The Effect of Chief Executive Officers' Misdeeds on the Companies they Represent: a Case Study of Drexel Burnham Lambert, Inc. and Helmsley Corporation Student Paper: Erica Luongo Current Address: 323 Mary Lyndon The University of Georgia at Athens Athens, Ga. 30602 Telephone: (706) 357-0120 E-Mail: eluongo@uga.cc.uga.edu Permanent Address: 100 Bickerstaff Road Clemmons, North Carolina 27012 Telephone: (910) 766-9645 The Effect of Chief Executive Officers' Misdeeds on the Companiesthey Represent: a Case Study of Drexel Burnham Lambert, Inc. and HelmsleyCorporation Abstract Companies are known by their leaders' deeds. This study focuses on theeffects of leaders' misdeeds on the companies they represent. The study examinesMichael Milken with Drexel Burnham Lambert, Inc., and Leona Helmsley withHelmsley Corporation and evaluates their crisis management plans. This studyfound that corporate figures misdeeds have profound negative impact oncompanies and suggests guidelines for effective crisis management. Thesefindings have repercussions for businesses, public relations practitioners andpolicy makers. Chief Executive Officers' Misdeeds 2 Topic Statement and Justification "Business crises put corporate reputations and survival to the test"(Herrero & Pratt, p.25). Crises can occur because of unplanned events, problemswith a product, or wrongdoing of the key corporate figure. This paper focuses onthe latter: how the actions of prominent central figures affect the companiesthey are associated with. It also will suggest a positive course of action thatcompanies can use should misdeeds of a key figure occur. These figures are usually the chief executive officers of thecorporation and are often in the spotlight. Their names and faces are frequentlyrecognized by the average consumer. The key spokesperson is recognized throughthe actions of the company, and the company is known by the deeds of itsleaders. The two reputations are interrelated. A key figure can bring a company out of despair but similarly theirmisdeeds can wreck havoc on a company with whom they are heavily associated. Thepublic tends to view a corporation as being only as good as its leaders. Whenthese leaders fail, often their businesses do also. Chief Executive Officers' Misdeeds 3 Therefore, what happens when the primary spokesperson(s) participatesin illegal, immoral, or unethical practices or his reputation is called intoquestion? How does this affect the corporation's reputation and customerloyalty? It is necessary to find out what effect and to what extent centralfigures actions' have on the reputations of the companies they represent and, also, thebest way to handle their indiscretions to protect public opinion of theorganization. This research is important on a practical level because if publicrelations practitioners know what influence a key spokesperson plays in relationto the company's image, they will be better able to monitor the central figure'sreputation and improve corporate image. If companies do nothing when theseincidents occur, their businesses will flounder. By looking at the effect that

leaders' unethical actions have, the way the company's public relationsresponded and what effect their responses had, this study will suggest a "howto" plan that companies can use when faced with leaders' indiscretions in orderto stabilize and improve public opinion of their organization. Chief Executive Officers' Misdeeds 4 Literature Review Many studies have been done on crisis management and what companiesshould do in the face of adversity, but none have examined crises caused bywrongdoing of the chief executive officer. The only mention of the key corporatefigures is what they can do to aid in the public relations process, for exampleby way of being a spokesperson. The assumption of these studies is that theprimary figures have had nothing to do with the onset of the crisis and thatthey are only being called in to add credibility. As no similar studies have been done, the literature review willreflect crises that have occurred and what was done to handle them. These crisesprovide insight because they show different ways of handling crises and whichproved effective. The first of these studies does involve the role of executives in thecompany but does so indirectly. Hearit (1994) examines the incidents thatoccurred at Chrysler, Toshiba, and Volvo and outlines three objectives in anycrisis situation. Different crises and situations mandate different approaches. Chief Executive Officers' Misdeeds 5 In June of 1987, two Chrysler Corporation executives were accused ofdriving cars without odometers and claiming that these cars were new. Over60,000 cars were driven, some up to 400 miles. Chairman Lee Iacocca attacked the situation head on with thestance that it was not an illegal practice and used the phrase "test program" tolessen the claim. A fine line exists between passivity and attacking an issue insuch a way that heightens the problem (Hearit, 1994). Iacocca stated that the companymade a mistake and offered to replace the damaged cars (Hearit, 1994). The Toshiba Corporation