Opportunities. We don’t want to miss opportunities in life, much less in business. Sure! That’s what we all know during normal times. While crises are synonymous with negative and undesirable impacts, not many people know or even think opportunities may arise during crises. In their book titled Effective Crisis Communication: Moving from Crisis to Opportunity, Ulmer et al. (2015) introduce us to a new perspective of crises. By no means do we expect crises to be opportunities. The key is how to envision and unlock opportunities through inevitable crises.
In the wake of bad news, there comes a high tide of crises ranging from the recent financial crisis to United Airlines: “Not enough seating, prepare for a beating,” the Ponzi scheme and bankruptcy of Woodbridge, Google Walk-Out, Tesla CEO sued by the SEC, Facebook Cambridge Analytica and Definers crises, and most recently – Nissan CEO arrested in Japan, to name a few.
In their book titled Organizational Communication and Crisis, Seeger et al. (2003) defined “a crisis is a specific, unexpected, nonroutine event or series of events that create high levels of uncertainty and a significant or perceived threat to high-priority goals.” These scholars indicated that intentional crises include poor risk management, unethical leadership, poor employee relationships, workplace violence, terrorism, sabotage, and hostile takeovers in addition to unintentional crises such as natural disasters, economy downturn, product failure, unforeseeable technical interactions, and disease outbreaks.
As highlighted in my good news and bad news case study, “Numerous lessons in the business world prove that a misstep in handling an incident can easily cause a domino effect that can lead to severe financial losses and an imminent crisis. In many cases the problem is rooted in a lack of communications where the company avoids communicating with stakeholders about what went wrong, ensuing trust violation and sour business relationships.”
Whereas, Tesla CEO Elon Musk appears to be uncontrollably vocal causing a fine of $40 million for his “misleading tweets caused Tesla’s stock price to jump by over six percent on August 7, and led to significant market disruption,” according to the SEC’s press release dated Sept 29, 2018. On the contrary, Facebook CEO Mark Zuckerberg’s silence and evasiveness toward material non-public information led to billions of dollars of losses in stock value for investors.
From an investor relations (IR) perspective, these particular traits of CEOs are undesirable for IR professionals who work for them. In addition to the loss of investor confidence, huge financial losses are at the expense of investors and other stakeholders.
In her article titled Bridging the gap between the C-suite and investors dated Oct 15, 2018 published on IR Magazine, a global renowned publication in business and research, Deutsche Post DHL Group Vice President of Investor Relations Sarah Bowman emphasized, “[M]ost investors do not have an industry background and view companies from a financial ivory tower. It is the job of the IRO [Investor Relations Officer] to build a communications bridge across the gap between that ivory tower and the gritty reality of day-to-day business operations.” In other words, IR professionals need to view an issue from the lens of investors and ensure that investors’ concerns are addressed by senior executives through two-way communication.
In his Public Relations Review journal titled Image Repair Discourse and Crisis Communication, William Benoit (1997) indicated the two major elements to determine a crisis: (i) an entity held responsible for an action that (ii) is considered offensive to stakeholders. Therefore, one of the crucial roles of IR professionals is to identify and anticipate how an issue can impact investors from the lens of investors.
As ZRG Partners IRO & CCO Practice Group Managing Director Smooch Repovich Reynolds pointed out in the September/October 2018 Update of NIRI, the world’s most regarded association of investor relations professionals, “The single most important element is an IRO’s ‘organizational influencing’ capabilities, which is a unique combination of serving as a ‘psychological business partner’ to management and having the ability to ‘see around corners,’ also known as gravitas.”
In their book titled Public Relations Practices: Managerial Case Studies and Problems, Center et al. (2014) highlighted public relations (PR) great truth number 4 – Planning and preparation are invaluable. When disaster strikes, it’s too late to prepare a crisis plan or build a legacy of trust.
While many companies are concerned with confidential information and only public companies abide by the SEC’s Fair Disclosure regulation, J.P. Morgan IR Best Practices Guide 2017 Edition pointed out:
Interestingly, some companies elect to publicly disclose more information than required by regulators. The senior management and boards of directors of these companies typically choose to do this because they believe that incremental disclosure can improve the financial community’s understanding of their business and thus value it more accurately. In other words, they believe that increasing investors’ and analysts’ knowledge of their company will translate - over the long-term - into a market valuation that more closely reflects its growth potential and economic value. This philosophy hinges, in part, on the theory that providing more information can lower the risk premium that investors assign a company. It means that investors would be willing to pay higher multiples of earnings and cash flow when purchasing a company’s stock or depositary receipts, resulting in a higher market valuation.
Significantly, being transparent not only benefits companies in market valuation, but it also helps build strong relationships with investors and serves as goodwill when a crisis befalls. In my previously mentioned article, I emphasized whether the company lives up to its integrity and credibility by prioritizing the best interests of investors over the firm’s interest, using independent judgement and practicing fair disclosure, those codes of ethics will be exposed during crisis.
As Emily Ryan commented on my article, “Delaying is invariably seen as ‘Denying’” and that “Bad news happens every day, and with the immediacy of communication channels, no public company can afford to wait (hide). Conveying bad news up front offers transparency that not only supports the analysts who need their models to check out, but also ensures a reliable, measured leadership team who doesn't only promote their wins.”
