Do You Cover Up?
- Posted by Jeff Carter
- on October 24th, 2012
News last night showed that the Obama administration knew of the Benghazi terrorist attacks while they were happening. They also knew that it was an organized assault. This is counter to their claim that it was a video inciting random riots.
As soon as they knew, the cover up started. Obama’s entire mission over the last couple of years is to get re-elected. His cronies have a massive interest in getting him re-elected, because it’s a lot easier to lobby and receive money from the government than it is to go out in the world and actually compete for customers. It takes longer to get government money-but once you are on the dole it’s tough to dislodge that cash flow. The relationships developed in the crony capitalism economy are a barrier to entry.
But this whole event brings up a broader point. In 1972, Nixon was able to cover up Watergate for a long time. The whole thing took two years to spill out. My guess is that even seven years ago, Obama would have been able to cover this up until after the election. Then, he could have released it when there was nothing the voting public could do. There would have been calls for impeachment, but the US has never removed a sitting President. It’s tough to do.
That’s the political world, but this whole cover up has deep meaning for the real corporate and business world. Cover ups don’t work anymore.
The ubiquitousness of social media and the deep penetration of the internet make it impossible to cover anything up. We are all naked in one big nudist colony walking around. Word of mouth can spread much faster than ever before. If something is viral enough, I can tweet it in North America and someone in China can act on it within seconds.
Business public policy, investor relations, and how they deal with “crisis” change dramatically in this new paradigm. All of it isn’t just information dissemination. It’s marketing.
Get caught shiesting your customers, shaving a few points here and there, not practicing what you’re saying and you are in big trouble with your customers. The company loses face and it takes a long time to make it back.
It’s a brutally competitive market, so someone else will fill the gap. Immediately. Market share is a tremendously expensive thing to build-so why do so many businesses throw it away due to lack of transparency or honesty with their base?
- They think they can get away with it. They think the customers won’t notice. They can sweep it under the rug and the world moves so fast people will forget. They have a lack of respect for their customers.
- The management of the firm is so insulated, it thinks it knows better than their customers. Like a parent, it wants to dictate to them rather than listen to them and build things they want.
- Lawyers freeze them. They are so worried about lawsuits and legal repercussions, they cocoon. As time passes, rumors circulate and competitors put words in their mouths. By the time they react, the world has passed them by and it’s their word against the rumors. The lack of reaction creates a credibility gap, and customers don’t know what to believe.
Seth Godin has outlined a lot of concepts to the new world marketing. Businesses, and people have to be transparent. All the information we have access to these days has made normal people cynical. They don’t believe, and it’s much harder to get them to have actual faith in what someone says. ”There are two sides to every story”, they think.
Really though, there is only one side to a lot of stories. The trick is to be honest with your customers. Over time, you will build up so much credibility with them that when something adverse happens-they will listen to your explanation and give you the benefit of the doubt. If you are honest with them, open with them, and actively try to fix the problem with them-they will stick with you. Try to cover it up, they leave in droves and suspect you of hiding things for years to come.
One real world instance that happened in the last year was MF Global’s scandal. Jon Corzine used customer funds to margin trades the firm made. It impacted the Chicago Mercantile Exchange’s business. CME’s initial reaction was to freeze accounts, bar people from trading and ban them from accessing GLOBEX or the floor. That was the lawyers talking. Their stock cratered.
It wasn’t until Terry Duffy went off script at a Congressional hearing that the stock began to recover. The situation still hasn’t been fully rectified. But, one thing is for sure, the financial world looks at this with a jaundiced eye. If Corzine didn’t have cover from the Department of Justice, he’d at least have been charged with fraud by now. His reputation remains intact with his cronies, but to the broader audience he is not a lot different than Bernie Maddof. How long will it take Corzine to rebuild his reputation, and what will he have to do in order to accomplish it? Would you vote for him, or a person like Gov. Chris Christie today? Post Congressional hearing, here is CME’s stock price.
Slowly but surely, they are repairing their image. It takes time. These concepts apply to the corner store, the start up tech business, and the service business. Anyone can find out anything at anytime. Make it a habit to be genuine.
One of the beautiful things about free markets is their transparency. We look at a price, and we know what we get. One of the great things about the internet is that it’s creating a free market for information. If you aren’t transparent, or try to tier it, the public finds out and your credibility is destroyed.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)
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