CorpComms Magazine

Just after 10 pm on Thursday, September 13, Robert Peston, business editor at the BBC, said the following words: 'Having spoken to senior officials, I can tell you that they're saying there is no reason for depositors to panic.'

Peston had just reported one of this year's biggest scoops: Northern Rock, Britain's sixth-largest high street bank, was so worried it might run out of capital that it had applied to the Bank of England for emergency funding. Now Peston was trying to explain to Ten O'Clock News presenter Huw Edwards and millions of viewers why Northern Rock's problems, while serious, were by no means fatal.

But the message simply did not get through. When Northern Rock's branches opened for business the next day, thousands of customers were already queuing outside, desperate to withdraw their life savings. Others were battling to get on to the bank's internet site to transfer their funds to a safer haven. The scenes, replayed on television broadcasts and captured on front pages, were reminiscent of a bank run in a third world dictatorship and unprecedented in modern UK banking history.

Depositors withdrew billions of pounds while shareholders saw the value of their investments slump to less than 10 percent of the year's high. Northern Rock's reputation was left in tatters and the Bank of England, the Financial Services Authority (FSA) and the Treasury were all badly bruised.

End of an era

Experts now believe Northern Rock in its present guise is finished, and today major financial investors and institutions, including Virgin Group, are looking to buy the business. But from a communications perspective, there are two key questions: could the situation have been handled any differently, and if it had been, would the outcome have been any better for Northern Rock and its stakeholders?

For most PR advisers and reputation consultants, the answer to both questions is fairly clear. The situation should have been handled differently, and the outcome could have been different if it had been. 'Having Robert Peston break the story on the Ten O'Clock News was a crazy idea,' says John Antcliffe, chief executive of Smithfield Financial, the City public relations agency.

No one knows who gave Peston the story, but allowing it to break on Thursday night meant depositors were panicking even before Northern Rock and the Tripartite Authority - which comprises the Bank of England, the FSA and the Treasury - put out their official announcements at 7 am the next day.

The bank's internet site was red-hot throughout the night, but many customers could not access it, and even those who could found no satisfactory answers to their questions - because nobody was there to give them.

Early warning systems

The morning announcements did little to quell consumer and shareholder anxiety. Northern Rock's statement spoke of 'wholesale debt', 'mortgage securitisation', ' liquid reserves' and 'repurchase facilities'. The opening sentence from the Tripartite Authority was little better: 'The Chancellor of the Exchequer has today authorised the Bank of England to provide a liquidity support facility to Northern Rock against appropriate collateral and at an interest rate premium.'

Complex, technical and barely comprehensible, these statements would have sounded like gobbledegook to the average Northern Rock customer, as well as to many of the journalists who had been put onto the story after the previous night's scoop.

One City PR man who, like so many others, is loath to be named in his criticism of the situation, believes the Bank of England should have held a press conference the moment Northern Rock applied for emergency funds. He feels specialist City reporters and personal finance journalists should have been briefed at length on the situation and what it really meant for depositors. The articles would then have been well informed and balanced, and might have prevented the ensuing bank run.

Instead, the newspaper reports were predominantly written by non-specialists who searched for - and found - the bottom line message: Northern Rock had a cash flow problem.

This is the kind of message that keeps the chief executives of banks awake at night, because banks are different from other companies. Their survival depends on customer confidence, which depends on reputation. As one senior PR puts it: 'For a bank, reputation is like virginity. You've either got it or you haven't.'

Hard times

'It seems as if Northern Rock never considered reputation risk. It moved straight from operational risk to crisis management,' says John Mahony, chief executive of London-based ReputationInc. 'If it had assessed its reputational risk properly, that would have allowed it to work out what it was responsible for and what others were responsible for.'

Another reputation expert adds: 'The entire episode is pretty much a textbook demonstration of how not to behave in a critical situation. There was no clear statement about what the issues were or what Northern Rock was going to do about them. No one really knew who the spokespeople were or what each of them was responsible for communicating, and there was a feeling that neither the bank nor the authorities were being entirely honest.'

