IndustryInsights

By James T. MacGregor

ARTICLE FIRST PUBLISHED JANUARY 2009 - O'DWYER'S PR REPORT

A financial communications crisis can be outlined as follows: someone — media, investors, customers — expresses or acts on concerns about a company’s financial condition. Then someone else — a rating agency, a vendor, a lender — voices their concerns. Then more jump on the bandwagon. The death spiral begins.

In isolation, each of these setbacks might have been manageable. But when they happen quickly, in a panicky climate, they can create a nearly irreversible downward toward collapse. Stock prices plummet. Customers walk away. Credit lines dry up. Rating agencies issue downgrades. Vendors want COD. Regulators step in. Finally, there’s bankruptcy, a shutdown or a bargain-basement takeover.

This death spiral is the signature event of the financial crisis of 2008. We’ve seen quite a few this year. We’ll see more next year. The victims won’t just be financial institutions, either; they could be anyone saddled with high leverage, low liquidity, big risks, suddenly shaky businesses, or simple bad karma.

What’s important to public relations practitioners is that this death spiral is driven as much by out-of-control negative communications as it is by actual business events. For companies that perceive themselves to be at risk, what we’re calling “survivability communications” can reduce the chances of a death spiral (or some lesser catastrophe) getting started, or maybe slow it down enough for emergency action to be taken.

Survivability communications is about helping a company to survive by persuading people that it can survive. The details aren’t revolutionary; harnessing them to the cause of survivability, however, does require some tinkering with standard communications models. Let’s start with three basic premises.

Premise #1: There is only one belief that counts: “This company is going to make it.” Until the audience hears what it needs to provisionally accept that belief, it will literally be unable to hear anything else the company has to say.

Premise #2: We are all drowning in information that we no longer believe. Half the world is freaking out, and the other half has become very, very cautious. People want hard facts, preferably independently verifiable. People tend to give credence mostly to sources they know and trust from personal experience.

Premise #3: Bad news travels faster then ever (and good news only slightly less fast). The first real crisis in the age of the Internet proves the medium’s potential: It doesn’t matter how you say something, or whom you say it to — in a matter of minutes, it will be everywhere. With these as starting points, here are four cornerstones to most of the effective survivability communications programs we’re seeing these days.

Get some hard facts into circulation: There’s a double-whammy to address here. The providers of information (corporations) are operating in an unprecedented lack of clarity; the recipients of information (choose your audience) are operating from an unprecedented lack of trust. Our recommendation: Corporations should tell their audiences the things they are sure of, even if they don’t paint a complete picture (unless doing so harms you competitively). How much 2009 business is solid? How much liquidity is available? Are people paying their bills? On time? In a sea of murk, a few solid rocks of fact are hugely welcome. With survival as the issue on the table, establishing disclosure precedents should not be a deterrent; once things settle down, there will be time enough to reconsider precedents. Have a plan studded with milestones: Any company whose survival is being called into question has a problem — and, presumably, a plan for dealing with that problem. The key here is to present the plan as a series of concrete steps with disclosable completion milestones, and then to disclose them. “We’ll sell this, close that. Pay down this debt, extend that credit line. Lay off these people, defer those capital items.” The cumulative effect of multiple positive steps, small as well as large, can be persuasive. We all know that many press releases are discarded unread. These days, very modest business wins, financing renewals, divestitures, are getting published, because there’s less good news than there used to be. And even if not published, all those modest announcements now become part of the database, available to reassure anyone exploring his area of concern. Give rapid response to even the slightest negative notice: Private communications now go public with alarming frequency. Baseless speculations in obscure blogs leap into general circulation overnight. Once the bad s t u ff is out there, it cannot be retrieved. Stepped-up monitoring has to be a top priority. So does fast reaction to anything harmful or incorrect. “That number should be this. That event is explained by this series of actions. Here’s where to get the correct info.” Engaging with the source on a personal level is best when possible — the goal is not just to correct the record, but to change the mindset behind what’s being said. Get personal, very personal: When survival is the context, the audience is everyone. Investors and analysts; customers and vendors; employees and directors; lenders and regulators; reporters and bloggers. They all want facts. They all want reassurance. A n d they all want it from someone they know and trust. (The CEO may be less credible than whoever they deal with on a daily basis). Basic level: Everyone with external contact responsibility needs to know what to say when a tough question is asked, and what to do when troublesome information comes to light. Advanced level: Additional training can turbo-charge some of that group to become effective ambassadors to external constituencies. This is labor-intensive work; emails, mass mailings and web site postings do not make the sale. All these things, even if done to perfection, won’t guarantee survival. What they can do is to prevent a situation in which all a company’s constructive actions are swamped by a tide of rumor, fear and predation. And that’s a not inconsiderable contribution to survivability.

James T. MacGregor is Vice Chairman of the Abernathy MacGregor Group, Inc. He can be reached at 212-371-5999 or jtm@abmac.com.