It’s not what happens that’s important, it’s how you handle it. This old adage certainly rings true for issuer communications and investor relations in urgent and unexpected situations.
Take U.S. electronics mega retailer Best Buy. Failure to address a festering problem turned disastrous for the company. Earlier this year, Best Buy was already dealing with challenges—slow sales led to the closing of 50 stores and layoff of hundreds of employees—when a juicy scandal erupted.
Golden boy Brian Dunn, who had rocketed from sales clerk in 1985 to CEO in 2009, resigned in April amidst an investigation into his per- sonal behaviour. The 50-year-old, who is married with three sons, was reportedly involved in an inappropriate relationship with a 29-year-old female employee. Social media started buzzing about the alleged affair, and Best Buy didn’t deny the allegations. But the board’s initial statement was terse and legally framed. “Certain issues were brought to the board’s attention regarding Dunn’s personal conduct, unrelated to the company’s operation or financial controls and an audit committee investigation was initiated.”
Of course, that bizarre statement only attracted more attention, raised more questions and led to more fallout. In May, founder Richard Schulze, who had been with the company since 1966, stepped down as chairman after a third-party investigation revealed he knew about the CEO’s malfeasance and failed to alert the audit committee.
In situations like this, where most see a failure of governance and accountability, veteran communications expert John Crean also sees a failure of communications. Cryptic statements like the one from Best Buy’s board only serve to whet the public’s appetite for drama, he says. “The communication was sufficiently provocative that this became a sensational story,” says Crean, national managing partner at National Public Relations in Toronto. “That’s bad for the brand. The board is in a tricky spot, between full disclosure and the middle of the road. In the absence of full disclosure, you risk speculation,” he adds.
The fallout for Best Buy was swift: shares fell to their lowest level in three years and its reputation took a big hit. “If they had done the right thing at the right time, they could have communicated it and the board would still be intact,” says Crean.
Could something like this happen at your company? The example of Best Buy highlights a vulnerability for issuers at many levels, up to and including the board. Though most companies never have to deal with a sex scandal, there are plenty of other challenges and sudden changes that come along—CEO transitions, mergers and acquisitions, business setbacks and out-and-out disasters—that require an immediate and effective communications response, delivered in an integrated fashion to every significant stakeholder. Otherwise, fallout awaits. Or, as Crean puts it, “shit happens.”
In theory, at least, a robust advance plan that can be adapted on the fly should have companies prepared for every circumstance. But to narrow it down to a few pertinent examples, Listed surveyed issuers, their advisers and experts in strategic communications and branding. They identified four critical corporate junctures where thoughtful communications planning and skillful execution can help companies make the most of difficult situations. Here’s a brief look at each.
Shuffles at the top
It doesn’t have to be brought on by a scandal, but people are naïve if they think sudden changes of senior personnel won’t or can’t ever happen at their company. Believing otherwise is a state of mind Crean calls “whistling through the cemetery.”
In this, as in all critical situations, it’s helpful to remember that only the circumstances are extraordinary—a company’s response should remain grounded in the essentials of communications best practices.
And that always includes having both a fundamental understanding of communications and procedures, and a program in place before anything happens, so that responses are not formulated entirely on the fly.
Chaya Cooperberg, vice-president of investor relations and corporate communications at Progressive Waste Solutions in Vaughn, Ont., (TSX/NYSE:BIN) and Listed’s new investor relations columnist, writes elsewhere in this issue about her company’s experience with an investor perception study following the departure of her company’s founder and former CEO in 2011.
But that circumstance is equally instructive here. While her company had a succession plan in place and the new CEO was a well-known internal executive, when the change came it still came quickly. Cooperberg recalls the challenge of coordinating external and internal communications in the short time between her notification and a public announcement, one that her department would, of course, help prepare and deliver. But that was just the beginning. Other statements, background materials, online updates, interviews, follow-up calls and tailored messaging to the market and to staff all had to be deployed in coordinated fashion. “You don’t want investors hearing one story and employees hearing another,” says Cooperberg.
Of course, the value of advance planning is visible through the entire process. Tom Enright, president and CEO of the Canadian Investor Relations Institute in Toronto, puts it this way: “You should have an effective communications program in place before you need an effective communications program. That’s the ante, and then you build on it for a particular crisis.”
Tough times and inner turmoil
Sometimes a critical juncture can be a period of time, a tough quarter or two, or 10. So it’s been for much of Canada’s natural gas sector the past couple of years, due to a supply glut and low prices.
Companies can react in a couple of ways: releasing news and results with a minimum of fanfare and otherwise keeping a low profile; or stepping forward, being highly visible with your troubles and with the steps the company is taking to manage the situation. Naturally, we’re recommending the latter.
Compton Petroleum Corp. (TSX:CMT) is a case in point. Susan Soprovich, director of investor relations for the Calgary issuer, says the company decided it would be better to issue frequent communications as matters unfold, so that people aren’t left to speculate.
