When A Public Relations Nightmare Hits

You can offer all the due diligence you want, but if you’re an investor
there’s absolutely no way to anticipate the kind of public relations
nightmare that now burdens Disney and its high-profile Web operations.

Over the weekend it was reported that Patrick Naughton, an Infoseek
executive vice president who headed the entertainment giant’s Go Network
online portal, had been arrested in Santa Monica, Calif., for allegedly
using the Internet to set up a sex liaison with a 13-year-old girl.

I won’t get into the sordid details here, but Disney moved quickly to
control the damage. Infoseek fired Naughton and issued a statement
saying the company was “shocked and disturbed” by the incident, an
entirely reasonable reaction. And Infoseek President Harry Motro
e-mailed employees, expressing shock and sadness about the arrest and
informing them that Naughton “is no longer an employee.”

(Ironically, in a story released today it was reported that Disney had
dropped from fourth place to No. 21 in Fortune magazine’s annual ranking
of the most admired companies in the world.)

Disney announced in July it would acquire Infoseek — it already owned
nearly 40 percent — and combine it with Go Network and other Web properties to
create a tracking stock under the name Go.com.

While the courts are left to process this sad case — Naughton is set to
be arraigned Oct. 12 — investors are right to wonder what impact it
will have on the stock prices of the affected companies.

Through Monday afternoon, Infoseek (NASDAQ: SEEK) had dropped 4.4 percent to
$27.50 per share, the third-worst stock performance of any ISDEX company
so far that day (trailing only Verio and eBay, still falling in the wake
Friday’s news that Microsoft, Dell and others will launch a competing
auction network). Disney (NYSE: DIS), meanwhile, was unchanged at $28.

In the long run, though, I don’t expect any serious impact, unless a
trial turns up embarrassing evidence and testimony that keeps it in the
media spotlight. Even then, Disney and Infoseek can minimize the damage
by being cooperative with authorities and open with shareholders, the
press and employees.

So far the companies appear to be doing that.

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