In April of this year, The Wall Street Journal ran an unfavorable article about $349.2 million NovaStar Financial, claiming that the subprime mortgage lender had purportedly failed to comply with state licensing rules. The article led to a 30 percent stock-price dip, a class action suit, and an informal inquiry by the SEC—all in the course of one week. Like most companies in that situation, NovaStar immediately turned to a public relations firm for assistance.

Davis

But in this case, the “PR” firm was Orrick, Herrington & Sutcliffe, a tony international law firm founded over 140 years ago. In 2003, Orrick had launched a multidisciplinary “Legal Crisis Communications” group led by Lanny Davis, previously special counsel to President Clinton. A media-savvy lawyer with extensive television and radio experience, Davis specializes on the intersection of securities law and strategic communications. His group, which helps companies manage legal crises, includes legal and PR experts who aim to help companies weigh and respond to a wide variety of risks.

Enos

“Their team is tightly integrated,” says NovaStar vice president of marketing Mike Enos. “They’re practicing attorneys who understand the media and how to work with the media. The fact that they had Lanny Davis was icing on the cake.”

According to Enos, NovaStar didn’t specifically seek out a law firm that had PR capabilities. “We saw that as a huge value added,” he says. “They espoused complete transparency and helped with Q&As to ensure that what we were saying was compliant with the law,” adds Enos. “They provided coaching, reviewed documents that we prepared, crafted press releases, and helped us rehearse for investor calls.”

And NovaStar’s move was not unique. Public companies are increasingly using their law firms for functions normally considered the domain of PR, usually to minimize litigation risk.

And the practice is turning out to be a boon for lawyers.

The End Of Compartmentalization

Buchanan

According to experts, the move by companies to rely on their law firm for PR work is due to the simple fact that, these days, legal issues are PR issues. “In light of how important corporate governance has become,” says Heller Ehrman White & McAuliffe Chief Marketing Officer John Buchanan, “it’s important that companies communicate appropriately and do the right thing.” As a result, disclosure in the traditional sense—namely, public filings—is being merged with other forms of communications that are used to preserve corporate reputation. That’s especially the case when companies are the subject of unwanted public attention from regulatory inquiries, shareholder lawsuits, whistleblower accusations, and other potential PR crises.

Powers

And given the around-the-clock nature of news cycles, some argue it has become nearly impossible to compartmentalize legal issues from public opinion. “Legal issues in the news now get four-to-five times as much coverage as they did 14 to 15 years ago,” says Erin Powers, who specializes in legal affairs public relations at Powers MediaWorks.

Loeb

This dynamic is part of the reason why some law firms are enhancing their PR offerings and—in some instances—spinning off PR groups, creating new competition to traditional public relations firms. And the law firms may have the upper hand in the battle for clients, as they have an embedded customer base for which they’re providing guidance. According to Harlan Loeb, a former practicing lawyer who serves as director of litigation at PR firm Hill & Knowlton, the media’s focus on governance issues has also added fuel to the fire. “PR competition has risen because the media has animated it for persistent disclosure.”

Concerns Abound

Some, however, warn that companies need to make sure there’s not the appearance of a conflict of interest by having outside counsel also act as PR agent.

“If I were a CEO,” says Terry Connelly, an attorney and former managing director at Salomon Brothers, “I would be perfectly pleased to get PR advice from a unit of a law firm, but I would also want a separate lawyer to review any proposed communication from a legal point of view, both to assure the benefit of any privileged advice and to avoid even the appearance of conflicted interest.” Connelly, now dean of the business school at Golden State University, adds, “I would not only want to keep my legal and PR advice separate, but make it crystalline clear that I kept them separate.”

According to Connelly, the most central issue that has emerged from the recent scandals is conflict of interest. As a result, companies need to consider how subtle moves—such as combining legal and PR work under one roof—might be perceived. “The standards in the real world have just plain changed,” he says. “It may be better to pull back a little and not even have the appearance of conflict of interest.”

Connelly

Buchanan at Heller Ehrman also thinks companies need to be sure that if their legal counsel is going to provide PR help, the firm has access to seasoned professionals. “[Law firm-PR] clients may not be getting deeply qualified communication professionals who might be able to counsel them better,” he says. “PR is a very different discipline than law. Certainly in trying to advise clients, you want to make sure they have long-term agency experience or deep experience in an area they need help in.”

That being said, there are no rules or regulations that require any separation. “I don’t have a problem with law firms engaging in PR work,” adds Dean Connelly. “There is nothing technically wrong with it or using them for that service.”

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