A News release by Fleishman-Hillard on Business Wire caught my attention this morning, especially the caption – Majority of Analysts Say a Poorly Managed Crisis Causes Detraction in a Company’s Value
According to the release, the biggest mistake companies make during a corporate or operational crisis is a lack of communication and transparency with stakeholders and employees, causing a negative impact on valuations, according to a survey jointly released today by the Canadian Investor Relations Institute (CIRI) and Fleishman-Hillard Inc.
“The survey reveals that a poorly managed crisis clearly has a negative impact on a company’s share valuation, so it is imperative for IROs to be prepared”
This is the same message I have punted for the past 15 years.
The survey polled financial analysts and investor relations officers (IROs) at companies across Canada and the United States on operational and corporate crisis preparedness. It found that while many companies are mindful of the potential damage crises can cause to their sales, reputation and share value, few have an effective crisis management plan in place to deal with negative scenarios — and if they do it is likely out of date. (See some of my previous posts on my blog)
Further, the survey found that half of responding IROs from the financial services and healthcare industries claim they don’t follow a crisis communications plan at all. The survey looked at both operational crises, which are issues impacting a company’s day-to-day business, and corporate crises, issues involving a firm’s executive team or finances.
“Given the recent widely known sector crises — the 2008 financial meltdown, healthcare product recalls, extreme environmental damages, automotive sector crisis and other headline-grabbing frauds and scandals — companies need to be armed with a plan,” said Tom Enright, CIRI president and CEO. “No sector or company is immune to a crisis; having a crisis communications plan in place is simply prudent risk management.
“The survey reveals that a poorly managed crisis clearly has a negative impact on a company’s share valuation, so it is imperative for IROs to be prepared,” Enright continued. “A crisis communications plan is one of the most important tools a company can have in its arsenal.”
Yet for those who have a crisis plan in place, only 29 percent of companies update it once a year, according to the survey results. As a rule, it is best practice to update a crisis plan at least once a year to ensure the content is evolving and maintaining relevance in today’s marketplace.
Not only is there confusion around the frequency of updating a crisis communications plan, companies also struggle with its focus:
- 85 percent of responding analysts say a corporate crisis — fraud resulting in accounting restatement — has the greatest negative impact on a company’s value.
- But over 50 percent of responding IROs say their company builds a plan that prepares them only for an operational crisis.
“Although IROs clearly understand the impact that trust, transparency and proper disclosure can have on company valuation during a crisis, it’s apparent that most companies are unprepared to deal with the fast-moving affects of a corporate or operational catastrophe,” says Tom Laughran, senior vice president, partner and global financial communications co-chair with Fleishman-Hillard. “Timely and honest communications are essential for maintaining the trust of investors during volatile periods. In order to effectively communicate during an emergency, companies must continually examine and update their crisis plan to ensure all stakeholders have been addressed and that an efficient and actionable chain of command is in place.”
When focusing on digital communications, the survey found that while many analysts and IROs recognize the potential impact that social media outlets — Twitter, Facebook and YouTube — can have on their companies, few have a crisis plan in place that incorporates social media protocols.
According to the survey, over 50 percent of responding analysts look to the corporate blog for information during a crisis, but only 17 percent of responding IROs say their companies use this tool as a channel for crisis communications. Given that less than half of responding IROs monitor social media platforms during a crisis, IROs clearly need to incorporate these tools in their plans to maintain control of the corporate message during a crisis and minimize wide-spread negativity.
An IRO’s role during a crisis is very important. As the conduit between analysts and the company, it’s imperative that IROs play a lead role in developing the communications plan. According to the survey:
- 85 percent of responding analysts say IROs are a main point of contact for a corporate crisis specifically.
- 55 percent of IRO respondents don’t know if the crisis communications plan is updated after a crisis.
- 50 percent of IRO respondents don’t know if their company conducts crisis simulations.
- Only 19 percent of responding IROs contribute to the corporate blog, which was deemed as an important source of information by responding analysts.
“Given the importance of the IRO’s role during a crisis, they need to play a much larger role in developing the crisis communications plan, executing crisis drills and regularly updating the document,” said Enright. “Their involvement in the process should be from beginning to end.”
Read more about the survey, the Canadian Investor Relations Institute & Fleishman-Hillard at http://www.businesswire.com/news/home/20110412005462/en/Survey-Companies-Prepared-Manage-Crisis
I will respond to some of these thoughts in upcoming posts. In the meantime , read these posts:
· Your Crisis Communication Response Plan is Due for Maintenance (And/Or a Rewrite) – http://bit.ly/ghxdw4
· Why You Should Plan for Crises Before They Happen – http://bit.ly/b0xDKb
· Is your company ready to deal with a Product recall? A Checklist for your convenience – http://bit.ly/8jdhh0 (Read this post in conjunction with the new Consumer Protection Act that was recently promulgated in South Africa)
· You better be Awake: Searching for Vulnerabilities – http://bit.ly/aFAFw
I have been contracted to run a course for Marcus Evans called Crisis Management and Communication for Reputation Protection at the Grand Millennium hotel, Beijing, China 24 – 25 March.
