Crisis Tales

Five Rules for Coping with Crises in Business, Politics, and Life

Lanny J. Davis

• Verlag: Threshold Editions
• Jahr: 2013
• ISBN:
  9781451679304
• Thema: Social Sciences
• Thema: Popular Culture

TELL IT ALL, TELL IT EARLY, TELL IT YOURSELF Nobody ever calls Lanny Davis to give him good news. As a legal crisis manager, he's the man public figures such as Bill Clinton, Martha Stewart, U.S. representative Charlie Rangel, and companies such as Whole Foods, among many others, rely on to pull them through public scandal with their reputations intact. Winning your case in a courtroom instead of the media is no longer a viable option. These days, every scandal is tried in the court of public opinion. Refusing to dignify allegations with an answer is grounds for flagellation by the press. Political insider Davis has spent years helping politicians, sports figures, business executives, and corporations through the biggest reputation crises of our times, and each case has aided him in the creation of five invaluable rules that absolutely anyone can use to protect himself from damaging hearsay— online and off. In this fascinating and practical resource, Davis tells the real stories behind his famous clients' very public scandals as he explains what he and his team did right, what they did wrong, and how they learned from their mistakes and successes. As impossible as it is to believe, many public relations experts still rely on the faulty Nixon model—deny, deny, deny. This tactic was detrimental not only to Nixon's presidency but, for example, to Exxon and BP (not Davis's clients) following major oil spills. Instead, Davis believes, it is important to tell the full story yourself, even if it means sharing unflattering details before they leak on their own. By getting ahead of the story, you have more control over how the information is reported and perceived in the media. Damaging falsehoods can go viral in an instant, but the nation's premier political spin doctor will teach you how to fight back.

• RULE 1 •

GET ALL THE FACTS OUT

1.

MARTHA STEWART

Fighting Prosecutors . . . and Her Lawyers

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“Sorry to call you so late. Is this Lanny Davis? I need your help getting the truth out into the media. My ‘%#@!’ lawyers are telling me I can’t. I am told by one of my company’s major investors that you disagree. Will you help?”

Those were the first words I heard Martha Stewart speak late one night over the phone in the late fall of 2002.

The phone rang close to midnight, waking me and my wife up. “Someone’s on the phone who says she is Martha Stewart, and she asked me what time it was—as if she didn’t know,” my wife said, after waking me up. “I’m sure it’s not the Martha Stewart. Tell her not to call so late.”

But I wasn’t surprised. I knew it was the Martha Stewart. As was often the case when people are in bad headlines, I had received several calls from friends of Ms. Stewart and a major shareholder on her company’s board of directors asking me whether I was available to help her in her legal and media crisis.

The stock in the company that bore her name had plunged in the winter of 2001 after she was accused of insider trading, and she was in the headlines nonstop for weeks, without adequate factual response from her. The media strongly suggested that Ms. Stewart had sold her stock in a cancer-research company, ImClone, founded and run by her friend Sam Waksal. The stories suggested that she had sold about fifty thousand dollars’ worth of stock on December 27, within a day or two of the announcement by the U.S. Food and Drug Administration that ImClone’s anticancer drug had been denied approval. Once that announcement was made, the stock dropped precipitously.

I followed the story and I knew the optics were terrible—the innuendo was that somehow Ms. Stewart had gotten inside information from her friend Sam Waksal about the pending FDA negative decision and had sold her stock before the bad news broke in the media, and thus, ahead of the inevitable drop in share value caused by the bad news. Other stories suggested that she had heard that the Waksal family was dumping its shares, and that she inferred the FDA would be turning ImClone’s anticancer drug down.

Either way, the New York media jumped all over the story, in a typical feeding frenzy where rumor and innuendo are far in front of facts. Most people were led to believe that Martha Stewart had acted on “inside information” illegally.

But Martha Stewart’s comments in the media to explain her reasons for selling when she did were either missing entirely or incomplete. The usual over-the-top tabloid headlines from the New York Post were the worst: MARTHA’S PRISON EVERYDAY COLLECTION, MARTHA’S STEWING, and MARTHA IN HELL’S KITCHEN. The rival New York Daily News couldn’t resist sinking to the Post’s depths: DIVA MARTHA’S NOW IN THE SOUP. The fact that headlines suggested guilt even before Ms. Stewart had been indicted for, much less convicted of, insider trading is a sad habit of not only tabloid newspapers, but mainstream media too.

So my wife handed me the phone and when I said, “Hello,” I heard a familiar voice. Ms. Stewart said she needed my help getting her story out into the media, telling me she wanted to tell the truth, adding that she didn’t think she did anything wrong but her lawyers wouldn’t let her talk to the media to get her story out.