was charged with marketing top-secret equipment to the Soviets in 1987, closing the United Statesedge over them. This action raised issues of national security and was estimatedto cost the United States 30 billion dollars. For this reason, the Senateproposed a two- to five-year ban on all company merchandise. "The export-controlchief of the Commerce Department, Paul Freedenberg, called the illegal sale 'themost damaging(technology transfer) of the postwar era'"(Hearit, 1994). Toshiba addressed an apologia(a statement that offers a counterattack on the situation)(Hearit, 1994). Their main focus Chief Executive Officers' Misdeeds 6 was that it was a branch of Toshiba, Toshiba Machine Company (TMC),that was the guilty party. In doing this, Toshiba claimed lack of knowledge.They apologized for "wrongdoing" but did not address the specificcharges(Hearit, 1994). "Deceptive advertising" was the charge against the Volvo Corporationin 1990. They showed monster trucks riding over Volvo cars and causing no damagewhile smashing the competition's car. What the company failed to tell the publicwas that this was a dramatization of a re-enactment and that the cars had beenfortified with steel and wood prior to the filming. Their response was admittingthat they should have labeled the advertisement a dramatization but theylessened the impact by saying that they recreated an event that had truly occurred. Denyingof "intent" often reduces the severity of the incident (Hearit, 1994). Hearit outlines three objectives for public relations crisismanagement. First, the company should offer an opposing story to the charges of"wrongdoing." Second, a statement of regret with minimal responsibility shouldbe circulated. Third, the company should try to remove the association of theevent with the company's name (Hearit, 1994). Chief Executive Officers' Misdeeds7

The opposing story, or apologia, is best accomplished by using astrategic name, perhaps that of the company chairman or president, together witha list of events to put the crisis in order. Apologias seek to salvage corporateimages (Hearit, 1994). The statement of regret's purpose is to express sorrowwhile downplaying the company's participation in the wrongdoing. When anorganization does not acknowledge liability, the company stock holds stable(Hearit, 1994). A company can either confess limited accountability or can evaderesponsibility but they should say that the problem has been corrected and thata repeat episode will not occur (Hearit, 1994). Achieving dissociation with theevent is the third goal. A firm can accomplish this in three ways: anopinion/knowledge dissociation, and individual/group dissociation, anact/essence dissociation, or a combination of these. An opinion/knowledgedissociation states that the talk about the circumstances of the event is simplyopinions (as in the Chrysler situation). In big organizations, a firm may choose to use the individual/group dissociation as Toshiba did by utilizingscapegoats (Hearit, 1994). The act/essence dissociation confesses to the "evil"act but claims this deed is atypical of Chief Executive Officers' Misdeeds 8 the corporation at large. Volvo did this as it denied bad intent andshowcased past good works (Hearit, 1994). As stated by Hearit, the main point in crises is to try to manipulateterms used to depict events in order to show the incident in the most favorablelight. Severe crises may result in fines and bannings, but the approach anorganization takes can dramatically affect the severity of the incident (Hearit,1994). The following three studies do not deal with the executives of thecompany but are included to show different strategies for handling crises.Stevenson (1992) looks at the conflict over charges of Sears' auto mechanicscommitting repair fraud such as repairing perfectly good parts, overcharging forwork, and charging for work never done. Undercover plainclothesmen visited sixSears auto mechanics and found that they were suggesting unnecessary repairs(Stevenson, 1992). Stevenson states that two responses to a crisis exist. A company caneither deal with the conflict head-on or hide and shift the blame. Sears' firstresponse was the latter, claiming that these accusations were false and"politically motivated" by the state of California. Their primary spokespersonswere Chief Executive Officers' Misdeeds 9 lawyers, and they decided not to conduct a press conference. Theydealt with this event by handling it on a person-to-person basis instead of addressing the widespread magnitude of the problem(Stevenson, 1992). This reactive (passive) stance lowered the public's trust in them andestranged consumers. After realizing that this approach was having negativerepercussions, Sears became more involved by issuing a letter from ChairmanEdward A. Brennan. At this point, it was too late to recover from much of theaccrued damage. The initial response to a problem is crucial to the public'sopinion of the event (Stevenson, 1994). Wilkenson (1991) shows how Johnson & Johnson, the makers of Tylenol,went above and beyond the call of duty to restore faith in their consumers. In1982, four women, two men, and a 12-year-old girl died of cyanide poisoning.Tylenol capsules laced with cyanide were the culprit (Wilkerson, 1991). Johnson & Johnson responded by immediately recalling Tylenol capsulesand introducing tamper-resistant tablets, the first in the market. They took amisfortune and turned it into a cutting-edge invention (Wilkerson, 1991). Prompthandling of the crisis caused Tylenol sales to remain stable (Stevenson, 1992) Chief Executive Officers' Misdeeds 10 Johnson & Johnson's final effort to restore public opinion in thecompany and successfully put the event behind them involved paying a set amountof money to the victims' families. The specific sum was not given but it was