The day after Peston's revelation, Northern Rock CEO Adam Applegarth continued to reassure customers that the situation was business as usual. His standpoint became increasingly inappropriate as the queues lengthened and the share price sank, however. It was also three further days before the Chancellor of the Exchequer, Alistair Darling, said the government would guarantee all Northern Rock deposits.

'Applegarth's cheeky chappy approach was fine when everything was going well with the bank. It was not fine when things got serious,' says Antcliffe. 'And he added insult to injury by saying no one had lost any money, which seemed to ignore the 180,000 shareholders who were also depositors and had seen their shares fall in value from over £12 each to less than £3 a share.'

When Applegarth stressed that Northern Rock still planned to pay its interim dividend, there was outrage. He was forced to revoke his position the following week. All this served to reinforce the impression that here was a man who had completely failed to understand the seriousness of his position.

How not to do it

Criticism was not confined to Northern Rock, either. Bank of England governor Mervyn King has been heavily criticised for his behaviour toward the bank and the entire industry. The FSA has been accused of failing to fulfil its obligations as bank regulator properly, and the government is accused of putting in place a flawed regulatory system. As one PR insider puts it: 'The Tripartite Authority should have been more visible.'

Most commentators agree that a catalogue of errors surrounded this particular saga. The story should not have been allowed to break when it did. There should have been a clear explanation of what had happened and what it meant on the Friday morning. Northern Rock's branches should have been stuffed with Q&A fact sheets. Its staff should have been prepared, and senior figures, not just from Northern Rock but also from all the authorities involved, should have been available.

There is surprise at Northern Rock's apparent lack of preparedness. Although the extent of its problems came as a shock, City experts had warned for several weeks in advance of Peston's scoop that Northern Rock was suffering badly because of the credit crunch. Its business model depends on regular access to money markets, which had become increasingly illiquid in the wake of the crisis in the US sub-prime market as banks became more and more unwilling to lend to one another.

'Northern Rock knew this situation was going to break at least a few days - if not a few weeks - in advance, but it seemed completely unprepared and ill-equipped to deal with it,' says a PR adviser. 'The bank did not seem to have any idea about how the public would respond.'

Quick off the mark

Crisis communication is all about being prepared, and for a bank trying to convey a complicated message, the need to be prepared is all the more acute. Experts point out that people's relationship with money, particularly their own, is highly sensitive. They have to trust the institution that is guarding their cash; if they lose that trust, they will not hesitate to act.

'The bank should have been out there quicker, communicating its message earlier,' says Allan Biggar, chief executive of specialist agency All About Brands. 'The brand is badly damaged.' Indeed, supporters of Sir Richard Branson's consortium bid for Northern Rock argue that the damage to its brand is irreversible, while Virgin is both trusted and respected by consumers.

The local sports teams supported by Newcastle-upon-Tyne-based Northern Rock were almost more effective at trying to boost its reputation than the bank's own executives and spokespeople. England and Newcastle United football player Michael Owen emerged in a sweatshirt bearing the words 'Rock Solid' before a match against West Ham, while former Newcastle United manager Sir Bobby Robson has opened an online account and pledged his support.

Durham County Cricket Club and Newcastle Falcons rugby club have each pledged support for the troubled bank, while the websites of Newcastle United and Newcastle Eagles basketball club carry links through to Northern Rock's statement, which declares: 'Your funds are safe with Northern Rock'.

For a bank that started as a regional building society and still has many customers in the region, these messages are important steps toward restoring confidence. Sadly, they are unlikely to be enough.

Of course, it is extremely unlikely that Northern Rock could have applied to the Bank of England for emergency funding and escaped with its reputation intact, but the impact on the bank could have been much less marked if the board had been better prepared and the Tripartite Authority had realised that it needed to put up effective spokespeople immediately to prevent panic. Witness recent borrowings from the European Central Bank by several UK, European and US banks, which occurred without the subsequent chaos that Northern Rock's move generated.

Northern Rock's reputation was dealt a series of hammer blows between Thursday, September 13 and Monday, September 17. Some were administered by the Tripartite Authority, some by the media, some by the City and some by the bank's customers. But some were administered by the company itself - and that apparent lack of preparedness and understanding may well prove to be an even bigger problem for the bank than its flawed business model.

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