Lack of communication with stakeholders, employees
The biggest mistake companies make during a corporate or operational crisis is a lack of communication and transparency with stakeholders and employees, causing a negative impact on valuations, according to a survey released today by the Canadian Investor Relations Institute (CIRI) and Fleishman-Hillard.
While many companies are mindful of the potential damage crises can cause to their sales, reputation and share value, few have an effective crisis management plan in place to deal with negative scenarios — and if they do, it is likely out of date, found the survey of 34 financial analysts and 78 investor relations officers (IROs) in Canada and the United States.
"Given the recent widely known sector crises — the 2008 financial meltdown, health-care product recalls, extreme environmental damages, automotive sector crisis and other headline-grabbing frauds and scandals — companies need to be armed with a plan," said Tom Enright, CIRI president and CEO. "No sector or company is immune to a crisis; having a crisis communications plan in place is simply prudent risk management.
Only 29 per cent of those who have a crisis plan in place update it once a year, according to the survey.
"While it's clear IROs understand how trust, transparency and proper disclosure can impact a company's valuation during a crisis, many are still ill-prepared to demonstrate this through proper communications," said Anne Lachance, senior vice-president and global financial services co-chair at Fleishman-Hillard.
"The value of having IR as an integral part of any company's communications crisis plan can't be underestimated — having a clear, thought-out plan in place at the end of the day allows for quicker reaction and faster recovery to a potential crisis. Displaying a strong effort to communicate frequently with investors and shareholders throughout a crisis goes a long way to preserve and maintain a company's reputation and stock price."
While many analysts and IROs recognize the potential impact social media outlets — Twitter, Facebook and YouTube — can have on their companies, few have a crisis plan in place that incorporates social media protocols. More than one-half of responding analysts look to the corporate blog for information during a crisis but only 17 per cent of responding IROs said their companies use this tool as a channel for crisis communications.
As the conduit between analysts and the company, it's imperative IROs play a lead role in developing the communications plan. According to the survey:
• Eighty-five per cent of responding analysts say IROs are a main point of contact for a corporate crisis specifically.
• Fifty-five per cent of IRO respondents don't know if the crisis communications plan is updated after a crisis.
• Fifty per cent of IRO respondents don't know if their company conducts crisis simulations.
• Only 19 per cent of responding IROs contribute to the corporate blog, which was deemed as an important source of information by responding analysts.
"Given the importance of the IRO's role during a crisis, they need to play a much larger role in developing the crisis communications plan, executing crisis drills and regularly updating the document," said Enright. "Their involvement in the process should be from beginning to end."