stated that a certain portion of this money would go toward putting the victims'children through college (Wilkerson, 1991). Even after all the tragedy, Johnson & Johnson emerged a hero and Tylenol remains ahousehold name. Greenberg & Shell (1993) recount a similar scare by Pepsi Cola.Charges that syringes and other dangerous objects had been inserted in Pepsicans created quite a stir. The Pepsi Company decided not to recall the product,an unusual move, until they were sure it had been tampered with. The public,however, was not consoled by knowing that there was more than one specificproduction location which made it unlikely that a national scam would takeplace. The plant where it did occur was uncooperative, and the media hit uponthis and heightened the problem. The Pepsi Cola Company knew they had to quellthe public's fears in order to retain customer alliance (Greenberg & Shell,1993). Chief Executive Officers' Misdeeds 11 Pepsi's plan consisted of having one spokesperson, Craig E.Weatherup, who spoke on "Larry King Live," "The MacNeil/Lehrer Newshour," and"Nightline." Pepsi made a wise decision to rely on the respected Federal DrugAdministration's(FDA) advisement. Pepsi did not respond right away but whenthey did, it had a vast impact. For three consecutive days, Pepsi producedseparate Video News Releases(VNR's) which showed production procedures and"supposed tampering." These VNR's reached a vast audience of 365 millionviewers (Greenberg & Shell, 1993). Adding to the public's relief was that theFederal Bureau of Investigation pursued the case and arrested 20 people forfalse claims (Greenberg & Shell, 1993). Pepsi, however, did not stop here. Theylaunched a very successful advertising campaign to help combat the problem. ThePepsi Cola Company ran an ad in 12 national newspapers saying "Pepsi is pleasedto announce...nothing" (Greenberg & Shell, 1993). The ad went on to discuss howallegations were untrue. Then, it proceeded to tell of Pepsi's upcoming plans. Pepsi Cola's vice president of public affairs, Rebecca Madeira said"(a) crisis can only be in your control if you cooperate with the media, invitethem in, and furnish them with Chief Executive Officers' Misdeeds 12 facts. Your only defense when your company is on trial is to be aparticipant in that trial" (Greenberg & Shell, 1993). As shown, crises occur in many different companies but it is the waycompanies choose to respond that affects their future outcomes. It seemsreasonable to expect that this is also true in crises caused by the chiefexecutive officer's misdeeds. Chief Executive Officers' Misdeeds 13 Theoretical Rationale Herrero & Pratt (1995) suggest a theory for crisis management. Theybelieve that "image is perceptual reality" (Herrero & Pratt, 1995). Herrero &Pratt do not specify what they mean by this statement but the researcherinterprets it to mean that what the public views the company as, they believe itis. This can have both negative and positive connotations. For example, if thepublic perceives that a company is not responding to a crisis even if they aretaking drastic measures, the negative image that the company is unresponsivewill become "reality" to the public. In contrast, if the company conveys theirconcern to the public, even while they are not concerned, the public will holdthe positive image of responsiveness as "reality" until otherwise learned. Thisthought suggests that companies have some degree of control over the outcome oftheir crises. If a company presents a concerned and responsive image and followsthrough with it, they may be "perceived" in a more positive light. In "How to Manage a Crisis Before-or Whenever-It Hits", the authorsstate that many disasters have early warning signs and that it is the ignoringof these signs that precipitate trouble. Chief Executive Officers' Misdeeds 14 For example, in the 1992 McDonald's incident the company knew thecoffee being served was too hot but failure to act on this created bad burns ona woman's groin area and a $640,000 lawsuit. Similarly, Intel(1994) knew that