Nonetheless, in both the Facebook Cambridge Analytica and Definers crises, the publicly traded company and the social network chose to stay silent even though the company was notified that Facebook could influence the outcome after the 2016 election. New York Times Reporters Sheera Frenkel and Katie Benner wrote in their article titled To Stir Discord in 2016, Russians Turned Most Often to Facebook published on Feb 17, 2018, “When suggestions first arose after the 2016 election that Facebook may have influenced the outcome, Mark Zuckerberg, the company’s chief executive, dismissed the concerns.” This indicates that Zuckerberg didn’t listen to warning signs that could affect investors and other stakeholders. By anticipating issues from an investor perspective, this is where the IR professional should be the “psychological business partner” to the CEO and keep him from making mistakes.
Furthermore, reporters of the New York Times wrote in their article titled Delay, Deny and Deflect: How Facebook’s Leaders Fought Through Crisis dated Nov 11, 2018 that the social media giant started to recognize the potential of Facebook spreading hate speech since Trump’s December 2015 post during his presidential campaign attacking Muslims coming to the U.S. However, “Facebook had said nothing publicly about any problems on its platform,” according to the reporters.
Based on Facebook’s reactions as described in these articles, it’s obvious that Facebook utilized the corporate image repair framework. As theorist Benoit (1997) indicated, the theory of image repair focuses on communication strategies that organizations employ for accusation against their faults, and “designed to repair the organization’s damaged image or reputation.” There are five major communication strategies, including: Denial (Simple Denial and Shift the Blame), Evasion of Responsibility (Provocation, Defeasibility, Accident and Good Intentions), Reducing Offensiveness of Event (Bolstering, Minimization, Differentiation, Transcendence, Attack Accuser and Compensation), Corrective Action, and Mortification.
As Nance Larsen, APR Fellow of PRSA and Vice President Integrated Marketing Communications of the STRIVE Group, a consulting firm based in Anchorage, Alaska pointed out:
While the relationship between Facebook and Definers began with monitoring news coverage – an acceptable and routine task – the assignment somehow turned into an orchestrated campaign to discredit Facebook competitors, opponents and even U.S. senators, with company executives claiming that they didn't know how or why. This major shift changed the nature of Definers work from appropriate to unethical when rumor, innuendo, implication and obfuscation were used to discredit rival organizations. Attempts to enhance positive perceptions of the Facebook brand at the expense of competing or opposing companies came at the cost of honesty and truth. What Definers' managing director described as standard operating procedure is absolutely not the norm for public relations professionals who daily do their work in a way that is based on ethical behavior, truth and honesty. Definers, with the approval of someone at Facebook, used opposition research not in an informational or defensive mode, but in attack mode.
Essentially, by not recognizing an imminent crisis, Zuckerberg and other Facebook executives tried to minimize communications and evaded questions to avoid legal liability and tarnishing Facebook’s reputation as advised by legal counsel. As the reporters of the New York Times wrote, “For days, Mr. Zuckerberg and Ms. Sandberg remained out of sight, mulling how to respond.” To be clear, compliance requirements and ethical requirements are not the same thing.
In their ethics journal titled PR Professionals as Organizational Conscience, Neill and Drumwright (2012) noted that one executive pointed out legal subterfuge could be a major barrier for ethical communication: “I’ve had to work in clearing news announcement or press responses and things oftentimes with in-house legal counsel. Not that they’re intentionally trying to lie or mislead, but they’re literally trying to bury some stuff so much in legal mumbo jumbo that it’s not clear or it’s not entirely honest to me.”
Significantly, Ulmer et al. introduced IR professionals to Discourse of Renewal with four objectives: “organizational learning, ethical communication, a prospective rather than retrospective vision, and sound organizational rhetoric.” It’s vital for companies to show investors and other stakeholders that they have learned from the current crisis to avoid the recurrence of a similar one in the future. Clearly, Facebook’s response to the crisis doesn’t reflect that the social media giant has learned any lesson. Instead, the company has tried to cover up the problem and shift the blame.
Ulmer et al. also asserted that ethical communication means being open and honest. Employing provisional communication rather than strategic communication will allow leaders to embrace positive values and virtues. By “provisional communication,” it means organizations should give sufficient information (including public and material non-public) for investors and other stakeholders to make significant choice, and provide self-efficacy, so that investors and other stakeholders know how to protect themselves during crisis.
Additionally, by determining primary and secondary stakeholders (including the media and employees), it’s critical for IR professionals to advise executives that they need to be visible and approachable to investors and other stakeholders during crises. While face-to-face meetings are always the most effective communication means, it’s obviously not feasible to meet with all investors given different geographic regions. A wide variety of communication channels with a consistent voice prove to be immensely effective, i.e. video/conference calls, followed by emails and letters to investors and other stakeholders, a dedicated website, hotline, and so on.
Furthermore, a prospective vision will allow companies to “focus on the future, organizational learning, optimism, their core values, and rebuilding rather than on issues of blame or fault,” as Ulmer et al. indicated.
In addition, the theorists asserted that organizations that embrace ethical values and maintain positive communication with their key stakeholders before a crisis not only recover from the crisis quicker, but also grow stronger, compared to their counterparts.
Notably, the renewal approach employs communication strategies for organizations to move forward, recover and develop after the crisis. Ulmer et al. also pointed out that organizational leaders that “effectively frame the crisis for stakeholders and persuade them to move beyond the event” reflect effective organizational rhetoric.
Certainly, these tasks can’t be done by the IR team alone. Rather, they require an integration of cross-functional departments (investment, finance, marketing, public relations, human resources, legal, IT, and so on) to form a crisis management team, designate a spokespersons team, and execute the crisis management plan that had been prepared and practiced before a crisis occurs.
Questions for discussion:
What are some of other challenges in ethical communication for IR professionals?
To what extent could IR professionals be honest when communicating with investors and other stakeholders?
What do you think about the term “being honest but not brutally honest”?