Every corporation at some point in its corporate history will have to deal with disseminating unfavorable news. Whether it takes the form of an earnings miss, corporate restructuring, key executive departure, product recall, natural disaster, macro-economic or political event, companies need to be prepared to handle corporate crises effectively.
Bad new handled improperly is akin to throwing gasoline on a fire which can allow bad news to pile on top of bad news and the crisis never ends. Conversely a strategy that revolves around accountability and transparency can build trust in the executive team during challenging times. How a company responds is directly corelated to how quickly a company recovers from adverse news.
The following is a check list of time-tested guidelines that every company should follow:
- Take Responsibility and Be Accountable: Companies must address the issues head on, immediately. Long gone are the days of releasing bad news on a Friday afternoon after the market has closed. Unfavorable news travels instantly through hundreds of distribution points and in some cases the “Street” may have the news before the company does. Companies need to own the mistake or problem before it spirals out of control.
- Be Upfront and Honest: Correct false information right away don’t let short sellers or uninformed press circulate false information. Being transparent helps prevent or rein in speculation and serves to control the narrative. Communicating the timeline for corrective actions and providing a clear plan for rectification does not allow for bad news hang around.
- State Facts to Increase Credibility: Focusing on factual information to enhance trustworthiness don’t veer off script. Executives must avoid being emotional and stay away from defensive language. Saying you are going to sue a short seller in a fit of anger get you nowhere.
- Provide Actionable Steps: Every response in a crisis must be accompanied with a plan of action or solution otherwise you are just stating the obvious that there is a problem. Outline the steps the company is taking to rectify the situation. Explain preventive measures to avoid recurrence. Being solution-oriented in a crisis is a powerful response from management that they are on top of the problem. Actional steps will help a battered stock recover faster as savvy investors will look at it as an entry point in the stock.
- Don’t Over-Communicate or Make Excuses Be Clear and Concise: Stay on topic and don’t elaborate. It is dangerous to overshare information or provide justifications. Bad news can exist without a “spin” especially if it’s the type of problem that was created by external forces such as a strike, natural disaster or similar.
- Coordinate Internal and External Communication: Consistency across all communications is key.Aligning the company’s message internally and externally to avoid mixed signals.
- Throw in the Kitchen Sink: If you have bad news get it all out of the way in one shot. This would be especially true in restructurings or write downs if you are going to write down thrown in everything including the kitchen sink, as the saying goes on Wall Street. At all costs companies must avoid multiple bad news events, one after the other.
- Turn Negative PR Into a Marketing Opportunity: Providing solutions and action items on the issue can be a positive marketing message. In many cases companies have turned negative events into a win.
- Monitor Social Media and Clarify Misleading Statements: Stay on top of social media conversations. Companies must address and correct misleading or harmful statements quickly.
- Be Mindful of Regulatory Compliance (Reg FD): Avoid side conversations that could violate regulations. Ensuring consistent messaging by preparing talking points for the team. Designate a single spokesperson for clear communication.
- Crisis Preparedness: Every company should have a realistic crisis plan in place with the role of a call tree and designated response protocols. Crisis teams, specifically the IR, Shareholder Engagement, law firm and PR teams should be set out in advance.
By following these best practices, a company has a much better chance of recovering from a crisis with its reputation intact. Showing accountability and transparency during crises builds long term value in the company and its management.