their computers contained an error-prone chip but did nothing about it until it was brought out inthe media(Herrero & Pratt, 1995). Herrero and Pratt state that some crises can be avoided even beforethey occur if a company plans properly and addresses potential problems earlyon. This is labeled "crisis abortion." The problem becomes a full-blown cycleonce a crisis occurs. However, some crises (ie. natural disasters) areinevitable and for this reason, a company should have a thought-out crisismanagement plan ready to enact when situations occur. Herrero & Pratt assertthat long-term crisis communications are more effective than short-termcommunications(Herrero & Pratt, 1995). Herrero and Pratt suggest a four-phase crisis management model. Themodel is based on two facets: every disaster has a formidable "life cycle," andto evade negative press a company should participate in "socially responsibleactivities"(Herrero & Pratt, 1995). Chief Executive Officers' Misdeeds 15 The first phase is called issues management. In this stage, a companyevaluates and plans for any upcoming potential problems by looking at issues inthe community and the effects these issues have on the organization. Forexample, McDonald's could have looked at customers' concerns of safety andpredicted what problems might occur on this issue. Also, the firm chooses acommunication strategy to thwart crises. This strategy's main goal iscrisis-prevention. This phase is important because "Long-term crisiscommunication strategies deal with publics in a less volatile environment and attract little or no negative media coverage"(Herrero & Pratt, 1995). The next stage is planning-prevention. Having a proactive policy,forming a crisis management team, designating a media spokesperson, and lookingat how one would implement a crisis plan are the steps in this stage. It is atthis point that companies identify impending problems and their possibleoutcomes. In this stage, McDonald's could have paid more attention to the factthat customers previously complained of too hot coffee (Herrero & Pratt, 1995).They could have speculated that this may eventually cause a problem. Stages oneand two take a proactive stance (when the crisis is brewing) whereas stages Chief Executive Officers' Misdeeds 16 three and four are often reactive (once the crisis has occurred)(Herrero & Pratt, 1995). Phase three is the actual crisis. This is where the lady receivedgroin burns -- the action itself. It becomes necessary to tell the public whatis presently being done to correct the problem, and thus, getting this messageout in a timely manner is imperative. Oftentimes, companies are too late andpublic opinion is already decided (Herrero & Pratt, 1995). A company shouldconstantly be evaluating the crisis response. Organizations need to make sureall audiences, internal and external, are receiving up-to-date information aboutthe corrective actions being taken(Herrero & Pratt, 1995). The final stage in this ongoing process is the post-crisis. The firm must continue to regulate the concern and keep the mediaaware of any new developments. Organizations can use the feedback they receiveto benefit them in the future. They ask questions such as "Was our planeffective?" and "Did we get the message out clearly?" Also important is theformation of long-term communications tactics to lesson the damage produced bythe incident. Herrero & Pratt declare that "the end of one crisis is usually thebeginning of another"(Herrero & Pratt, 1995). Chief Executive Officers' Misdeeds 17 This model can be applied to a crisis involving a prominent personidentified with the company in a similar fashion. First, a company could look atissues that might come up involving their chief executive officers. If the keyfigures have had bad publicity in the past or sensitive subjects associated withthem, the company can address these issues and have the leaders engage in"socially responsible activities." By looking at these issues in advance, the

company may be able to resolve a potential problem before it starts. Second, the company needs to have a proactive policy, a crisismanagement team, a media spokesperson, and strategies ready for implementationas previously discussed. This planning-prevention can be used in the samefashion for crises caused by chief executive officers' misdeeds as those causedby product problems. In the third stage, the company needs to inform both its internal andexternal audiences what has occurred and what is going to happen to the keyfigure. In crises dealing with leaders' misdeeds, it is still very important to be upfront with themedia and other audiences. Chief Executive Officers' Misdeeds 18 Lastly, a company could keep the public and internal audiencesinformed of any new developments or actions taken by or against the key figurein the future to show their concern. Herrero & Pratt's four-phase model of crisis management considersmany aspects and is very effective. The only thing that it does not consider isthe company's reputation before the onset of the crisis. An organization'sbeginning reputation could have an effect on how the company is perceived duringand after the crisis. This study, however, will look only at prominent caseswhere the company's reputations were good before the scandals. This study willuse Herrero & Pratt's theory to examine case studies to see what strategies ofthe four-phase model the companies used and which they