CorpComms Magazine

It may sound to many like the name of an outdated department store but the collapse of Lehman Brothers, one of Wall Street's leading investment banks, has sparked the most dramatic changes in the world's financial landscape for a generation.

From London to New York, the unthinkable has happened as governments have been forced to bail out their nation's leading commercial banks to prevent systemic collapse.

In this fast moving world what was true on Monday may no longer be so definitive by Friday making it hard for companies to communicate, while confidence is a commodity as rare as water in the Sahara.

Share prices have slumped as investors have taken fright at a round of bank nationalisations and expectations of a global background.

Many communications teams are now working in unchartered territories, with minimal experience of previous financial crises.

Anthony Cardew, chairman of financial PR agency Cardew Group, who began his PR career in 1974 in the aftermath of the oil price crisis, believes that, against this volatile background, companies should take every opportunity to update the market on their progress.

He adds: ‘If a company wins a contract or has any news at all then they should tell the market. The benefit is that they maintain a steady dialogue with financial journalists and analysts, which then feeds through to shareholders. In truth, most companies have contact with shareholders just once a year.

‘This is a lesson that has to be re-taught to every new generation of communicators. In a crisis, quoted companies should establish a dialogue outside their main trading statements.'

Nick Miles, co-founder of M: Communications, agrees. ‘If you have good news then it is worth putting this out to the marketplace as soon as possible. The reality is that you have got to be open and keep communicating. There is also no point in holding back bad news.'

This was a policy adopted by Sir Alistair Morton, the former chairman of the Channel Tunnel. He took every opportunity to inform the marketplace of the realities of a project that many did not believe would ever be completed.

Morton was quite adamant that the Channel Tunnel was not an investment for widows and orphans, and regularly declared that belief. He was also realistic about the time that it would take to pay off its debts or to make a profit. Before the first spade had even touched soil, French retail investors (including those Morton had warned off) were buying shares. ‘Investors had absolute confidence in him because he was honest and open,' recalls Cardew. ‘If he had bad news, then he didn't delay but told the marketplace.'

Advisers admit that the current market environment, despite some parallels with earlier financial crises, is unprecedented, but they argue this means it is necessary for tried and tested communications techniques.

‘You should start where you always start in these situations,' says one PR adviser. ‘And that is to not change what you have been doing. It is very easy to close up shop and say nothing in the current marketplace but that doesn't help anybody.

‘It is question of being honest about how your company has got here and how it may get out of this situation. If you are looking at job cuts or cutting back on suppliers, then be honest. Tell it like it is. Don't give specifics but point out the likelihood that job cuts will occur. You can create a ‘we're all in it together' situation with your staff and shareholders.

‘If nobody from the company talks and clarifies the situation then it allows rumours to take hold, and staff, customers and shareholders will find it hard to believe you when you finally make a statement. They will believe the rumours and speculation more than the facts.'

Be honest

Phil Hall, chairman of PHA Media, adds: ‘I think the key is consistency. But it is important to communicate both internally and externally. It is always said that the last people to hear anything are the employees. Companies should try to address that.'

Alistair Eperon, chairman of Eperon Consulting, adds: ‘The world has fundamentally changed and companies should be prepared to concede that. All their focus may have to change, which could impact on both individual and corporate reputations. It is no good pretending things are as they were. Employees, clients and suppliers need to know where they stand. Obfuscation muddles things but clarity buys loyalty.'

‘Short regular bites of information are required because if you don't provide information, then it creates a vacuum,' admits Chris Salt, founding partner at HeadLand Consultancy. ‘It creates rumours and disquiet. Companies should do two things. Firstly, they should devise a strategy within their communications teams to stabilise the situation in some shape or form. Secondly, they should consider how the company can move on and then communicate where it needs to go.'

Advisers add that it is times like these that the importance of long-standing relations with key figures within the media becomes apparent. ‘It is a bit late to be thinking about building bridges. It is completely hopeless to ring a journalist now in order to develop a relationship,' says one. ‘A crisis highlights the importance of good, long-standing relationships. Journalists cannot make a bad story good but they can possibly write the bad news in such a way that it does not create a panic among stakeholders. A long-standing relationship should give the company the right of reply or even just the appropriate time to get their message across.'

Another adds: ‘I think it is fair to say that some of the companies being attacked the most in the media did not have the best relationship with journalists.'

Hall, a former editor of News of the World, adds: ‘People always ask why they should keep up with their networking with journalists, and this sort of crisis is exactly why. The media will be far more accepting and forgiving if there is an existing relationship, and they will be more receptive to explanations.'

Think long term

M: Communications' Miles believes that it is also important to maintain cordial relations for the long-term good. ‘Rule one is to be as truthful and open as possible,' he says. ‘One day this is all going to be over, and everyone is going to have to work together again.'

