Could S&P Have Staved Off Consumer Ire Over Its Downgrade?

Government Push-back Expected, but Accounting Discrepancy, Complexity Hard to Overcome

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When Standard & Poor's on Aug. 5 downgraded the U.S.'s credit rating from AAA to AA+, it was probably expecting push-back from the government, and it's safe to say that it anticipated widespread media coverage and prepared a response in advance. But it's likely no one expected a Midwesterner to fly an airplane over Wall Street dragging a banner that read: "Thanks for the downgrade, you should all be fired."

That's not exactly the type of consumer response any company wants to generate, but it's unclear how much S&P, a unit of McGraw-Hill Cos., could have done to prevent that particular public-relations nightmare.

Had the firm simply issued the downgrade, it may have been portrayed simply as the voice of adult reason in a political landscape in which neither President Barack Obama nor Congress had the will or the means to do what was needed to be done to solve the debt crisis.

"Don't shoot the messenger" is a fairly simple, powerful and straightforward message. But that message was muddled after a $2 trillion recalculation that forced the agency to update the assessment that drove its historical decision.

When the agency initially announced the downgrade, prior to the $2 trillion adjustment, it attributed its decision to the perfect storm of factors: "The downgrade reflects our view that the effectiveness, stability and predictability of American policy making and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011."

Then, in defending what seemed to be a $2 trillion discrepancy that the Treasury Department found in S&P's calculations, it issued a statement that media viewed as a justification based more on U.S. political turmoil than the actual amount of debt. The agency also held a last-minute press conference in which media mostly asked about the rationale behind the adjustment itself as opposed to the rating downgrade.

"There was little addressed and no policy in the direct comments from S&P on why the downgrade took place," said Mark Kollar, partner at CJP, a firm that specializes in corporate and financial communications.

Which left the general public with a vague perception that despite its own math error, S&P still gave the U.S. a bad grade.

Crisis and corporate PR pros suggested that years ago the agency should have educated people beyond stakeholders about its value, inner workings and the criteria it uses to assess credibility for sovereign governments vs. corporations. Not having gotten these messages across put the brand in a tricky spot last week when the president questioned its credibility and said during a speech that "We always will be a triple-A country."

Interestingly, S&P avoided a PR debacle last time it was involved in a highly politicized national economic crisis precisely because the issue was so complicated.

An executive familiar with S&P who wished to remain anonymous told Ad Age that when the subprime mortgage crisis took flight in 2008, most Americans attributed the financial crisis to Wall Street . The majority of those Americans likely had no idea about the kinds of services S&P provides. And only a small percentage criticized S&P and the other major ratings agencies for contributing to the housing crisis by not downgrading subprime mortgage-backed securities. When the mortgage securities went south, investors lost billions and confidence in the ratings agencies and the financial system plummeted.

"Most people in the U.S. had a hard time connecting the difficulties in a structured finance market to their own personal lives," he said. The current financial mess "has broadened the perception of S&P the way that the financial meltdown didn't. Its reputation has suffered nationwide a much bigger hit."

Arik Ben-Zvi, managing director at the Glover Park Group, a Washington-based shop, said, "What makes this challenge unique and harder than other companies that faced big crises like BP is that there's almost a universal lack of understanding of S&P's value proposition. That's a story it's never felt obliged to tell in the past because its stakeholders weren't the general public."

S&P senior VP-Communications Catherine Mathis said that over the last two years or so, the organization has been trying to get people to understand how it works via a website called, press outreach and publishing books and sending them to investors.

"We took a series of steps after the financial crisis to become more transparent about what we do and how we do it," she said.

She added that in April, when the organization changed its outlook on the U.S. debt from stable to negative, her team held a press conference and did 18 interviews in one day.

Still, said the exec familiar with S&P, the agency "reacted better today than they did years ago," he added. "In the ratings business if you can piss off everyone to the same degree you're probably in the right place."

S&P works with PR firm Edelman on retainer.

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