Corporate Communications in Financial Crisis: The New Paradigm
HIGH STAKES
THIS ISSUE: CORPORATE COMMUNICATIONS IN FINANCIAL CRISIS: THE NEW PARADIGM
The numbers are staggering: 598,000 jobs lost in January 2009 alone; 530 corporate fraud cases currently being investigated by the FBI; more than 7,000 points lost on the New York Stock Exchange, which continues to hover at its November 2008 lows; and almost a trillion taxpayer dollars used to bail out companies that most Americans blame for causing the crisis in the first place.
With unprecedented levels of shareholder anxiety, regulatory interest, consumer anger, and congressional focus (and now action), Corporate America now finds itself in the midst of a perfect storm. To weather it, executives need to understand the public’s anger, determine the most effective ways to deal with it, and then exercise clear and unambiguous leadership. Business as usual will no longer suffice.
In this issue, we examine strategies for companies to regain brand credibility and public trust…Gain insight from Dr. Jeffrey Sonnenfeld, President and CEO of the Chief Executive Leadership Institute at the Yale School of Management…Take a look at leading blogs focused on the financial meltdown…And look ahead to how companies need to communicate as things continue to get worse before they get better.
Just as the Sarbanes-Oxley era was about ensuring transparency, the TARP era has ushered in a new imperative of corporate accountability. The economic stimulus package that President Obama signed into law this week includes an amendment offered by Senate Banking Committee Chairman Christopher Dodd that drastically limits executive compensation. A year ago, such government intrusion into the private sector would never have been tolerated. Today, it is welcomed by many outside of Wall Street.
At a time when corporate leaders aren’t seen as sharing in the economic hardship they helped bring about, stakeholders have demanded more accountability – and legislators and regulators are responding.
The public has simply lost patience with business as usual. Everyone is looking for leadership that will point the way out of this crisis. Either corporate executives will offer it in the form of publicly articulated reforms, or newly empowered politicians, regulators, and bloggers will fill the vacuum – and those “solutions” will not be palatable for all.
Communicating steady, creative vision to key stakeholders isn’t easy in the TARP era, but there are strategies that can differentiate business leaders from their competitors:
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Be for Something. With public trust in Corporate America and Wall Street at an all-time low, no amount of explanation or finger-pointing will salve the wound. Instead, the business community needs a leader, or leaders, to show everyone the way out. There is a hunger for this kind of forward-looking leadership – and the longer the marketplace goes without it, the harder it will be to convince stakeholders that it's even possible.
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Limit the excesses. The first companies to effectively define themselves as “anti-perk” institutions are the ones that will assume the leadership position articulated above. Consider the example of John Reed, who took the helm of a struggling New York Stock Exchange for an annual salary of one dollar in 2003. That’s the kind of decisive action needed now because it communicates a commitment to the new way forward in deed, rather than word. With the Dodd Amendment already limiting compensation at banks that accept TARP funds, companies are wise to identify ways to adjust their compensation structure, award non-cash bonuses (e.g. restricted stock), and cut back on the frills that have already landed companies in hot water.
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Deliver bad financial news early and all at once. Such an approach may seem counterintuitive – and frightening – but it is a critical strategic approach that subsequently defines how a negative story is felt and seen by your most important constituencies. Do not let the drip-drip-drip of rumor and/or real negative news play out publicly in the marketplace. Today, assumptions are almost always worse than the truth.
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If under investigation, cooperate, cooperate, cooperate. New SEC Chairwoman Mary L. Schapiro has already moved to do away with an existing rule that requires enforcement division lawyers to seek the approval of Commissioners before negotiating penalties. To be sure, the SEC is on the lookout for villains to use to burnish its watchdog credentials. If your company lands in the spotlight, now is not the time to either fight nor hide. Today, companies can assume one of two roles – poster child of reform, or poster child for reform. Cooperation that goes above and beyond mere compliance is the best way to ensure that your company never gets cast in the wrong role.
The new Corporate America and Wall Street need leaders to brave uncharted frontiers. The fates of companies hardest hit by financial crisis are still within their own control, but only if they induce the kind of leadership and vision that can restore confidence in a system shaken to its foundations.
Jeffrey Sonnenfeld is the Senior Associate Dean for Executive Programs at Yale University’s School of Management and the Lester Crown Professor of Management Practice as well as the Founder, President and CEO of the Chief Executive Leadership Institute of the Yale School of Management.
Dr. Sonnenfeld was the first management scholar to be invited to ring the Opening Bell of both the New York Stock Exchange and the NASDAQ exchange. Named by BusinessWeek as one of the world's "ten most influential business school professors" and by Directorship as one of the "100 leading figures in corporate governance," he shared his thoughts on corporate leadership during this financial crisis with High Stakes™:
What messages do corporate leaders need to send to restore confidence in our companies, markets, and financial systems?
Jeffrey Sonnenfeld: In times of genuine crisis, leaders do not have to use fear to alert people about the need to change from the status quo. When the place is on fire, it is counterproductive to frighten people. In battle, no one needs to be motivated.
