A 4-point guide to fighting Bill AckmanAugust 14, 2013: 8:41 AM ET
Companies concerned about maintaining their reputations should consider the Ackman-J.C. Penney pyrotechnics a cautionary public relations tale. The "Ack-attack" can be avoided.
By Fraser P. Seitel
FORTUNE -- Groucho Marx used to famously argue that he would "never join a social club that would accept him as a member."
And that's exactly what the remaining members of the J.C. Penney board of directors must be saying about their now-departed former associate, Bill Ackman.
Not since Ivan the Terrible laid waste to Tsarist Russia has one man caused so much harm so quickly.
Ackman's blitzkrieg publicity campaign to torpedo Penney's board, CEO and reputation has rendered an already-damaged company with a sinking reputation even more wounded and adrift.
And other companies, concerned about maintaining their own reputations not to mention viability, should consider the Penney pyrotechnics a cautionary public relations tale as to what can happen when you sell out to an individual whose available capital is only superseded by his own self-importance and quest to meddle into areas about which he knows little.
In particular, boards of directors must recognize that what has happened to J.C. Penney (JCP) can be avoided if the board summons some backbone and follows these 21st century public relations precepts:
1. Clamp down.
A good board of directors will vigorously debate and argue behind closed doors. But in the rare instance where the board is obligated to go public, it must speak with one voice. Certainly, it's a free country and individuals -- particularly individuals holding significant shares of stock -- are entitled to their own opinion.
But the appearance of board cohesion is imperative for the continuing faith of stakeholders, both external and internal. Once a board's dirty laundry is aired in public, people both inside the company and out begin to lose faith.
So boards, like J.C. Penney's, must have ironclad rules that "keep the controversy in the room." And if you choose instead to take it public, then the board will be compelled to take you out.
Eventually, Ackman did step down from the J.C. Penney board, but only after significant damage had been done. The board should have offed him as soon as he opened his mouth in public disagreement.
2. Speak up.
Boards of directors, like most corporate executives, are reticent animals; they deplore mixing it up in the public arena. And they certainly don't want to get the media involved.
But when the company's credibility and its CEO's competence are threatened by a loose-cannon board member, the board has no choice but to meet the renegade toe-to-toe on the media battle field. Penney's board didn't.
After Ackman leaked his memo of condemnation to the financial news networks, which promptly broadcast the screed as "breaking news" and devoted the better part of their programming to the Ack attack, Penney's board chair Thomas Engibous hesitated and then ultimately produced an insipid press release from Plano, TX headquarters that talked about being "extremely disappointed" with its rogue director and noting the company's "significant progress since Myron E. (Mike) Ullman, III returned as CEO."
Rather than worrying so much about the CEO's nickname or his position in the Ullman lineage, Engibous, on behalf of J.C. Penney, should have taken off the gloves and blasted Ackman, strongly repudiating his divisive charges and summarily excommunicating him from the board.
3. Be seen.
The weapons of choice for Ackman, as well as fellow shareholder activists David Einhorn and Carl Icahn, are the financial TV networks, most particularly CNBC.
For its part, CNBC is more-than-willing to drop everything and break into daily programming if Ackman or Einhorn or Icahn favor the network with a "scoop." Forget fairness or facts or truth -- if the rabble rousers want on, they get on immediately; no questions asked. The activists receive CNBC's imprimatur that what they say is "news," the market moves, and viewership increases. It's all mutually reinforcing.
That's what Icahn did again Tuesday afternoon by sharing with CNBC his fondness for Apple (AAPL) stock and igniting a furious session-end rally. And that's what Ackman did a week ago when he leaked his bombshell memo calling for Ullman's dismissal and a shakeup of the J.C. Penney board. When CNBC broadcast the Ackman pronouncement, Penney stock immediately skyrocketed, only to tumble back down to earth the next day when cooler heads prevailed.
Meanwhile, Chairman Engibous and his fellow board members sat stewing at company headquarters in Plano, TX. A savvy board would have gotten its act together quickly and had a representative appear on CNBC to explain that largest Penney shareholder or not, Ackman was a lone, disgruntled wolf who neither represented the board's thinking nor the state of the company.
4. Get to the Apple.
No not that Apple (although Tim Cook has his own communications problems); I mean New York City.
The Big Apple is where the financial broadcasters, who move markets, are domiciled. And while CNBC or Bloomberg or Fox Business or any of the rest will say they can cover you anywhere you are -- none of 'em have a bureau in Plano, as lovely a city as it is. And the reality is that if you're on a remote island in Plano and your adversary is across the table in the New York studio, most of the time, you're gonna lose.
So the only way a company or a board can expect a fair fight with a street hustler like Ackman or Einhorn or Icahn is to meet them, mano-a-mano, on their hometown New York City turf.
Today, with J.C. Penney reeling from the negative publicity and Ackman still lurking, the Penney directors would be wise to ask themselves this critical question: "How, possibly, can this company hope to recover or even survive if it continues to be racked by contentious public disharmony?"
Come to think of it, maybe that's a question J.C. Penney's largest shareholder ought to be asking himself.
Fraser P. Seitel has been a communications consultant, commentator, author and teacher for 40 years. He teaches public relations at NYU and is the author of the Prentice- Hall textbook The Practice of Public Relations, now in its 12th edition, and co-author of Rethinking Reputation and Idea Wise. He may be reached at firstname.lastname@example.org