disregarded, to look atthe outcome of their crises and to derive conclusions. Chief Executive Officers' Misdeeds 19 Statement of Hypotheses and Methodology Herrero & Pratt suggested a four-phase crisis management model andgave examples to illustrate it that dealt with problems associated with aproduct. The general research question here is whether and how this crisismanagement model also pertains to crises caused by the wrongdoing of the keycorporate figure. Specific research questions addressed here are: Are companies able toregain their standing in the community and how is public opinion affected? Ifcompanies confronted with misdeeds of their key corporate figures employ Herrero& Pratt's crisis management model, will they be successful? The emphasis of this study is two-fold. First, the researcher willexamine two cases in depth where key corporate figures were associated with acompany and engaged in wrongdoing: Michael Milken with Drexel Burnham Lambert,Inc., and Leona Helmsley with Helmsley Corporation. The researcher willscrutinize the prominent newspaper and magazine articles written during andafter their trials to see what actually happened and the results of theiractions. The researcher is, also, going to try to contact individuals who wereemployed at the time of the Chief Executive Officers' Misdeeds 20 crises and gain an inside perspective on what it was like, whatactions were taken, and how they feel the incidents affected the company. Second, the researcher will look to see if any of the steps inHerrero & Pratt's model were used and if so, what kind of effect they had. Did the company have a crisis management policy readyto enact? Did they respond to the crisis in time? The researcher will report the conclusions of what occurred and whatthe outcomes were in the two case studies and will then interpret the findingsin an effort to develop some "how to" guidelines for future reference byanalyzing the data. The potential criticisms of this study are 1) limited number of casestudies, 2) the selection of the case studies, and 3) generalization of thefindings. The first question asked of the methodology might be "Why examineonly two case studies?" The researcher's response to this is that to really getan understanding of what occurred, she will need to become an expert on the

cases and study them in great depth. Because of limited time, the researcher isforced to choose between getting a general idea of several cases or focusingintently on two cases. The researcher believes that Chief Executive Officers' Misdeeds 21 focusing intently on two studies will yield far better results andmore accurate information. Another criticism of the methodology might be "Why were these twocases chosen?" These cases were chosen for several reasons. First, they arewell-known and are familiar to many people. Second, both were very successfulcompanies that at one time had a great business and reputation going for them.With everything else in place and a high standing before the incidents, one canbe sure that whatever effects and outcomes occurred were results of the misdeedsand not other factors. Finally, both incidents occurred in the last decade, so they showpresent thinking and mind set. Lastly, one may doubt that the findings of this study can begeneralized to other case studies. However, all crises contain similar elementsand have repeatable patterns. Herrero & Pratt assert that certain stages existin crises. Also, the steps in the model if followed seem to yield consistentlybetter outcomes showing that crises are somewhat predictable in pattern and thathandling them in a particular fashion seems to yield more positive and stableresults. For this reason, the researcher asserts that the findings of this studywill be useful and Chief Executive Officers' Misdeeds 22 applicable to other crises. The researcher understands that no twocircumstances are identical but feels that knowing how certain crises happened,what actions occurred and what the results were will provide a substantial baseof knowledge for understanding and handling future crises. Chief Executive Officers' Misdeeds 23 Results Michael Milken, associated with Drexel Burnham Lambert, remains the"biggest securities-fraud case in history" (Gotschall, 1991). Milken, describedas personable, self-effacing, and down-to-earth by one of his employees, was ajunk bond genius for Drexel Burnham Lambert Inc. (Gotschall, 1991). Milken wasresponsible for building up the company with his infamous junk bond (high yieldsecurities) investing. Valued at $13 billion at one time, he constructed a $200billion market in junk bonds (Gotschall, 1991). "Milken helped raise billions ofdollars for upstart companies in the 1980's--including Turner Broadcasting, MCIand Tele-Communications Inc.