Quick Response Stems Damage to Emulex
Alarmed by a swift and deep plunge in his company’s stock, Paul Folino tried to get through to Nasdaq’s market surveillance unit last Friday morning--just as Nasdaq officials were calling him on the other line.
So began a frenetic day as he and other executives at Emulex Corp., without a concrete crisis-management plan in place, moved quickly to blunt the effects of a bogus news release that caused the company’s stock to crash 62% in 16 minutes.
The company’s response drew praise from public relations professionals. One spokesperson from a neighboring technology company called Emulex’s handling of the entire situation “masterful.”
Emulex, seeing the free fall in its stock, called regulators to ask that trading be stopped. Then it alerted the media and investors that someone had distributed a phony news release about the company over the Internet. By the end of the trading day, the company’s stock had rebounded to show a modest loss for the day.
“I didn’t have time for anger. I didn’t have time for any emotion. I only had time to react [and] move immediately for damage control,” said Folino, the chief executive.
Nevertheless, Folino said Emulex is taking additional steps to protect the company and its investors in the future.
And he encouraged public companies, especially those on the West Coast that are three hours behind the marketplace in New York, to have crisis-management procedures in place “so that when you do need to go to guns, everybody’s able to play their role.”
“This is a perfect example that a quick response can help to diminish the damage,” said Michael Sitrick, chairman of a public relations and crisis-management firm.
Emulex did the right thing, Sitrick said. “The company has to react quickly and firmly. It has to correct the misinformation and put out correct information, and it has to mount an aggressive campaign to get the word out,” he said.
The situation at Emulex could have been worse.
When the stock was falling, the company’s public relations manager was delayed by a flat tire, and the chief financial officer was on his boat somewhere off the coast of Baja with a cellular telephone that didn’t work.
Without help from outside advisors or public relations agencies, Folino directed the response strategy himself. “I never considered getting anybody for crisis management. That’s what they pay me for,” he said.
By the time Folino walked into his office at 7:40 Friday morning, there were close to two dozen messages on his voice mail alerting him to the surprising bad news, he said. A bogus news release had been distributed that said the company was restating a quarterly profit to show a loss, that the Securities and Exchange Commission was investigating the company and that Folino had resigned.
The first phone call he answered that day was from an officer of the company, who already had faxed him a copy of the bogus news release. Then Folino got on the line with Nasdaq officials. Trading was halted, and he had half an hour to prepare a news release.
Folino and Kirk Roller, senior vice president of sales and marketing, threw open the telephone switchboards and began reassuring investors.
“Either you win or they’re going to win,” Roller said.
Thursday, after the FBI arrested an El Segundo man, Folino said it was a relief to know that a suspect was in custody.
“I think it’s a comfort to know that phase one of this is done and they’ve caught the person. It’s terrific for Emulex and for the 15,000-plus other public corporations in America,” Folino said. “It could happen to any one of us . . . but it’s very hard to get away with something like this.”
Among the changes Emulex is making to respond better in the future is to give top managers satellite telephones so they will always be able to stay in touch and take any calls.
Another change will come in the way that telephone calls are handled after hours. Emulex already has a 24-hour technical support line. But those operators now will be equipped to respond to market emergencies and will know how to reach company management in a pinch, said Chief Financial Officer Mike Rockenbach.
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* SUSPECT IN CUSTODY
Mark Simeon Jakob of El Segundo was arrested in hoax. A1
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Emulex at a Glance
The Costa Mesa-based firm that makes high-speed data storage products lost nearly $2.5 billion in market capitalization and saw its stock plunge as much as 62% in early trading last Friday as investors reacted to reports based on a false press release. Most of the loss has been recouped:
* Ticker symbol: EMLX
* President and CEO: Paul F. Folino
* Stock close Thursday: $104.69
* Low price on Aug. 25, the day of hoax: $43.00
* Market cap: $3.8 billion
* Net sales in fiscal 2000: $139.8 million
* Net income in fiscal 2000: $32.8 million
Source: Bloomberg News
Researched by NONA YATES/Los Angeles Times
