the expanded business class for coach class fares.

At Continental, mean­while, the worry is that the perception of those outside the company has not caught up with the reality seen by those within it. Art Kent acknowledges this. "I've only been with the company two years," he says. "I used to be a reporter. And I have to tell you Continental looks very different from the inside." However, he claims perception is catching up, and that the latest Department of Transport figures show pas­senger traffic increasing at a healthy rate and customer satisfaction climbing steadily.

Michael Morley, vice-chairman of Edelman Public Relations and a consultant to SAS, agrees: "I think SAS believes that it's a case of perception not having caught up to reality," he says, "I think the kind of gossip you hear about Continental doesn't reflect yesterday, it reflects two or three years ago."

Nevertheless, when Hollis Harris took over the presidency both he and SAS chair­man Jan Carlzon discussed his main chal­lenge as being to "transform the line's image" and Harris went to great lengths to describe himself as a "people person" while corporate insiders claimed that Carlzon would maintain a strong guiding hand on the corporate rudder.

The next step is a cohesive corporate identity, currently being designed by Lippincott & Marguiles. Their research to date has shown that while the name Continental had substantial equity, the Continental logo had very little, so sweep­ing changes are likely.

It is 'clear that both airlines recognize the difficulties they face, and that in choos­ing new leaders both have taken the public relations challenges into consideration. Martin Shugrue appears to be a strong leader, capable of addressing difficult issues and making himself a rallying point for employees. Hollis Harris seems less charismatic, per­haps because his job demands less charisma, and more soft-spoken, allowing the progress that Conti­nental has already made to continue.

The road ahead is bumpy. Eastern still has to face those safety indictments, while Continental is burdened with debt—reporting a negative equity of $1.2 billion earlier this year—but at least leadership is now in place to navigate the smoothest course possible.

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