Something to Talk About

Optimizing stakeholder communications when things don't go according to plan

• By Miriam Weber
• Jun 01, 2006

THE challenge begins when your new product does not perform as promised or when senior management is caught in a scandal, or even when you blew your P&L estimates -- revenues are down and 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 too obvious but denial can rule the day until a fall into the abyss becomes inevitable. 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 is a crisis.

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 also must communicate with internal audiences, partners, clients and the media. No matter who the audience is, however, the most effective communication in a crisis starts with a plan.

Where is 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 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 dotcom world came crashing down, 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.

Seamless execution of a crisis communication plan may not have changed every unfortunate outcome, but proper planning may have saved some from being pulled away by the riptide.

Anatomy of a Crisis Plan
The principal components of a crisis plan include strategic thinking, identification of a spokesperson, communications materials and timing.

Think strategically -- build the plan around hypothetical scenarios. The most strategic way of formulating a crisis plan is to define it based on likely crisis scenarios particular to a given company, such as senior management-related, product- or service-related, and a negative financial scenario. Take into account previous types of crises the company has faced. For example, a company that employs union labor and has experienced labor-relations issues in the past needs to incorporate that potential issue into its planning process.

Spokesperson identification and preparation. An internal crisis team must be designated ahead of time. The point person for alerting the rest of the team should be someone who is willing and able to be accessible in an emergency at essentially any time. It is the job of the internal point person to notify the rest of the senior management team, corporate counsel and external communications consultants who will need to play a role in plan implementation. In general, the crisis team should include the CEO, CFO, corporate counsel and, in some cases, the chairman of the board. Depending on the nature of the crisis, specific department heads -- quality control, product development and marketing -- should be called in, as well. It also is the job of the point person to make this determination.

Designated media, investor and employee spokespeople also should be identified during the planning process. In most cases, spokespeople will be part of the issues management team, but in some cases, such as a crisis that affects a specific department, you may consider including additional specialty perspectives. Ultimately, the goal is to ensure clarity regarding who speaks to whom and when.

To ensure this, once issues are identified and spokespeople tapped, a simulation drill should be conducted where issues are presented and spokespeople "interviewed" by media, investors and/or other stakeholder audiences. Interviews are recorded for review, and feedback from the entire issues management team is solicited.

The crisis plan should address the need for development of communications materials, including boilerplate versions of a conference call script, press release and key messages specific to each scenario. Similarly, an overarching internal question and answer document should be prepared and include general corporate and situation specific questions and answers. Ensure the language is reviewed and approved for this document by legal counsel ahead of time, as it will serve as an important reference for spokespeople as they are communicating with audiences both internally and externally.

Two Types of Crisis
From a timing standpoint, there are two types of crises: situations that the company must disclose and those that will be disclosed for them by external parties such as the media. Because of certain constraints, both situations require a high sensitivity to timing, but the latter usually requires that the company prepare itself more quickly than the former. Given this, an effective crisis communications program addresses logistics related to both types of timing.

There should be no indecision as to who does which job when a crisis hits. There are enough variables to worry about in times of challenge and this shouldn't be one of them.

We've Got a Plan, So What Else?
The "what else" beyond developing a plan includes logistical consideration that can make the effort put toward assembling that plan worthwhile. Writing a plan and waiting to put it into action isn't enough. Distribute the plan throughout your organization to every staff member who could be affected -- and effective. Be sure they understand it fully. Rehearse procedures where feasible. Update the plan regularly -- a phone tree constructed of departed executives is useless.

Cultivate with investors. When chronically ignored, analysts and investors return the favor, both in times of crisis and in their day-to-day communications regarding perceptions of a company. For example, analysts who are not regularly contacted by management may set unrealistic earnings hurdles because management has not provided them with enough guidance. An earning shortfall can turn into a crisis of its own. Institutional shareholders also require frequent contact from management to justify their sizable stake in the company. Investors and analysts just don't want the romance to end once the marriage becomes official. The death of romance -- spelled c-o-m-m-u-n-i-c-a-t-i-o-n -- likely translates into a high divorce rate when a crisis hits.

In the media. As with investors, always follow the message documents and communication materials that have been prepared for your use when speaking to reporters. Don't say dumb things and don't ever believe you are actually speaking "off the record."

The morning after. In the light of day following the heat of the crisis moment, resist the urge to heave a sigh of relief and relax too soon. There is likely to be a sub-crisis playing out for some time, depending on the severity of the core crisis. Management should plan for a post-crisis period, during which the aim is to rebuild stakeholder confidence. The best tack in this phase of crisis recovery typically is to focus on communicating frequently, regularly and realistically -- even when it may seem very tempting to retrench and fall silent to the outside world.