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After Enron, firms wary of how to handle bad news

The sudden and dizzying collapse of once high-flying power trader Enron Corp. has provided "Corporate America" with a harsh lesson in how important a rapid response is to bad news, image consultants and investor relations officials said.

Enron's failure to immediately address concerns once balance sheet irregularities had been disclosed contributed to a rapid evaporation of confidence among its investors, creditors, and clients.

"You have to tell it all and tell it fast when you're in a situation like this, and Enron did not do that. What they chose to do was suffer the pain of a thousand cuts," said Robert Dilenschneider, head of The Dilenschneider Group Strategic Consulting and Public Relations, an image consulting firm.

"Literally, one thing happened after another, one revelation after another, and it piled up. Had they taken all that they knew and packaged it together in one piece of unfortunately negative news, I think that would have reduced the pain and suffering they experienced, are experiencing, and will continue to experience," he added.

In recent days, there have been signs that these lessons have been heeded, at least in the energy sector.

Halliburton Co., the world's No. 1 oilfield services company, disclosed last Friday that a Maryland jury awarded $30 million in asbestos damages against it. As Halliburton's stock dropped 43 per cent that day, the company kicked into gear with a Friday afternoon press release and conference call at 7:00 a.m. Dallas (1200 GMT) time on Monday morning.

Meanwhile, Calpine Corp. convened its own conference call on Monday afternoon in a bid to counteract the fallout from a weekend article that likened the independent power producer to beleaguered Enron and caused a 17 per cent plunge in Calpine's stock.

Learning a hard lesson

The quick response from the two companies is in marked contrast to Enron, which has lost almost all its credibility and filed for Chapter 11 bankruptcy protection after a series of devastating disclosures about its financial condition.

The disclosures stretched out over a period of weeks and undercut Enron's reputation bit by bit.

To avoid going down in flames like Enron, Halliburton reassured investors on the premarket call on Monday that it does not expect to be hurt by a series of court-awarded asbestos damages. In fact, it anticipates the awards will be overturned on appeal and that insurers will otherwise cover most of the costs.

The market rewarded the company -- formerly run by US Vice-President Richard Cheney -- with a 16.7 per cent rise in its stock to $14 on Monday, the day of the call. The stock was unchanged on Tuesday.

"We had a lot of positive feedback from investors that we did it the way they would prefer, which is to hit it head-on, don't close up, answer the phone when it rings, and then put information out, the more the better," said Cedric Burgher, Halliburton's head of investor relations.

Burgher acknowledged that the company has yet to fully allay investor concerns in the face of rising asbestos liabilities, but he is pleased with investor response to date.

He also said that he has observed a rise in investor skittishness since the Enron saga began to unfold and that Halliburton, another Texas-based energy company, has been especially sensitive to such nervousness.

"That was one of the points that we were trying to make. Look, there are so many differences between us and Enron," he said.

San Jose, California-based Calpine also sought to get its message out quickly. On the Monday call, it dismissed a comparison with Enron, drawn in a New York Times article on Sunday, that noted that both companies have borrowed heavily to finance rapid expansion.

Still, even a quick response doesn't always restore confidence quickly. Calpine's stock continued to drop, closing down $2.29, or almost 13 per cent, to $15.50 in Tuesday trade on the New York Stock Exchange.

A call to Calpine for comment was not immediately returned.

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