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A Conversation About Crisis Preparation

When faced with a crisis, even senior IR executives can benefit from an outside perspective, particularly when that perspective is based on years of experience. In the following conversation, David Calusdian, president at Sharon Merrill Associates, discusses crisis management issues and the most effective strategies to protect corporate reputation and credibility.

Q: Can you share some recent examples of your crisis communications work, to give readers a sense of the many issues that can ensnare a public company, and discuss how you solve them?

A: Today the potential for a crisis lurks in any piece of market-moving information that originates from somewhere other than the company. It could be a social media post about an impending management shakeup, an FDA product recall or a data breach. The potential scenarios are endless, but an effective response shares a few common themes:

Develop the Right Message. Recently we were called on to communicate the termination of a long-time CEO. The board was supportive of the company’s strategy, but disagreed with the way it was implemented by management. We developed messaging for the transition news release that positioned the incoming CEO as having the right combination of skills and experience to put the strategy in motion.  Right after the announcement we coordinated a non-deal roadshow so the new CEO could communicate face-to-face with sell-side analysts and top shareholders. We spent a good deal of time coaching the CEO on messaging and Q&A. A post-NDR survey showed investors were “very optimistic” about the company’s ability to execute its strategy in the next 12-18 months. 

Get Ahead of the Crisis. If there’s one lesson we’ve tried to drive home in our years of doing crisis communications, it’s the importance of getting in front of the issue. A consumer products company we worked with was notified of a safety concern about one of its products that led to a voluntary product recall. Once the cause of the malfunction was identified, we developed a video message from the CEO and other content to explain in detail the steps the company was taking to ensure consumer safety.  To make sure that everyone was on the same page, we conducted media training with the C-suite and corporate spokespeople. When the recall announcement was made, it was distributed through multiple channels – social media, email and direct mail – to ensure maximum reach. Investors rated “very favorably” the company’s willingness to get ahead of the crisis and communicate openly with consumers and investors.  

Don’t be Afraid to Acknowledge Mistakes. There’s no secret formula for turning bad news into good news. But because emotion plays such a significant role in how people perceive messages, a little humility can go a long way toward repairing credibility. Recently we worked with a financial services company that had compromised sensitive client information by failing to adhere to its own security procedures.  The company owned up to its mistakes, put new regulations in place to ensure compliance and communicated openly with customers and financial regulators. Investors responded favorably to the way the company handled the issue and said they were confident the steps taken would prevent future breaches from taking place.

Q: What defines a “good” crisis communications strategy?

A: Crisis communications is about triage, so we use the letters EMT – Evaluation, Messaging and Training. First, evaluate the situation and anticipate the reaction of key stakeholders such as employees, customers, investors, community leaders and the public. Next, develop messaging (news releases, talking points, FAQs and social media content) that directly address stakeholder concerns. Don’t put out news in dribs and drabs. If you want to stay in control of events, make sure all known relevant information is disseminated. Don’t hold back an ugly fact only to have it discovered two hours later by a reporter. The media is not your friend, but any hint of deception will surely make them an enemy. The final piece is training. Anyone speaking on behalf of the company should receive training in how to deliver prepared remarks and respond to hostile Q&A. Role-play various scenarios to make sure whoever is standing in front of the camera is comfortable doing so. How you communicate is almost as important as what you communicate.

Q: What’s your process for message development? Can you share any tips about good messaging versus bad?

A: In any crisis, the foundation of message development is honesty. You must assume the details will ultimately come out, so put the bad news on the table early – and on your own terms. Tell people what happened, how it happened and what you’re doing to solve it. Johnson & Johnson’s handling of the 1982 Tylenol poisonings is the classic blueprint in how to effectively deal with a crisis. J&J put the interest of consumers first, and its stock quickly recovered as a result.

Q: I’ve heard people say, ‘you should define your message’. The point being, you need to get out there and talk to the issue before the market does. How quickly do you need to get out there? And how should you respond to those painting a very different story? How transparent should a company be?

A: From the company’s perspective, the question of when to go public with a crisis depends a lot on the circumstances. You want to get ahead of bad news to maintain or restore credibility. With the pervasiveness of social media, that’s not easy. In a responsive situation, that usually means issuing a holding statement as soon as possible. The only caveat is make sure you have enough information about the crisis before you push ‘send.’ For example, it may be premature to issue a recall based on one or two reports about a defective product. You don’t know whether it’s a faulty component from a third-party supplier, product misuse or an isolated manufacturing error. But it might be prudent to issue a holding statement telling the public you are investigating the issue. Your communications approach depends on the facts, but it’s often a judgement call made based on experience and the amount of information you have.

Q: You have a number of audiences to include in your crisis communication - employees, investors, customers, the board -- the list goes on. How do you know what to share with which stakeholders?

A: I want to be careful to distinguish between facts and emphasis. Objective information needs to be the same no matter the audience. Don’t tell investors the chemical spill is under control while warning residents within a five-mile radius to evacuate due to the potential for explosions. That said, tailor the message to the audience. If a plant is closing, employees want to know how long they’ll have a job. Customers want to know how you plan to service them. Investors care about the bottom line. Assume anything you tell one group will quickly be seen or heard by the others. But the order in which that you present that information will be different.

Q: What ongoing information does the board need to have, and what should you do if you think the board is ignoring the signs of an impending crisis?

A: The best practice is to keep the board informed about the crisis and the communications strategy. Board members need to understand the risks to the company and the potential ramifications of those risks. If you think the board isn’t taking an impending crisis seriously, use anecdotes from companies that have faced similar incidents. Explain with solid data how the crisis could result in litigation as well as lost sales, market value, and most importantly, reputation.

Q: Talk to me about how Chipotle handled their series of food poisoning crises? How do you rate their strategy?

A: On the positive side, Chipotle seemed to say the right things. On the negative side, the company has been criticized for taking too long to respond and for not maximizing the power of social media to get their messages out to the broadest possible audience. From my perspective, they were a bit murky about what was going on and they did not offer a solution that would make consumers feel safe eating at the restaurant. If you asked people what’s different at Chipotle now versus prior to the E. coli and Norovirus outbreaks, my sense is consumers would be hard-pressed for an answer.

Q: What crisis communications advice would you give someone new to IR? What would you tell someone who has been around and perhaps has dealt with a crisis over the years?

A: For someone new to IR, I’d recommend relying on the experience of others. As we discussed earlier, there’s no one-size-fits-all response to a crisis. There are many grey areas. And there’s no substitute for experience. Seek the advice of peers within the company to understand the ramifications of an issue and gauge the potential reaction of key stakeholders. 

For IROs who have faced crises previously, it’s critical to stay current on best practices. Social media and the 24/7 news cycle have dramatically shortened the amount of time you have to respond. Your ability to get relevant information out to the public quickly – and through the right channels – is critical. The time to plan is now. While many experienced IROs have an excellent compass in terms of what to say, it’s important to be up to speed on the best way to say it.

David Calusdian is President at Sharon Merrill AssociatesHe oversees the implementation of crisis communications plans and proactive investor relations programs. He also coaches the C-Suite in executive presence, presentation delivery and media proficiency, and provides strategic counsel to clients on numerous communications issues such as corporate disclosure, proxy proposals, shareholder activism and earnings guidance.

Crisis Communications, Corporate Communications, crisis communication plan, crisis preparation, crisis

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