Even simple executive hiccups and missteps need some crisis management, and getting the response right is vital
Ann Norman’s client had a problem: the firm’s CEO. He and the chief of a prominent technology firm where he had previously worked sent barbed messages to each other via the press.
‘It was almost like they were fighting brothers,’ says IR consultant Norman. During a quarterly results announcement, the CEO made fun of his former boss’ hair. ‘The next day coverage wasn’t about the results, but, Guess what he said about the other CEO?’ Norman adds.
It was only one of many problems with the company, but the CEO’s embarrassing behavior antagonized anyone who could have made a difference to the perception of investors. Gaffes like this lack the serious implications of a true disaster, yet can be like the death of a thousand cuts: each irritating alone, but deadly when combined.
Corporate embarrassments differ from traditional crises because they are largely self-inflicted, yet not a product of malfeasance or criminal behavior. Mary Feder, vice president of public relations and corporate communications at financial services company Vertical Lend, remembers a teleconferencing glitch in which a company blocked the voice of an analyst with a sell rating. ‘He thought we were blackballing him,’ she says.
The analyst was offended and could have complained to the chief of research, turning a perceived slight into a veritable firestorm. ‘The first thing we did was make sure we called him immediately,’ Feder explains. ‘We spent more time with him, making ourselves more available.’
Some embarrassing incidents affect market cap. For example, a mischievous actor from New Zealand recently requested a reexamination of Amazon’s oneclick business method patent. That probably won’t be a problem for Amazon – even if the patent was ultimately overturned after an appeals process. Others facingn challenges haven’t been so lucky, however: the day the Public Patent Foundation received a reexamination of a key patent of Forgent Networks, Forgent’s stock plummeted 40 percent.
Not financially embarrassed
Even so, embarrassment doesn’t always lead to financial loss. There was a wave of press coverage last summer when it was discovered that Whole Foods Market CEO John Mackey had anonymously promoted his company’s stock and attacked the value of a rival on internet message boards. Investors seemed reconciled to the situation, however.‘The investor reaction was somewhat neutral,’ says Anil Dilawri, director of IR consulting at Hill & Knowlton. ‘Analyst reaction was pretty neutral as well. This was an embarrassing moment for the management and the company, but from a financial perspective it was not material.’
Sometimes what some might consider an embarrassment can become a ‘feature’ with adroit IR. Dilawri points to the Research In Motion (RIM) BlackBerry network outage earlier this year. ‘RIM’s IR department did a fantastic job,’ he says. Out of 35 sell-side analysts following the company, only two issued notes, and both said the outage, while unfortunate, would not affect financial performance – and the stock went up. ‘On a day that was an embarrassing moment for the firm, the company added close to half a billion dollars to its market cap,’ notes Dilawri.
These are, however, immediate effects. Longer term, such stories can resurface, sometimes with a less desirable outcome. ‘For the US public and investors, a screw-up goes a long way,’ explains Andrew Edson, president of PR consultancy Andrew Edson & Associates. Chances are good that reporters will make reference to the event, if it seems at all relevant to future situations. ‘What we often tell clients, if the story appears and isn’t totally accurate, is that they need to correct it because if someone pulls up the story in six months and doesn’t see a correction, he or she will assume it’s true,’ Edson adds.
Sweat the small stuff
In an era of instant global communications, there is almost no such thing as off the record, and something a manager might consider to be innocent could become a problem – like politics. ‘Politics is one of those things you just don’t discuss among colleagues,’ says Robert Berick, managing director of communications firm Dix & Eaton.
If the manager decides to take a strong stand on an issue, there’s a good chance others might have a different view. ‘It is one of those wincing moments in communications, where you would prefer them to find something else to talk about,’ Berick says. ‘You don’t know whether it alienates shareholders, customers or portions of your employee base.’
An IR department can never count on its company getting a pass, so it must treat even the smallest mortifications as potentially lethal outbreaks. The first step is to do some analytical triage: consider the company’s financial performance. ‘When the financial performance isn’t meeting expectations and there are these distractions, investors are left thinking, Doesn’t the company have bigger fish to fry?’ Berick says.
In that case, tell the truth your way before anyone else does, as Norman suggests. That might mean a talk with one person, or going through the national press. If an apology is due, have the appropriate person give it, and devise a plan to keep the problem from recurring. The sooner you get the company past the faux pas, the sooner you can concentrate on something that might offer a return to the company as a whole.