Check out the Event Website: http://bit.ly/gcctGS
Reputational risk is the risk that an activity, action or stance performed or taken by a company or its officials will impair its image in the community and/or the long-term trust placed in the organisation by its stakeholders, resulting in the loss of business and/or legal action.
Essentially all risks and all related components of the group potentially impact on reputational risk.
Think about this one for a second…
You’re the CEO of a large company with a daily operating budget that floats somewhere in the millions. Your profit margin is already pretty thin and demands all your management skills to keep things in the black. Suddenly, something absolutely crazy and totally unexpected for which even your best contingency planning didn’t prepare you hits you dead on, sinking your thin profit margin into a deep, deep sea of red ink. I’m talking billions here…
No, this isn’t a cheap attempt at dramatics. It’s a nutshell summary of what happened to the airline industry after September 11. We could argue that those are exactly the times when managers really need to remember what they learned in management school. The truth is, however, that (a) We don’t teach them how to deal with crises like that; and (b) they don’t have time to worry about soft and hard skills, etc. when their pants are on fire. All they will worry about is whether they can save the “money”, because after all that is what the shareholders will hold them accountable for.
It is in situations like these that a person will display their normal crisis management style, and unfortunately what will happen is that managers will go for quick solutions rather than proper root cause analysis. There will be a tendency to address symptoms rather than real causes.
Part of the problem lies in our training that we provide in organisations. I am not saying that the quick and dirty phenomena is happening because training departments are doing such a lousy job, at least not from the perspective of understanding what management is about.
Where departments fail is in not performing regular simulations under which crisis readiness and decision making under stress can be tested. Where training departments fail is in not providing their managers with hard nose business skills training, things to do when faced with a crisis, things to prevent smouldering crises from erupting into perceptual crises, teambuilding and decision making under conditions of severe stress, etc.
What is needed is a solid understanding of the processes that support problem solving and ethical decision making and proactive thinking while studying management struggles, confusion, dilemmas, and the moral challenges managers face. Managers need training in understanding the many elements of crisis management, including such critical areas as crisis planning and preparedness, crisis communications, security of human, physical and intellectual assets and organizational behaviour, communication management problems and strategies.
That way we can assure that our management teams can make proper and ethical decisions when times of trouble come, decisions that will rather build than destroy a company’s good name. Let me ask you a question:
- Does your company have a crisis management plan that has been truly tested and simulated in the past few months?
- Does Crisis Management & Communication training feature in your training calendar for the year?
Unless it does, your company is a long way off from being adequately prepared. Don’t be upset if quick and dirty solutions are part of your organisation’s behaviour patterns. Sometimes incidents happen due to unfortunate oversight. Most of these times I believe they happen because management have not been sensitised to the importance of managing a company’s greatest asset – its reputation.
In many cases Reputational damage could have been prevented had management received training in the management of reputation.
Prevention is normally better than cure. Management teams should receive training in what reputation is, why reputation is an asset and a risk, the various drivers of reputation, how it is measured and destroyed, strategies for building, sustaining and protecting reputation, corporate governance, ethics and media understanding and media survival skills. It does not matter if you are working for Government, a Corporate or an NGO – Reputation remains the same and has the same impact.
Often Management asks about the cost of training. Why not consider the flipside of the coin? What is the cost of NOT training management in reputation understanding?
The question to ask is whether Organisation’s do enough to sensitise their management teams. BP did most of the above, and yet, even that wasn’t enough. Now that is even more scary!
If you would like to learn, how to prevent reputation risk emerging in your organisation, or would like to hone your crisis management skills, you would not want to miss this training event coming up.
|What:||Reputation Defence & Protection (Reputation Risk Mitigation) Masterclass
This two-day Masterclass provides comprehensive and practical coverage of all aspects on how to protect and defend an organisation’s reputation, and is based on more than 25 years research and experience on how to protect business reputations. The title word includes the verb defend. The reason – the word defend is generally defined as to take measures to make or keep safe from danger, attack or harm, and implies the actions of protecting, safeguarding, shielding, supporting or preserving. The requirement to defend can be associated with an individual, group, place or thing, and can be associated with honour, reputation, territory, assets and allies (stakeholders). It offers not only international best practices but also provides guidance how to implement a reputation risk management and protection framework. Worldwide reputation risk is seen as the highest-order risk and most dangerous to organizations, because of its volatility and unpredictability. Part of the problem is that some regard it as a strategic risk whilst others see it as a consequence of a risk. The way an organization therefore defines it, will have a material impact on how it will be mitigated and treated. Because reputation risk is volatile, unpredictable and often unquantifiable, it often happens that; what an organization regards as a small incident or issue, erupts and has a major impact, because stakeholders viewed it differently. Understanding the systemic interplay of factors is therefore vital in understanding this risk. If you’re responsible for ensuring that your organisation responds to and survives any form of reputation risk event – this Masterclass covers all the key steps necessary.
|When:||Tuesday, July 20, 2010 11:00 AM to Wednesday, July 21, 2010 12:00 PM|
Johannesburg, Gauteng South Africa