People want to know that their leaders are competent enough to see them through this crisis. They don’t have to like you; they have to know that they can place their faith in you because you have thought it all through, you know how to connect all the different pieces of the puzzle, and there’s a good framework in place for dealing with the change that’s sure to come. What’s coming next? What are our contingency plans? What is our timetable for implementing needed reforms? These are things that folks need to hear about right now.
One critical point is that companies have to come up with a plan for dealing with best and worst case scenarios – and then communicate that plan to vital stakeholders who don’t want any more surprises. It’s a tall order, given the fact that even the experts can’t see three, four months out right now – but having a plan for all foreseeable contingencies and communicating that plan effectively are absolutely essential to restoring confidence.
With proxy season lurking on the horizon, what are the issues most likely to drive shareholder prerogatives in the coming months?
Jeffrey Sonnenfeld: I think there’s going to be continued pressure on the compensation front. Pay for performance has not really been well articulated in many companies. The increased disclosure requirements have not necessarily made actual total compensation – all the bonuses and other fringe benefits – more clear; just more complicated.
Shareholders are also going to want to know what kinds of risk control procedures are in place. What sorts of things do people review? What access to risk management expertise does the board have? We’re experiencing the effects of a corporate mindset that was intoxicated by the upsides for the last several years – and we’re going to see a rush the other way right now in terms of risk management.
What defines not just corporate leadership, but successful corporate leadership in the midst of financial crisis?
Jeffrey Sonnenfeld: Successful leadership in this era comes down to four critical points.
The first is personal accessibility. We’ve seen CEOs in times of crises try to circle the wagons and stonewall the media and other stakeholders. That’s not the way to go. It’s critical to be out there (even if you’re not directly responsible for the problem) to show that there’s accountability at the top. Right now, the hiding from accountability has become problematic as it only leads to an escalating vilification and finger-pointing. Be accessible. And talk in ways that people can understand – use language, metaphors, and images that convey what’s happening and don’t hide in hyperspace jargon – as so many corporate leaders often do.
The second trait of an effective leader in crisis is empathy. Show some compassion for those hardest hit.
A third quality has to do with authenticity and believability. You could see what I’m talking about in the Wall Streeters’ testimony on Capitol Hill last week. Nobody came close to [JP Morgan Chase’s] Jamie Dimon. Others would obfuscate and refuse to answer questions directly – they were unprepared. These are smart people. They should have done their homework and come to Washington knowing the answers to obvious questions like “What did you do with your TARP money?” Jaime Diamond had those answers. He could also vividly explain why things went wrong and where the mistakes were made.
The fourth great quality of leaders in crisis is that they don’t let the stress of the present preclude the boldness, courageousness, and thoughtful prudent risk-taking that is still vital to success. These leaders understand that we still have to get out there and be in business. We’re not running libraries and museums; we’re running dynamic enterprises that can’t be afraid to take calculated risks.
It’s really tough times that bring out the greatness in leadership. Disappointments, barriers, setbacks – they are all the punctuating moments that really define a heroic career. You don’t know how good an executive is until times are tough. As such, this is the time when corporate leaders can really distinguish themselves and really punctuate successes as outstanding leaders.
During this crisis, bloggers are focusing on topics ranging from lavish executive compensation to material information disclosure. As new poster children for reform are identified, the blogs are an indispensable source of intelligence on the issues that could put your company in the spotlight. And as Congress and the White House are watching the blogs to gauge populist sentiment, they are now required reading for any company that wants to stay off the government’s radar screen.
Here's a look at the blogs you should be reading:
New York Times' DealBook Blog
DealBook is a financial news blog that reports on mergers, acquisitions, venture capital, and hedge funds, and is produced by the New York Times. This blog is a reliable source of up-to-the minute financial news from a global financial capital.
The Wall Street Journal maintains Deal Journal as an extension of its online news service. The blog features the most recent details on high-profile deals and developments across the markets.
24/7 Wall Street
Self-described as a source for “insightful analysis and commentary for U.S. and global equity investors,” 24/7 is a must-read for anyone involved in the investment and financial industry. As the name implies, constant updates ensure readers are kept abreast of what is happening in the financial world right now.
Seeking Alpha
Seeking Alpha is an invaluable resource on the roller coasters investors ride on a daily basis. Combining up-to-the minute market news with in-depth analysis of trends, Seeking Alpha reveals how financial issues affect global markets.
Blogging Stocks
Self-described as a source for “insightful analysis and commentary for U.S. and global equity investors,” 24/7 is a must-read for anyone involved in the investment and financial industry. As the name implies, constant updates ensure readers are kept abreast of what is happening in the financial world right now.
In the last few months, Caterpillar cut 20,000 jobs, Microsoft laid off 5,000 workers, and Home Depot downsized by 7,000. Other brand names are not immune. Starbucks, for example, has just eliminated 6,700 jobs and closed 300 stores. With more layoffs and plant closings sure to come, companies must effectively communicate to the audiences hardest hit by their tough choices.
