For publicly traded companies, share price can act as a barometer for corporate reputation. How a company communicates during a crisis can affect corporate reputation and stakeholders’ perception of management’s integrity and credibility, and ultimately, valuation.
You’ve heard it before: the companies best equipped to handle crises are those that invest the time and money into creating crisis plans. It’s not just about preparing external communications for a specific crisis, but preparing your organization internally for even the most unlikely situations.
A crisis is not just a communications challenge, as there are myriad examples that demonstrate how good, and bad, crisis communications affect valuation. With the right preparation, your stakeholders know that they’re behind the right company. Without it, your company is in the public eye for all the wrong reasons.
While there are many horror stories of ill-equipped communication strategies, British Petroleum (BP)’s public relations and communications work during the 2010 Deepwater Horizon disaster tops the list – and there’s good reason why professional communicators can’t stop talking about it.
Without rehashing the “sound bite from hell” (as labeled by the *New York Times*) by then CEO Tony Hayward, it became the benchmark for what not to do. Within roughly two and a half months of the disaster, BP’s share price decreased by 55% ― from $59.48 per share to $27 per share. BP has yet to fully recover.
Another bad example is Lululemon’s handling of the Luon “sheer pants” recall in 2013. Amidst other quality control issues, the company seemingly refused to acknowledge the problem, going so far as to suggest that some women’s bodies were to blame for the problem with the pants. The debacle resulted in analysts dramatically cutting price targets on the back of reduced earnings expectations, along with a hefty pullback in share price.
In both cases, the companies were already facing reputational challenges going into their respective crises. At BP, the organization was known as having one of the worst safety records of any major oil company. At Lululemon, amongst its Zen-like persona lingered a reputation for exclusion and elitism, the antithesis of the savasana spirit.
Post-crises, the reputations of both BP and Lululemon collapsed and both still suffer from a public relations and valuation hangover. But it’s not all bad news in the world of crisis communications.
In 2009, a YouTube video surfaced showing two Domino’s Pizza employees contaminating food (through a variety of bodily functions). Domino’s responded immediately with an apology from the CEO, a new Twitter account set up for customer inquiries, and an extensive rebranding and advertising campaign.
Longer term, the company developed an entirely new business model including a new recipe for its pizza, active social media campaigns, and a heightened sense of transparency. When the crisis first hit, Domino’s stock price was just a little over $7 and held its value in the days that followed. Today, Domino’s shares are trading in excess of $100 per share. A great example of crisis communications done well.
The most important thing to remember about crises is that they are never the same. As consultants, we’re constantly thinking about how to incorporate tried-and-true best practices to suit the unique needs of our clients. If you’re curious about how you can prepare for crisis, get in touch with our [investor relations team](/en/expertise/practices/detail/financial-communications-and-investor-relations/) at NATIONAL. For now, I will leave you the top five tips and practices we live by when communicating in a crisis.
The best offense is a good defense
More often than not, companies are given the benefit of the doubt during times of crisis or controversy if they have built a good reputation. Set yourself up for success by building a solid corporate reputation and bank of goodwill to draw from during times of crisis.
Communicate, communicate, communicate
In the absence of communications, investors and other stakeholders get the impression that there is something to hide. Along with solving the crisis, management must also talk about it, be available to answer questions and commit to regular updates.
Plan for the worst, hope for the best
It’s hard to imagine what a worst-case scenario looks like. But by preparing for the absolute worst, every other outcome is just a little bit easier to manage – and easier to explain to your stakeholders, including the investment community.
… which is not to say, take the blame. Something has gone wrong and you are in some way responsible for it. Take ownership of that and apologize. There’s nothing to be gained by denying your involvement.
Think before you speak
Develop your messages and know what you want to communicate. You’ll most likely never have all the facts by the time you need to respond, and if you do wait until you have all the answers, it’s probably too late. But never say more than you know for sure ― credibility isn’t lost by saying “we don’t know yet but we will find out.”