Crisis AND Communication – Scary but Necessary for Every Public Company

The Challenge can come from anywhere, at any time.  Your product doesn’t perform as promised.  A senior manager is caught in a scandal.  P&L estimates are blown – revenue is down, expenses are up.

Simply put, your company is in crisis

How you communicate to your stakeholders in the crisis and post-crisis phases can make a difference in the impact the negative news has on your company’s share price and on shareholder perception of the company moving forward.

What Constitutes a Crisis?

Tapping the public markets for money carries with it significant responsibility to inform public audiences about corporate momentum.  Public companies are required to provide to external audiences accurate and realistic guidance regarding anticipated corporate performance, as well as reports on actual outcomes, in a timely manner.  When reporting disappointing results, it isn’t only corporate performance that can negatively impact shareholder value.  Members of senior management, too, should assume that their professional – and to a degree, personal – conduct must be held to a level that can withstand public scrutiny.  Executive behavior that is negatively construed, like it or not, can affect stock price and corporate credibility.

Meeting the Crisis Head-On

Recognizing that your company is in crisis or headed for one is an essential first step in dealing with it effectively.  Basic recognition may sound all too obvious but denial can rule the day until a fall into the abyss becomes inevitable.  For our purposes, the abyss is not, strictly speaking, the crisis itself, but the financial impact it can have on a company’s market valuation in both the short and long term.

Investor relations – building a shareholder base, maintaining shareholder interest, and cultivating new investors – takes time and a true commitment on management’s part.  When a crisis occurs, the quality of management’s relationships with key investors and analysts can affect the magnitude of the financial impact.  Simply put, management sells the company just as the marketing department sells its products and services.  The importance of strong relationships cultivated over time cannot be underestimated when corporate challenges are at hand.

Investors are not the only constituency that require attention in a crisis situation.  Your company must also communicate with internal audiences, partners, clients and the media.  How you do this and when you do this can make the difference between success and failure with your investor base over the long-term.

Where’s the Plan? 

Every public company should engage in crisis planning.  Companies typically take the time to prepare budgets and forecast earnings as well as marketing and industry trends, but too infrequently don’t take the time to forecast what can go wrong, how it can go wrong and how best to react when a worst-case scenario becomes reality.  Nobody likes to believe that the worst can happen – but it can and it does.

When the dot-com world came crashing down a decade ago, a contributing factor to the breadth of its devastation was that many of the associated business leaders found it hard to believe it could happen “to them.”  The trend started with a few companies that just “didn’t bring real value to the market,” or so said the conventional wisdom at the time.  Then the tidal wave hit.

I do not contend that seamless execution of a crisis communication plan could have changed every unfortunate outcome, but proper planning may have saved some from being pulled away by the riptide.

In my next post I will discuss the anatomy of a crisis plan  — what every public company should do.