--that were struggling to get financing then buthave become multibillion-dollar leaders in their industries" (Abrahms, 1995). However, his investing was not above board. Milken was charged withexploiting the industry through intricate partnerships making the market appear"healthier" than it really was. He was also accused of misleading clients(Bates, 1990). "He took insider-information and used it in the bond market," saidDaniel Scannel, financial consultant for Smith- Chief Executive Officers' Misdeeds 24 Barney. Scannel describes two kinds of bonds - "AAA" bonds, whichhave the highest rating, and junk bonds, which are the lowest form of bonds andexplains that the bond market reacts opposite to the stock market. Scannel says that Milken found that junk bonds do comply with marketindicators, unlike "AAA" bonds and came up with the plan to use inside information to make money. He received informationindicators of when bonds were likely to drop. He would then sell them toindividuals and collect their money, but often these bonds would fail. Milkentook a perfectly good system and tainted it with a breach of information(Scannel, Thurs., March 7, 1996). Milken was charged with 98 criminal charges and chose to plead guiltyto six securities fraud violations (Mahr, 1990). In November of 1990, Milken wassentenced to 10 years in prison and served two (Abrahms, 1995). He was

prohibited from ever working again in the securities industry and had to put inmany hours of community service (Paltrow, 1992). Milken has since paid over $600million in restitution to the government and his victims (Bates, James, 1990). Chief Executive Officers' Misdeeds 25 What kind of public relations did Milken choose to employ? First, hedecided to publish a coffee-table book explaining junk bonds with the help ofwriters from Robinson Lake Public Relations Firm. They also arranged "snapshot"photos of him with the underprivileged and handicapped children. Milken donatedmore money to causes such as the Girl Scouts of America, the Jewish NationalFund, and the City University of New York (Gotschall, 1991). Despite public relations attempts, Milken and Drexel BurnhamLambert's reputation could not be salvaged. How did the actions of one keyfigure affect the company? The company has now disintegrated (Gotschall, 1991).Milken has faced several civil lawsuits. Among these is a lawsuit by Columbia Savings & Loan for $1.5billion (Bates, 1990). Scannel believes that Milken is currently a private advisor of hedgefunds to the wealthy, even though he has been banned from the industry. Thehedge funds are large funds, often hundreds of thousands of dollars or more. Byhaving Milken oversee these funds, rich individuals can get around some of theSecurity Exchange Commissions'(SEC) regulations (Scannel, Thurs., March 7,1996). Chief Executive Officers' Misdeeds 26 Perhaps one of the most famous examples of all times is LeonaHelmsley and Helmsley Corporation. In August of 1989, Helmsley was sentenced on33 accounts of tax evasion and mail fraud. As copartner of Helmsley Hotels, shewrote off many huge personal expenses as business items. Examples of such itemsinclude "a $45,000 birthday present for Harry Helmsley, altered $3 million ininvoices for renovation work, and clothes which were recorded as uniforms"(Jordan, 1989). Her copartner and husband was deemed incompetent to stand trial."Leona Helmsley and the defendants convicted in the federal case face more than100 years in prison and a maximum of $7 million in fines" (Jordan, 1989). Helmsley was not the only one left with a damaged reputation. Due toher scandal, her accountants' reputations were called into question (Scherer,1989). The actions of Helmsley greatly affected the future of the realestate property she was associated with. The real estate was in trouble before the scandal due to overpricing but after suchnegative publicity, revenues plummeted and top executives resigned (Grant,1989). The company is still in existence but the scandal had a significantnegative impact. Chief Executive Officers' Misdeeds 27 The researcher tried to contact individuals that were around andinvolved in the companies at the time of the scandals to verify the happeningsand public relations strategies utilized. For Drexel Burnham Lambert, Inc., shefirst called information in New York City, the previous location of companyheadquarters, only to find that there was no longer a listing for this company.She then called information in Washington, D.C. to try to track down RobinsonLake Public Relations Firm, one of the major firms associated with Milken duringthe scandal. There were also no listings for this name. A few related nameswere listed and the researcher contacted them to no avail - they were notconnected with Robinson Lake Public Relations Firm. As for contacts for Helmsley Corporation and Leona Helmsley, theresearcher called New York City information. Helmsley Corporation was notlisted, so she called the Helmsley Carlton Count Hotel and received the numberfor Corporate Headquarters. Upon calling corporate headquarters, she spoke withone of the chief executive officers. When the researcher stated what she wasdoing and asked for information, she was told that they could not release thatinformation and the only way to possibly attain it Chief Executive Officers' Misdeeds 28