First, companies need to communicate in real time with all of their employees, especially those they are retaining. Employees need to know why the action is being taken, the chances that additional layoffs could take place in the future, and what management hopes to gain. Importantly, many employees are also shareholders so they will have a parallel concern about the impact on their holdings.
Second, companies that are closing plants or offices need to be good neighbors to their host communities. There are at least two reasons why it is vitally important to keep community leaders in the loop on everything that is happening:
- If a company maintains another office or plant nearby or keeps one open while laying off workers, its executives need to maintain a good relationship with local decision-makers who can repeal tax breaks, revisit zoning decisions and building easements, or take other punitive measures if public support for the company wanes; and
- If a company pulls out of a community entirely, stories about how it handled a plant closing in one state will have consequences years later when it tries to open a facility in a new, different state. The Internet makes this information readily available forever.
And third, companies need to be seen as being in control. When a company simply declares, “we have no choice but lay people off,” it appears helpless. By contrast, a message that conveys control could be: “We’ve explored every option and this is the most reasonable course of action under the circumstances. We’re going to provide severance. We’re going to provide training. We are going to do whatever we can to soften the landing for those who are our family.”
Carrying out layoffs or closing an office the right way will help morale, keep relations with communities and constituencies strong, and make it easier to rebound when better times return.
Michael W. Robinson assesses the impact of the public’s expectations and perceptions as demands for transparency and accountability accelerate.
Gene Grabowski looks at last month’s peanut butter recall and the challenges of ensuring the safety standards of suppliers.
Gene Grabowski discusses how Michael Phelps can bounce back from a reputation crisis that jeopardizes millions of endorsement dollars.
David Bartlett talks about the lessons communicators can learn from White House Press Secretary David Gibbs’ first week on the job.
Gene Grabowski comments on how the former Governor’s strategy could effectively turn public opinion ahead of an anticipated criminal trial.
When news cycles are measured in minutes rather than hours, rapid responses to crisis are absolutely essential to winning the communications battles.To help ensure success in the Court of Public Opinion, Levick Strategic Communications presents the Crisis Communications Desktop Reference. It is a fully searchable, downloadable desktop resource covering more than two-dozen topics of urgent concern to business. It provides, with a click of the mouse, the strategic guidance you need at the moment a crisis strikes. Download the complementary Crisis Communications Desktop Reference today.
Making Your Point
Making Your Point, a new book by Levick Senior Vice President David Bartlett, examines the fundamental strategic considerations driving effective communication. It defines that key component called “emotional intelligence.” It provides the simple powerful tools to make a point in person, prepare and deliver effective speeches and presentations, get messages across in a media interview, and communicate during crises. Making Your Point is an easy-to-use communications guide for professionals and non-professionals alike. Order your copy today.
Making Your Point, a new book by Levick Senior Vice President David Bartlett, examines the fundamental strategic considerations driving effective communication. It defines that key component called “emotional intelligence.” It provides the simple powerful tools to make a point in person, prepare and deliver effective speeches and presentations, get messages across in a media interview, and communicate during crises. Making Your Point is an easy-to-use communications guide for professionals and non-professionals alike. Order your copy today.
Stop the Presses: The Crisis and Litigation PR Desk Reference – now in its second edition – is a survival manual for corporate leaders, board members, lawyers, and communications specialists. This book provides the dos and don’ts of crisis planning and communications and articulates the essential strategic guidelines for navigating myriad bet-the-company issues. Order your copy today.Future High Stakes™ issues
Labor and Employment:
Outsourcing jobs is the latest among many recent communications challenges for management – especially if newly elected politicians pursue their agendas.
Outsourcing jobs is the latest among many recent communications challenges for management – especially if newly elected politicians pursue their agendas.
Energy:
With a newly-empowered President and Congress looking to make good on its green promises, how can energy companies position themselves at the forefront of sustainability?
With a newly-empowered President and Congress looking to make good on its green promises, how can energy companies position themselves at the forefront of sustainability?
Patent & IP Litigation:
High-profile intellectual property cases threaten to sink stock prices. How can companies protect themselves in the wake of a negative ruling?
More to come:
High-profile intellectual property cases threaten to sink stock prices. How can companies protect themselves in the wake of a negative ruling?
More to come:
- Antitrust
- Board or Board Member Liability
- Coming to America
- Diversity
- Education
- Executives Behind Bars
- Food
- Global Capital Markets
- Intellectual Property
- Internal Communications
- Internal Investigations
- Monetizing Moments
- Money Laundering/Money Transfers
- New Media/Social Networking
- Product Liability
- Professional Services Crises
- Public Equity
- Whistleblowers
- Reputation Management – Celebrity
- Reputation Management – Corruption
- Reputation Management – SEC Investigations
- Tourism
- Trade
Next month in High Stakes: BEYOND THE FCPA: ENSURING COMPLIANCE IN AN AGE OF INCREASED ENFORCEMENT