Eperon has a similar view. He argues that companies should take a sanguine view of stories within the media, unless they are blatantly untrue or libellous. ‘Organisations and senior executives should be graceful and civilised. If they express any anger or resentment at the situation, it will come back to haunt them. If they behave in an elegant and civilised manner, then it will be better for them the next time their company hits the headlines.

‘But companies should also be realistic about the future. We are at the beginning of the crisis, not at the end and life has to carry on throughout. There needs to be transparency and a level of ethical behaviour.'

The current crisis has claimed several well-known scalps, but few advisers believe that the resignation of Sir Fred Goodwin, former chief executive of Royal Bank of Scotland, was handled well. As rumours emerged that the bank, once one of the world's largest financial institutions, was to be bailed out by the Bank of England, several journalists claimed that the price being exacted by the government was Sir Fred's head. The bank retorted that his position was not part of the negotiations.

‘I tend to believe that the statement was true when it was made, but became untrue later,' says one PR adviser. ‘I want to give them the benefit of the doubt.'

Another adds: ‘Whatever the reality, Royal Bank of Scotland's communications team have destroyed their credibility. Companies should not say anything until they are certain it is true. They can't just say Whoops, sorry. We didn't really know at the time. This is a fast moving marketplace and a perfectly valid response is to say We do not comment on speculation. In times like these, when shareholders are really jittery, all communications teams should say is what they know to be true without a doubt and to stand by those statements going forward.'

HeadLand's Salt adds: ‘Companies should be very careful about being definitive in a crisis situation. And the key rule is, as always, do not lie. If the company has to retain any semblance of credibility, the market has got to believe you. As soon as you lie, you're screwed. It depends on the individual situation but sometimes it may be best to be a little circumspect.'

Some advisers believe that, on occasion, it has looked as if the communications teams have not been kept up to date with information and strategy. While this is unacceptable at any time, it is deemed particularly short-sighted in a fast moving crisis situation.

‘The communications team must be allowed to sit at the top table,' adds PHA Media's Hall. ‘And where possible companies must agree a consistent strategy and spokesman. So many different people within companies appear to be briefing journalists and analysts. You need consistency. There should be one spokesman for the company and nothing should be released unless that person is involved.

‘Also, companies should try to keep it simple. Some of the bigger banks have been entering into detailed explanations about what has been happening. People start to glaze over. Keep the messages simple and straightforward. For example, say when the problems were anticipated and explain what you are going to do about them.'

Eperon concludes: ‘People get carried away and that is part of the problem. The advice I would give is not revolutionary stuff. It is just common sense. When it is possible to provide information to the market, then you should do so. Don't pretend that everything you have to say is earth shattering. Without information there can be wild speculation and that can be very damaging.'

A sense of déjà vu

While many commentators draw parallels between recent events and the Great Depression of 1929, others believe a better comparison is with the events of 1973/4.

Britain's ‘baby boomers' had come of age and were looking to buy houses. It was the first generation to have real disposable income and a willingness to indulge themselves.

But in October 1973 the Yom Kippur war prompted a stand off between the oil producing nations and the West that led to a quadrupling in the price of oil from $3 to $11.65 within six weeks. ‘The equivalent price today would be $137, which was reached in June,' says Anthony Cardew, chairman of financial PR agency Cardew Group. ‘It led to the disintegration of the FTSE 30, which lost 73 per cent of its value within a year, and the Bank of England seized Burmah Oil's 23.6 per cent holding in BP.'

Inflation soared to 27 per cent forcing the Chancellor of the Exchequer, Tony Barber, to raise interest rates to 13 per cent, killing the consumer market.

It also led to problems for Britain's secondary banks, whose activities were concentrated in the commercial property sector, where there had been a boom in office building. The Bank of England was forced to bail out about 30 of these smaller lenders, who had borrowed short term and had their assets tied up in the now collapsing property sector - which today sounds remarkably familiar

‘Companies really began to focus on how to communicate with their shareholders at that time,' says Cardew. ‘They urgently needed to do so and realised they could not just leave it until the annual general meeting.'

Until then, companies had primarily communicated their financial results and strategies through advertising in the business pages of newspapers. ‘Quoted companies found there was real pressure from shareholders to sit down and talk to them,' says Cardew. ‘The crisis led to the growth of the institutional shareholder market and also the financial press.'

Many argue that the roots of financial PR date back to the oil price crisis. ‘Companies started to communicate to shareholders through the press and the analyst community, which also grew up around this time,' says Cardew. ‘Stockbrokers would never have dreamed of talking to financial PRs before 1974.'

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