was to submit a written request to Leona Helmsley, herself, at theirheadquarters (where she currently has an office) explaining the information sought as it could not be released without herpermission. After submitting a written request, it would then go before thereview board and the researcher would receive a response as to whether theinformation could be released or not and what the content of information wouldbe. This process is time-consuming and due to the time constraints of the study,this data could not be obtained. The researcher, however, was fascinated by thehigh level of confidentiality regarding the information on the sentencing andpublic relations strategies employed. How did Milken and Helmsley use public relations strategies as ameans for recovery? One can assess their actions using Herrero & Pratt'sfour-phase crisis management plan. The articles looked at suggested that Milken was responsible for anypublic relations strategies used rather than Drexel Burnham Lambert implementingany. Milken did use long-term communications such as engaging in "sociallyresponsible activities" (snapshot photos with children and charity donations)and increased these after public declaration of his misdeeds. Chief Executive Officers' Misdeeds 29 However, the company probably did not anticipate a potential scandalby one of its top employees. As for the second stage of planning-prevention, it does not seem thatthe company had a policy ready for enactment. When the crisis actually hit(stage 3), Milken did hire a public relations team, Robinson Lake PublicRelations Firm, to help him. He, also, decided to publish a book to let thepublic know what the junk bonds were about but as of 1991, it still had not been published(Gotschall, 1991). Drexel Burnham Lambert and Milken did little to inform thepublic of what was being done. The fourth stage, or post-crisis, was virtually ignored by DrexelBurnham Lambert and Milken. As for their handling of the crisis, it wasunsuccessful as evidenced by the disintegration of the company. The researcher was unable to find any public relations strategiesimplemented by Drexel Burnham Lambert itself. It seems in this case study, hadthe company been more involved, used Herrero & Pratt's model and kept the publicinformed of what it was doing to correct the situation, the company would havebeen much more successful and possibly still exist. The researcher feels thattheir lack of action caused the organization's Chief Executive Officers Misdeeds 30 downfall. If they had used Herrero & Pratt's model, the organizationcould have countered some of the negative press with positive actions and shownremorse which could have possibly raised public opinion of the institution. In the Helmsley case study, the researcher was unable to find anypublic relations strategies used. Strategies may have been used but if so, theywere not presented and publicly known. Not having any easily-visible strategieswas not effective. In this case study, it appears that using Herrero & Pratt'smodel could conceivably have been helpful to reduce negative public opinion ofthe company. Based on these two case studies, the hypothesis that key corporatefigures engaged in wrongdoing would greatly negatively affect the companiesassociated with them was supported. The hypothesis that companies that usedHerrero & Pratt's model would lesson the negative impact of the incident couldnot be shown as the two companies did not use this model of crisis management.One could infer slight support for the model due to the findings that thecorporations did not use the model and did not fare well but this information isnot substantial enough to derive a conclusion either way. In the future, theresearcher would Chief Executive Officers' Misdeeds 31 suggest finding case studies that utilized this model before examiningthem to provide a more accurate assessment.

The researcher realizes the limitations of this study: Not beingaround during the crisis, not being able to get the inside information on whatstrategies were actually used, and not using case studies that clearly employedHerrero & Pratt's model. She is basing her conclusions on the evidence presentedin the media and the unfavorable outcomes of the scandals. She feels that as inany crisis, it is imperative to have a thought-out plan and that Herrero &Pratt's model provides a good framework to follow. Chief Executive Officers' Misdeeds 32 Discussion This study seems to suggest that having a public relations crisismanagement plan is mandatory for companies and that not acting is not a viableoption amidst crises. Without these models and plans, it seems thatorganizations are bound to flounder. This study seems to suggest that this notonly applies to crises caused by product-or event-based problems but also toproblems generated by key corporate figures' misdeeds. In the two case studiespresented, neither had an effective or complete plan and neither fared well. Itappears to the researcher that an effective plan could be the same as those usedfor product-or event-based crises. This study also appears to show that the misdeeds of chief executiveofficers do indeed have a profound negative effect on the companies theyrepresent. Drexel