As she had said publicly, she wanted to tell her story but the lawyers opposed her doing so, given that she was under investigation. She did tell the media, however, that she had told her broker to sell ImClone stock when it hit sixty dollars in price—which was also part of a year-end investment strategy which, she told the media, had been previously discussed with her financial advisor. She had said publicly that when she got a message from her broker that the stock was declining in value. She gave her instructions to sell the stock when it went below $60. (He ultimately did.) She didn’t explicitly deny that she might have also known that the founder and CEO of the company was selling his stock.

I had seen Ms. Stewart appear to be embarrassed when she did her regular appearance on the CBS Early Show, demonstrating her various recipes and “every person” household and party suggestions that had made her so famous and successful. But after the massive media frenzy about her possibly selling her stock on the basis of insider information, the hostess for the CBS show asked her to comment about the headlines while she was making a salad, literally cutting lettuce as she kept saying in answer to repeated questions that she couldn’t comment. It was awful—for her and for everyone watching.

I repeated my usual standard advice about establishing an attorney-client privilege by expressing a desire to retain me as an attorney, thus protecting me from compulsory testimony about anything she told me. After she had expressed her desire to retain me, we discussed the media’s negative portrayal of her as having engaged in illegal insider trading—having sold her ImClone stock with the benefit of nonpublic, material information from a company “insider,” which, if so, might have been illegal. So far, I had seen no response in the media on whether Ms. Stewart actually had received what is defined as an “insider” versus getting a “tip” from a broker, who was not legally an “insider,” just like millions of Americans every year, and thus, the tip might not have constituted, under the law, “inside information.”

Then, Ms. Stewart—assured she was talking to me with the protection of attorney-client privilege (since she said she was considering retaining me)—told me her version of what had happened for the next two hours or so, until after 2:00 a.m.

VIOLATING ONE PART OF RULE #1—TRYING TO GET FACTS WITHOUT THE ATTORNEY’S COOPERATION

I knew that I needed to gain the full cooperation of her New York criminal attorney, the late Robert Morvillo (who passed away in February 2012), if I was to follow my model and always be in the room with my fellow lawyers, sharing attorney-client privilege, so I could get access to all the facts. And this rule was much more important in a criminal case, where one mistake to a reporter in a conversation that is not privileged could risk my client going to jail.

Mr. Morvillo was one of the top criminal defense attorneys in New York City, highly respected as a former prosecutor and highly skilled in dealing with juries. I had no reason to believe he wouldn’t welcome my assistance, first to evaluate the facts as he understood them, and then to determine what was safe and which undisputed facts could be put out to the media to help balance the media coverage, and possibly influence the prosecutors’ decision whether to indict Martha. My expectations were based on my White House experience and my other experiences to date—attorneys just don’t trust the media to get it right (often for good reason), and in a criminal case, it’s too risky to allow clients to be quoted in the media, as their words may come back to be used against them by the prosecution if the case gets to trial.

I asked Ms. Stewart to call Mr. Morvillo to ask him to confide in me under shared attorney-client privilege, tell him she had already retained me as an “attorney advisor,” and direct him (she was, after all, the client paying his bills) to take my call so I could explain my desire to work with him before making any judgments about whether to go to the media.

The next morning she called me and told me to call Mr. Morvillo—that he was expecting my call.

I immediately called him. I introduced myself and told him that Ms. Stewart had asked me to meet with him as an attorney, and thus subject to attorney-client privilege, and discuss the facts and whether there was any basis for going to the media to get her story out and correct some of the misreporting that had occurred to date.

There was silence on the phone.

I repeated that no decision would be made to talk to the media without his approval and all I wanted to do was understand the facts and concerns so we could make a mutual decision on whether a media strategy made sense.

More silence.

I was on a cell phone in a cab in New York City and I thought I was having bad cell service. “Hello, Mr. Morvillo?”

Then he spoke, succinctly and to the point.

“I am not going to meet with you, Mr. Davis,” he said. “I don’t believe going to the media is wise. Good-bye. Have a good day.”

I started to answer, to remind him that no decision to go to the media would be made without his approval and supervision of all facts and messages. I just needed to know all the facts to help make the best judgment about whether—and if so, how—to go to the media but Mr. Morvillo had already hung up the phone.

I called Ms. Stewart back and told her.

She was stunned, angry. “But I am the client and I want him to meet with you and I want to get my story out—I want to defend myself, my reputation,” she said, with obvious frustration in her voice. After all, it was her reputation and her name on the famous “Martha Stewart” company brand that was threatened.

I told her I believed Mr. Morvillo was not interested in meeting with me and that was that.

She restated that she wished me to represent her, and that I proceed to try to get her narrative out into the mainstream media so she could give her side of the story. I resisted.

I was opposed to doing anything without the full cooperation of her attorneys, especially the criminal attorney.

But she insisted that I could represent her personally—that she didn’t need to ask anyone’s permission and would pay me, if necessary, from her personal (as opposed to her company’s) funds.

She reminded me that the night she had called me I told her she needed to get her side of the story out, that she was being hammered by media coverage that implied that she was guilty of insider trading, and that I would help her. “Don’t give up on me and go back on what you promised,” she said, with real pain in her voice.