And we’re not just talking a few missed targets. For Compton, the past year included two recapitalizations, an overhaul of the entire board, and the hiring of a new CEO and CFO. Through it all, the company has kept up a steady flow of communications to employees, shareholders, customers, even at times when there was very little to say, and certainly not much good news.
“I’ve heard rumours that we are shutting down,” says Soprovich. “At that point you have to communicate more, give people comfort that stuff is being done. Tell them what the possibilities are.”
The company has even sent out what she calls a “non-release,” a news release with no news in it, designed to tell interested stakeholders that there are several options on the table and the company is exploring them. “This gives comfort to the market and employees that we are progressing. Something is better than nothing.”
These days, when companies confront an emergency or another situation that demands an urgent response—an accident or a spill, say, or when an employee goes rogue—a big part of the response has to happen in real time. And more and more, that’s code for social media and the Web.
Jane Shapiro, senior vice-president of corporate and crisis communications for Hill + Knowlton Strategies in Toronto, urges company leaders to tune in to social media, and realize its incredible power to heal and to harm. It has changed the communications landscape in three important ways for issuers, says Shapiro. “One is the speed at which things happen. What used to take days now takes minutes. Another is amplification: social media means a message can reach around the world in a couple of seconds. And the third is democratization, so any source has equal force.”
The bottom line? “It is difficult to manage a situation where the terms of engagement were established by someone else,” she says. “You want to establish the facts on the ground yourself.” What companies need now, more than ever, is preparation for a crisis. In a practical sense, this means having in place pre-approved press releases, protocols and spokespeople, so when something hits the fan, communications can be activated in a matter of moments.
“Sit down, identify all situations that could put your company at risk,” advises Shapiro. “Develop messages that allow you to get off to a quick start. Understand what your content would look like, and streamline the approval process. Lawyers parsing every word can slow you down. Prepare your messages, and get sign-off. Have an inventory of tweets designed to get you through the first day.” In the case of an accident, for instance, the company might get out front with messages that they’ve alerted first responders, that the situation is under control, and that the site has been secured.
Another example is an employee who does something so embarrassing or idiotic that it becomes a story. The company should be ready to send messages immediately, reinforcing that it’s an isolated incident, action has been taken, and the behaviour doesn’t represent the culture of the company. Shapiro recommends using the media in which the story is playing out. If it is happening on YouTube, respond on YouTube, rather than issuing a statement on the newswire.
Mergers and acquisitions
More common than out-and-out crises, yet equally challenging for critical-juncture communications, are mergers and acquisitions.
“There is a market expectation that if you undertake a deal, you have to have the resources to get it right,” says Ajay Chadha, national leader of PwC’s private equity practice in Toronto. “One element of that is a strong and clear communication strategy.”
Chadha, who counsels companies in this area, says that in today’s post-recession dealmaking environment, “management is very, very motivated to get it right. The appetite for failure is low.”
If you’re an acquirer or an equal partner in a deal, part of any communications strategy is to understand the needs of your stakeholders rather than just making announcements, he says. In an M&A context, Chadha adds, the need for a transaction indicates that some form of value was not being achieved, and the goal now is to realize it. However, if this isn’t communicated properly to each and every stakeholder, you increase the risk of an erosion of value.
There’s an acronym to describe what each stakeholder is thinking: WIIFM, or “What’s in it for me?” Employees are wondering, “Will I have a job?” Suppliers are wondering, “Will I have a customer?” Shareholders are wondering, “What will happen to the stock price?” Until you tune into that question, you can’t count on them, he says.
Chadha advises companies to choose a champion, usually the CEO or COO, engage stakeholders in dialogue, and follow the mandate right through to the end. He stresses using as many different forms of communications tools as possible. He says people are quite forgiving of the time it takes to manoeuvre through transactions, and that you can’t have all the answers. But they want meaningful communications, not platitudes.
BOARDS NEED COMMUNICATIONS PLANS, TOO
Legal obligations are one thing; protecting the company’s reputation by staying ahead and in control of a situation may be just as valuable
It is not enough, according to John Crean, national managing partner at National Public Relations in Toronto, for management alone to be prepared with a communications strategy in the event of serious, unexpected incidents and sudden, significant revelations; the board needs one too. “The board has to separately review issues that affect the reputation of the company, from a different lens. Management is working on an issue, but ultimately the solution may be the termination of the CEO.”
While boards always have legal counsel, they rarely have expertise in communications, and so when they are faced with a challenge or crisis, they default to a legal formula. Choosing silence or cryptic messaging when a problem is brewing is ill advised from a communications perspective, says Crean. “Often legal courts and courts of public opinion are different goal lines for the board. Legal advice might be to say nothing, but that will not help protect your reputation. People will ask, ‘What the hell is the board doing?’”
He advises boards to become familiar with communications best practices and possibly hire public relations counsel. “Increasingly, boards are on the bubble. They are being asked, ‘What are you doing? What is your position?’ They are no longer there just to attend quarterly meetings. They have a real role to play.” —C.M.