Burnham Lambert was not able to recover while HelmsleyCorporation did but with significant negative repercussions. This information is important to businesses as it suggests thatcompanies need to keep a close eye on the actions of their chief executiveofficers and for possible scandals relating to Chief Executive Officers' Misdeeds 33 them. They can remember that key figures are not above scandal.Companies can also promote the public opinion of their key figures by havingthem engage in "socially responsible activities." They might want to issue areasonable set of checks and balances on key corporate figures that will nothurt employee morale and trust and could make these checks and balancespublicly-known. These actions should protect and build the reputation and publicopinion of companies and secure public trust. Public relations practitioners can use this information to make surethat when they are faced with similar situations, they take action and do notturn away from crises. They can go ahead and plan now for crises by constructinga crisis management plan and assessing what they would do if a similar situationoccurred. They can also learn to address problems in an effective way. Lookingat these two case studies, they can ascertain what was not effective and,therefore, learn from Drexel Burnham Lambert, Inc. and Helmsley Corporation'smistakes. Policy makers might want to suggest that companies have a series ofchecks and balances on their chief executive officers. Often, top executives donot have to report to anybody and, Chief Executive Officers' Misdeeds 34 therefore, can keep their actions more secretive than other employees.Having an unobtrusive set of checks and balances may increase public trust andensure companies of a more secure reputation and less likely chance of crisesoccurring pertaining to key figures' misdeeds. Requiring this might keepbusinesses more above board in the future and would, in effect, have a favorableeffect on the public opinion of corporations. For future studies, the researcher would suggest that investigatorstry to obtain the inside story of what happened behind closed doors of these twocompanies. She would also suggest they look at a corporate scandal where Herrero& Pratt's model was implemented to accurately assess its effectiveness. This wasthe first study done on this topic so due to time constraints and lack ofbackground information from other studies, it was not possible but would beuseful in the future.

A complete list of "how to" guidelines cannot be compiled throughthis research but some can be suggested. First, companies should make sure thatthey have a crisis management plan, regardless of which one they choose.Second, companies need to respond during crises and not become passive observersof their fate. Public opinion and crisis management is an interactive Chief Executive Officers' Misdeeds 35 process. Companies need to communicate with the public and media andmake their actions publicly-known. Lastly, companies need to keep a watch ontheir key corporate figures because their actions will and do significantlyaffect the company's stature. The researcher would suggest continued use ofHerrero & Pratt's model of crisis management based on the correlation that whenit was not used, the plans were not effective. This is not a definitive reasonto stick to it but the researcher feels that the model has been applied tosituations that were successful and continues to provide a good framework. Moreresearch, however, is needed. Works Cited Abrahms, Doug. (1995, January 27). Milken's advising is probed by SEC. Washington Times, B7. Bates, James. (1990, December 13). Columbia savings sues Milken over junk bond sales. Los Angeles Times, D1. Gotschall, Mary. (1991). The machine behind Michael Milken. Regarding the business of Washington, 11, 58-64. Grant, Peter. (1989). After Leona: a bleak Helmsley-Spear future. Crains New York Business, 5, 1-2. Greenberg, Keith E. & Shell, Adam. (Aug. 1993). Pepsi's Big Scare.Public Relations Journal, 6-7, 13. Hearit, Keith M. (1994). Apologies and Public Relations Crises at Chrysler, Toshiba, and Volvo. Public Relations Review, 20,(2), 113-125. Herrero, Alfonso G. & Pratt, Cornelius B. (1995). How to manage a crisis before-or whenever-it hits. Public Relations Quarterly, 40,(1), 25-9. Jordan, John. (1989). New York pursues Helmsley tax probe as Connecticut waits. The Westchester County Business Journal, 21, 1-2. Mahar, Maggie. (1990). With a whimper, not a bang: Michael Milken is ready to plead guilty. Barron's, 70,(17), 12-3. Paltrow, Scot J. (1992, December 25). Milken to get work privileges. Los Angeles Times, D1. Scannel, Daniel. (1996, Thurs., March 7, 1:45 p.m.). Milken's Crimeand Current Whereabouts. Telephone Interview, Winston- Salem, N.C. Scherer, Ron. (1989). Accountants may face investigation. Christian Science Monitor, 81, 7-8. Stevenson, Richard W. (1992, June 17). Sear's Ducks, Then Tries to Cover. The New York Times, D1, D4. Works Cited 2 Wilkerson, Isabel. (1991, May 14). Tylenol Maker Settles in Tampering

Deaths. The New York Times, B15.