I told her I would think about it.

I was concerned. Everything told me that it was very difficult and risky for me to work for her without the knowledge and cooperation of her attorneys. But I returned to my law firm and discussed the situation with my partners and colleagues there. I was advised by a few that the company bore her name, and she owned the controlling shares of stock, and she had a personal interest in clearing her name and her company’s, too. But still I was worried. It broke my basic rule, learned at the White House, that I couldn’t do a legal crisis management project without working closely with all attorneys involved.

Finally, after another conversation with Ms. Stewart, I decided I would help her without the approval or knowledge (per her instructions) of her attorneys.

We established the game plan according to the usual crisis management rules. First we would try to get the facts by interviewing Ms. Stewart and checking out whatever documents she had that supported her version of what happened, coming up with a simple message, such as: a tip from a broker with no knowledge of a pending adverse FDA decision concerning ImClone, i.e., inside information, might not be a crime. Then, depending on what we learned, we would make a decision whether to go to a reporter who could do the fact-checking and corroboration without Ms. Stewart having to speak on the record and prejudice her legal defense. I already had someone in mind who fit the bill almost perfectly. But my plan was that, once the article was published, I would seek again to try to confer with Mr. Morvillo and the company’s in-house general counsel and external civil attorneys. I was determined not to go forward at that point if I couldn’t get all the attorneys on board with my media strategy. If they agreed, we would then follow up that print story with a few high-impact TV interviews—such as with Barbara Walters on ABC’s 20/20, or Larry King on CNN—but only if I could obtain the full cooperation at that point of the attorneys.

So I decided to go ahead with the first step—without the knowledge or approval of Mr. Morvillo or her other attorneys. It was a major mistake on my part—one I vowed I would never make again. And never have since.

GETTING THE PREDICATE STORY WRITTEN: “LUNCHING AT MARTHA’S”

I and my three colleagues at my law firm spent the next several weeks interviewing Ms. Stewart and reading relevant documents and emails.

Our legal research revealed that even if she had received a “tip” from her stockbroker, as was published in the newspapers, that the Waksal family was selling stock and had acted on the tip, acting on that type of information would not necessarily fit the definition of illegal “insider trading.”

An “insider” is supposed to be a senior official of a company with access to “material” nonpublic information. The definition of “material” is rather loose, but usually the law defines it to mean information that if known by a prudent shareholder might affect his or her decision to buy or sell the stock. Clearly information about a favorable or unfavorable decision by the FDA about allowing ImClone’s anticancer drug to be sold would be material information. But would information that the CEO of a company and his family members had decided to sell their company stock at year’s end, which just happened to be shortly before an expected crucial decision by the FDA to approve the anticancer drug on which the company’s future heavily depended, constitute “inside” information? Unclear, we thought. And since the tip came from her broker, not a company official, it seemed, in any event, that the broker would probably not be considered an “insider” as that word was defined under at least many legal cases.

There had been published reports that Ms. Stewart had heard about the selling of ImClone shares by the Waksals. If she had been told this, it was at least conceivable that Ms. Stewart might have reasonably wondered whether the Waksals were selling stock for other reasons besides advance knowledge of a negative FDA decision—such as year-end tax reasons, or regularly scheduled year-end cashing out on a stock-sales program to liquidate some share holdings. (In fact, it was reported that the CEO, Sam Waksal, retained considerable shares despite his pre-Christmas sales.)

After consulting experts, our legal team came to believe that it appeared that the prosecutors would have a tough time bringing a case of violation of the anti–insider information law and rules because it seemed the information provided to her was neither “inside” nor provided by an insider. Even if she had been given a “tip” by her broker that the Waksals were selling their shares, as appeared to be the case, many experts advised that it would be difficult to call that information direct “inside” information, or to argue that the broker could be considered a corporate “insider” conveying “inside information” in this circumstance.

Moreover, given the small amount of money that Martha Stewart “saved” by selling her minor position in that company—estimated at the time to be about fifty thousand dollars—before the bad news was announced that the drug had not been approved, it was also hard to see why a federal prosecutor would bother to bring a case against her on such an indirect “inference” of bad news, with so little motive.

So we decided we had enough facts to seek a well-respected legal affairs reporter, preferably a journalist who was also an experienced attorney before becoming a journalist, to probe the issue himself of whether Ms. Stewart had been guilty under the legal definition of “insider trading.” It was our hope that such a journalist would talk to and hear from legal experts what we had heard—that the “insider trading” case would be, at best, weak, and, thus, that the prosecutors might be persuaded not to bring it.

Did we believe that prosecutors would reach a judgment based solely on media coverage, not on the facts as they understood them, about whether to indict Ms. Stewart? No. But did we also believe that decision might be influenced—consciously or unconsciously, if the decision to indict was a borderline, close-call decision—by an overwhelming public perception that Martha Stewart was ...